FIRST HORIZON ASSET SECURITIES INC.

                                    Depositor

                       FIRST HORIZON HOME LOAN CORPORATION

                                 Master Servicer

                                       and

                              THE BANK OF NEW YORK,

                                     Trustee

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

                         POOLING AND SERVICING AGREEMENT

                           Dated as of January 1, 2005

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

          FIRST HORIZON ALTERNATIVE MORTGAGE SECURITIES TRUST 2005-AA1

               MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2005-AA1


<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                             <C>
ARTICLE I DEFINITIONS.............................................................................................5

ARTICLE II CONVEYANCE OF MORTGAGE LOANS;  REPRESENTATIONS AND WARRANTIES.........................................34
   SECTION 2.1 Conveyance of Mortgage Loans......................................................................34
   SECTION 2.2 Acceptance by Trustee of the Mortgage Loans.......................................................38
   SECTION 2.3 Representations and Warranties of the Master Servicer;  Covenants of the Seller...................40
   SECTION 2.4 Representations and Warranties of the Depositor as to the Mortgage Loans..........................42
   SECTION 2.5 Delivery of Opinion of Counsel in Connection with Substitutions...................................42
   SECTION 2.6 Execution and Delivery of Certificates............................................................43
   SECTION 2.7 REMIC Matters.....................................................................................43
   SECTION 2.8 Covenants of the Master Servicer..................................................................47

ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS.......................................................47
   SECTION 3.1 Master Servicer to Service Mortgage Loans.........................................................47
   SECTION 3.2 Subservicing; Enforcement of the Obligations of Servicers.........................................49
   SECTION 3.3 Rights of the Depositor and the Trustee in Respect of the Master Servicer.........................49
   SECTION 3.4 Trustee to Act as Master Servicer.................................................................50
   SECTION 3.5 Collection of Mortgage Loan Payments; Certificate Account; Distribution Account...................50
   SECTION 3.6 Collection of Taxes, Assessments and Similar Items; Escrow Accounts...............................53
   SECTION 3.7 Access to Certain Documentation and Information Regarding the Mortgage Loans......................54
   SECTION 3.8 Permitted Withdrawals from the Certificate Account and Distribution
         Account.................................................................................................54
   SECTION 3.9 Maintenance of Hazard Insurance; Maintenance of Primary Insurance
         Policies................................................................................................56
   SECTION 3.10 Enforcement of Due-on-Sale Clauses; Assumption Agreements........................................58
   SECTION 3.11 Realization Upon Defaulted Mortgage Loans; Repurchase of Certain Mortgage Loans..................59
   SECTION 3.12 Trustee to Cooperate; Release of Mortgage Files..................................................62
   SECTION 3.13 Documents Records and Funds in Possession of Master Servicer to be Held for the Trustee..........63
   SECTION 3.14 Master Servicing Compensation....................................................................63
   SECTION 3.15 Access to Certain Documentation..................................................................64
   SECTION 3.16 Annual Statement as to Compliance................................................................64
   SECTION 3.17 Annual Independent Public Accountants' Servicing Statement; Financial Statements.................64
   SECTION 3.18 Errors and Omissions Insurance; Fidelity Bonds...................................................65
   SECTION 3.19 Notification of Adjustments......................................................................65

ARTICLE IV DISTRIBUTIONS AND ADVANCES BY THE MASTER SERVICER.....................................................65
   SECTION 4.1 Advances..........................................................................................65
   SECTION 4.2 Priorities of Distribution........................................................................66
   SECTION 4.3 Method of Distribution............................................................................70
   SECTION 4.4 Allocation of Losses..............................................................................71
   SECTION 4.5 [RESERVED]........................................................................................72
   SECTION 4.6 Monthly Statements to Certificateholders..........................................................72
</TABLE>


                                       i
<PAGE>

<TABLE>
<S>                                                                                                             <C>
ARTICLE V THE CERTIFICATES.......................................................................................74
   SECTION 5.1 The Certificates..................................................................................74
   SECTION 5.2 Certificate Register; Registration of Transfer and Exchange of Certificates.......................75
   SECTION 5.3 Mutilated, Destroyed, Lost or Stolen Certificates.................................................80
   SECTION 5.4 Persons Deemed Owners.............................................................................80
   SECTION 5.5 Access to List of Certificateholders' Names and Addresses.........................................81
   SECTION 5.6 Maintenance of Office or Agency...................................................................81

ARTICLE VI THE DEPOSITOR AND THE MASTER SERVICER.................................................................81
   SECTION 6.1 Respective Liabilities of the Depositor and the Master Servicer...................................81
   SECTION 6.2 Merger or Consolidation of the Depositor or the Master Servicer...................................81
   SECTION 6.3 Limitation on Liability of the Depositor, the Master Servicer and Others..........................82
   SECTION 6.4 Limitation on Resignation of Master Servicer......................................................82

ARTICLE VII DEFAULT..............................................................................................83
   SECTION 7.1 Events of Default.................................................................................83
   SECTION 7.2 Trustee to Act; Appointment of Successor..........................................................85
   SECTION 7.3 Notification to Certificateholders................................................................86

ARTICLE VIII CONCERNING THE TRUSTEE..............................................................................86
   SECTION 8.1 Duties of Trustee.................................................................................86
   SECTION 8.2 Certain Matters Affecting the Trustee.............................................................88
   SECTION 8.3 Trustee Not Liable for Certificates or Mortgage Loans.............................................90
   SECTION 8.4 Trustee May Own Certificates......................................................................90
   SECTION 8.5 Trustee's Fees and Expenses.......................................................................90
   SECTION 8.6 Eligibility Requirements for Trustee..............................................................91
   SECTION 8.7 Resignation and Removal of Trustee................................................................91
   SECTION 8.8 Successor Trustee.................................................................................92
   SECTION 8.9 Merger or Consolidation of Trustee................................................................92
   SECTION 8.10 Appointment of Co-Trustee or Separate Trustee....................................................92
   SECTION 8.11 Tax Matters......................................................................................94
   SECTION 8.12 Periodic Filings.................................................................................96

ARTICLE IX TERMINATION...........................................................................................96
   SECTION 9.1 Termination upon Liquidation or Purchase of all Mortgage Loans....................................96
   SECTION 9.2 Final Distribution on the Certificates............................................................97
   SECTION 9.3 Additional Termination Requirements...............................................................98

ARTICLE X [RESERVED].............................................................................................99

ARTICLE XI MISCELLANEOUS PROVISIONS..............................................................................99
   SECTION 11.1 Amendment........................................................................................99
   SECTION 11.2 Recordation of Agreement; Counterparts..........................................................100
   SECTION 11.3 Governing Law...................................................................................100
   SECTION 11.4 Intention of Parties............................................................................101
   SECTION 11.5 Notices.........................................................................................101
   SECTION 11.6 Severability of Provisions......................................................................102
   SECTION 11.7 Assignment......................................................................................102
   SECTION 11.8 Limitation on Rights of Certificateholders......................................................103
   SECTION 11.9 Inspection and Audit Rights.....................................................................103
   SECTION 11.10 Certificates Nonassessable and Fully Paid......................................................104
   SECTION 11.11 Limitations on Actions; No Proceedings.........................................................104
   SECTION 11.12 Acknowledgment of Seller.......................................................................104
</TABLE>

                                       ii
<PAGE>

                                                     SCHEDULES

<TABLE>
<S>                   <C>                                                                                  <C>
Schedule I:           Mortgage Loan Schedule                                                                 S-I-1
Schedule II:          Representations and Warranties of the Master Servicer                                 S-II-1
Schedule III:         Form of Monthly Master Servicer Report                                               S-III-1
</TABLE>

                                                     EXHIBITS

<TABLE>
<S>                   <C>                                                                                       <C>
Exhibit A:            Form of Senior Certificate                                                                A-1
Exhibit B:            Form of Subordinated Certificate                                                          B-1
Exhibit C:            Form of Residual Certificate                                                              C-1
Exhibit D:            Form of Reverse of Certificates                                                           D-1
Exhibit E:            Form of Initial Certification                                                             E-1
Exhibit F:            Form of Delay Delivery Certification                                                      F-1
Exhibit G:            Form of Final Certification of Custodian                                                  G-1
Exhibit H:            Transfer Affidavit                                                                        H-1
Exhibit I:            Form of Transferor Certificate                                                            I-1
Exhibit J:            Form of Investment Letter [Non-Rule 144A]                                                 J-1
Exhibit K:            Form of Rule 144A Letter                                                                  K-1
Exhibit L:            Request for Release (for Trustee)                                                         L-1
Exhibit M:            Request for Release (Mortgage Loan)                                                       M-1
</TABLE>


                                      iii
<PAGE>

      THIS POOLING AND SERVICING  AGREEMENT,  dated as of January 1, 2005, among
FIRST HORIZON ASSET SECURITIES INC., a Delaware  corporation,  as depositor (the
"Depositor"),  FIRST HORIZON HOME LOAN  CORPORATION,  a Kansas  corporation,  as
master  servicer  (the "Master  Servicer"),  and THE BANK OF NEW YORK, a banking
corporation  organized  under the laws of the State of New York, as trustee (the
"Trustee").

                                 WITNESSETH THAT

      In consideration of the mutual agreements  herein  contained,  the parties
hereto agree as follows:

                              PRELIMINARY STATEMENT

      The  Depositor  is the owner of the Trust Fund that is hereby  conveyed to
the Trustee in return for the  Certificates.  The Trust Fund for federal  income
tax purposes  will  consist of three  separate  REMICs.  The  Certificates  will
represent  the entire  beneficial  ownership  interest  in the Trust  Fund.  The
Regular  Certificates will represent "regular interests" in the Upper REMIC. The
Class II-A-R  Certificates  will  represent the residual  interests in the Lower
REMIC,  Middle REMIC and Upper  REMIC,  as described in Section 2.7. The "latest
possible  maturity  date" for federal  income tax purposes of all REMIC  regular
interests created hereby will be the Latest Possible Maturity Date.

      The  following  table  sets  forth  characteristics  of the  Certificates,
together with the minimum denominations and integral multiples in excess thereof
in which such Classes  shall be issuable  (except that one  Certificate  of each
Class of Certificates may be issued in a different amount and, in addition,  one
Residual  Certificate  representing  the Tax Matters Person  Certificate  may be
issued in a different amount):

                  [Remainder of Page Intentionally Left Blank]


                                       1
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                              Initial Class             Initial                                 Integral Multiples
   Class Designation       Certificate Balance     Pass Through Rate    Minimum Denomination    in Excess Minimum
--------------------------------------------------------------------------------------------------------------------
<S>                       <C>                          <C>              <C>                    <C>
Class I-A-1               $     93,729,000.00          4.550% (1)       $          25,000      $           1,000
--------------------------------------------------------------------------------------------------------------------
Class I-A-IO              $                  (2)       0.519% (3)       $         500,000      $           1,000
--------------------------------------------------------------------------------------------------------------------
Class II-A-1              $    188,799,000.00          4.810% (4)       $          25,000      $           1,000
--------------------------------------------------------------------------------------------------------------------
Class II-A-2              $     12,687,000.00          4.810% (4)       $          25,000      $           1,000
--------------------------------------------------------------------------------------------------------------------
Class II-A-IO             $                  (5)       0.548% (6)       $         500,000      $           1,000
--------------------------------------------------------------------------------------------------------------------
Class II-A-R              $            100.00          5.358%(7)        $             100              N/A
--------------------------------------------------------------------------------------------------------------------
Class B-1                 $      9,767,000.00          5.266% (8)       $         100,000      $           1,000
--------------------------------------------------------------------------------------------------------------------
Class B-2                 $      3,466,000.00          5.266% (8)       $         100,000      $           1,000
--------------------------------------------------------------------------------------------------------------------
Class B-3                 $      2,205,000.00          5.266% (8)       $         100,000      $           1,000
--------------------------------------------------------------------------------------------------------------------
Class B-4                 $      1,891,000.00          5.266% (8)       $         100,000      $           1,000
--------------------------------------------------------------------------------------------------------------------
Class B-5                 $      1,418,000.00          5.266% (8)       $         100,000      $           1,000
--------------------------------------------------------------------------------------------------------------------
Class B-6                 $      1,102,818.46          5.266% (8)       $         100,000      $           1,000
--------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) On or prior to the Distribution  Date in January 2008, the Pass-Through Rate
for the Class I-A-1  Certificates will equal the excess, if any, of the Weighted
Average  Adjusted Net Mortgage Rate for Pool I over 0.519% per annum.  After the
Distribution  Date in January 2008,  the  Pass-Through  Rate for the Class I-A-1
Certificates will equal the Weighted Average Adjusted Net Mortgage Rate for Pool
I.

(2) The  Notional  Amount of the Class I-A-IO  Certificates  with respect to any
Distribution  Date will equal the Class  Certificate  Balance of the Class I-A-1
Certificates for such Distribution Date.

(3) On or prior to the Distribution  Date in January 2008, the Pass-Through Rate
for the Class  I-A-IO  Certificates  will  equal  0.519%  per  annum.  After the
Distribution  Date in January 2008, the  Pass-Through  Rate for the Class I-A-IO
Certificates will be zero.

(4) On or prior to the Distribution  Date in January 2010, the Pass-Through Rate
for the Class II-A-1 and Class  II-A-2  Certificates  will equal the excess,  if
any, of the Weighted  Average Adjusted Net Mortgage Rate for Pool II over 0.548%
per annum.  After the Distribution  Date in January 2010, the Pass-Through  Rate
for the Class  II-A-1 and Class  II-A-2  Certificates  will  equal the  Weighted
Average Adjusted Net Mortgage Rate for Pool II.

(5) The Notional  Amount of the Class II-A-IO  Certificates  with respect to any
Distribution  Date will equal the sum of the Class  Certificate  Balances of the
Class II-A-1 and Class II-A-2 Certificates for such Distribution Date.

(6) On or prior to the Distribution  Date in January 2010, the Pass-Through Rate
for the Class  II-A-IO  Certificates  will equal  0.548%  per  annum.  After the
Distribution  Date in January 2010, the Pass-Through  Rate for the Class II-A-IO
Certificates will be zero.

(7) The  Pass-Through  Rate for the Class  II-A-R  Certificates  will  equal the
Weighted Average Adjusted Net Mortgage Rate for Pool II.

(8) The Pass-Through Rates for the Subordinated Certificates for each subsequent
Distribution  Date will  equal the  weighted  average  of the  Weighted  Average
Adjusted Net Mortgage Rates for each Mortgage Pool, weighted on the basis of the
Group  Subordinate  Amount for each  Mortgage  Pool,  as of the first day of the
month  immediately  prior to the month in which the relevant  Distribution  Date
occurs,  after taking into account scheduled  payments of principal on that date
and any Principal  Prepayments received on or after such date and distributed to
Certificateholders on the prior Distribution Date.


                                       2
<PAGE>

Accretion Directed Certificates.......     None.
Accrual Certificates..................     None.
Accrual Components....................     None.
Book-Entry Certificates...............     All  Classes of  Certificates  other
                                           than the Physical Certificates.
Certificate Group.....................     With  respect to Pool I, the Group I
                                           Senior   Certificates,    and   with
                                           respect  to Pool  II,  the  Group II
                                           Senior       Certificates.       The
                                           Subordinated Certificates correspond
                                           to all the Mortgage Pools.
COFI Certificates.....................     None.
Component Certificates................     None.
Components............................     None.
Delay Certificates....................     All   interest-bearing   Classes  of
                                           Certificates    other    than    the
                                           Non-Delay Certificates, if any.
ERISA-Restricted Certificates.........     The Residual  Certificates,  Private
                                           Certificates and Certificates of any
                                           Class  that no  longer  satisfy  the
                                           applicable rating requirement of the
                                           Underwriters' Exemption.
Floating Rate Certificates............     None.
Group I Senior Certificates...........     The Class  I-A-1  and  Class  I-A-IO
                                           Certificates.
Group II Senior Certificates..........     The  Class  II-A-1,   Class  II-A-2,
                                           Class   II-A-IO  and  Class   II-A-R
                                           Certificates.
Insured Retail Certificates...........     None.
Inverse Floating Rate Certificates....
                                           None.
LIBOR Certificates....................     None.
Non-Delay Certificates................     None.
Notional Amount Components............     None.
Notional Certificates.................     The Class  I-A-IO and Class  II-A-IO
                                           Certificates.
Offered Certificates..................     All  Classes  of  the   Certificates
                                           other than the Private Certificates.
Physical Certificates.................     The  Private  Certificates  and  the
                                           Residual Certificates.
Planned Principal Classes.............     None.
Principal Only Certificates...........     None.
Private Certificates..................     The Class  B-4,  Class B-5 and Class
                                           B-6 Certificates.
Rating Agencies.......................     S&P and Moody's;  except  that,  for
                                           the purposes of the Class B-1, Class
                                           B-2,  Class B-3, Class B-4 and Class
                                           B-5  Certificates,  S&P shall be the
                                           sole Rating Agency.
Regular Certificates..................     All Classes of  Certificates,  other
                                           than the Residual Certificates.
Residual Certificates.................     The Class II-A-R Certificates.


                                       3
<PAGE>

Scheduled Principal Classes...........     None.
Senior Certificates...................     The Group I Senior  Certificates and
                                           the  Group II  Senior  Certificates,
                                           collectively.
Senior Support Certificates...........     None
Subordinated Certificates.............     The Class B-1, Class B-2, Class B-3,
                                           Class  B-4,  Class B-5 and Class B-6
                                           Certificates.
Super Senior Certificates.............     The Class II-A-1 Certificates.
Super Senior Support Certificates.....     The Class II-A-2 Certificates.
Support Classes.......................     None.
Targeted Principal Classes............     None.
Underwriters..........................     Bear,  Stearns  & Co.  Inc.  and FTN
                                           Financial    Capital   Markets,    a
                                           division  of  First  Tennessee  Bank
                                           National Association

      With  respect  to  any of  the  foregoing  designations  as to  which  the
corresponding  reference  is "None," all  defined  terms and  provisions  herein
relating  solely to such  designations  shall be of no force or effect,  and any
calculations  herein  incorporating  references  to such  designations  shall be
interpreted  without reference to such  designations and amounts.  Defined terms
and provisions  herein  relating to statistical  rating  agencies not designated
above as Rating Agencies shall be of no force or effect.


                                       4
<PAGE>

                                   ARTICLE I
                                   DEFINITIONS

      Whenever used in this Agreement,  the following words and phrases,  unless
the context otherwise requires, shall have the following meanings:

      Accrued  Certificate  Interest:  For any  Class  of  Certificates  for any
Distribution  Date,  the interest  accrued during the related  Interest  Accrual
Period at the applicable  Pass-Through Rate on the Class Certificate  Balance of
such Class of  Certificates  (or  Notional  Amount,  in the case of the Notional
Certificates)  immediately  prior to such  Distribution  Date,  less such Class'
share of any Net Interest Shortfall,  allocable among the outstanding Classes of
Senior  Certificates  of the  related  Certificate  Group  based on the  Accrued
Certificate  Interest  otherwise  distributable  thereto,  and  allocable to the
Subordinated Certificates based on interest accrued on their related Apportioned
Principal Balances.

      Adjusted Mortgage Rate: As to each Mortgage Loan, and at any time, the per
annum rate equal to the Mortgage Rate less the Master Servicing Fee Rate.

      Adjusted Net Mortgage Rate: As to each Mortgage Loan, and at any time, the
per annum rate equal to the Mortgage Rate less the related Expense Fee Rate.

      Adjustment Date: A date specified in each Mortgage Note as a date on which
the Mortgage Rate on the related Mortgage Loan will be adjusted.

      Advance:  The  payment  required  to be made by the Master  Servicer  with
respect to any Distribution Date pursuant to Section 4.1, the amount of any such
payment  being equal to the aggregate of payments of principal and interest (net
of the  Master  Servicing  Fee and net of any net  income in the case of any REO
Property)  on the  Mortgage  Loans that were due on the related Due Date and not
received as of the close of business on the related Determination Date, less the
aggregate  amount of any such  delinquent  payments that the Master Servicer has
determined would constitute a Nonrecoverable Advance if advanced.

      Agreement:  This Pooling and  Servicing  Agreement  and all  amendments or
supplements hereto.

      Allocable Share: With respect to any Class of Subordinated Certificates on
any  Distribution  Date,  such  Class'  pro  rata  share  (based  on  the  Class
Certificate Balance of each Class entitled thereto) of each of the components of
the  Subordinated  Optimal  Principal  Amount for each Mortgage Pool;  provided,
that, except as provided in this Agreement, no Subordinated  Certificates (other
than the  Class  of  Subordinated  Certificates  with the  highest  priority  of
distribution)   shall  be   entitled  on  any   Distribution   Date  to  receive
distributions  pursuant  to  clauses  (2),  (3)  and  (5) of the  definition  of
Subordinated  Optimal Principal Amount unless the Class Prepayment  Distribution
Trigger for such Class is satisfied for such Distribution Date.

      Amount Held for Future  Distribution:  As to any  Distribution  Date,  the
aggregate amount held in the applicable subaccount of the Certificate Account at
the close of  business  on the  related  Determination  Date on  account  of (i)
Principal  Prepayments  on the related  Mortgage Pool received after the related
Prepayment Period and Liquidation Proceeds in the related Mortgage Pool received
in the month of such  Distribution  Date and (ii) all Scheduled  Payments in the
related Mortgage Pool due after the related Due Date.


                                       5
<PAGE>

      Apportioned Principal Balance: For any Class of Subordinated  Certificates
and any Distribution  Date, an amount equal to the Class Certificate  Balance of
such Class immediately prior to that Distribution Date multiplied by a fraction,
the  numerator  of which is the  applicable  Group  Subordinate  Amount for such
Distribution  Date  and  the  denominator  of  which  is the  sum  of the  Group
Subordinate Amounts for such Distribution Date.

      Appraised Value: With respect to any Mortgage Loan, the Appraised Value of
the related  Mortgaged  Property  shall be: (i) with respect to a Mortgage  Loan
other  than a  Refinancing  Mortgage  Loan,  the  lesser of (a) the value of the
Mortgaged  Property based upon the appraisal made at the time of the origination
of such Mortgage  Loan and (b) the sales price of the Mortgaged  Property at the
time  of  the  origination  of  such  Mortgage  Loan;  (ii)  with  respect  to a
Refinancing Mortgage Loan other than a Streamlined  Documentation Mortgage Loan,
the value of the Mortgaged Property based upon the appraisal made at the time of
the origination of such  Refinancing  Mortgage Loan; and (iii) with respect to a
Streamlined  Documentation  Mortgage Loan, (a) if the  loan-to-value  ratio with
respect to the Original Mortgage Loan at the time of the origination thereof was
90% or less,  the value of the Mortgaged  Property based upon the appraisal made
at the time of the  origination  of the  Original  Mortgage  Loan and (b) if the
loan-to-value  ratio with respect to the Original  Mortgage  Loan at the time of
the  origination  thereof  was  greater  than 90%,  the  value of the  Mortgaged
Property based upon the appraisal  (which may be a drive-by  appraisal)  made at
the time of the origination of such Streamlined Documentation Mortgage Loan.

      Available  Funds: For each Mortgage Pool, with respect to any Distribution
Date, an amount equal to the sum of:

      (a)   all scheduled  installments of interest, net of the Master Servicing
            Fee and the Trustee Fee, and all scheduled installments of principal
            due in respect of the Mortgage  Loans in such  Mortgage  Pool on the
            Due Date in the  month in which the  Distribution  Date  occurs  and
            received before the related  Determination  Date,  together with any
            Advances in respect thereof;

      (b)   all  Insurance  Proceeds and all  Liquidation  Proceeds  received in
            respect  of the  Mortgage  Loans in such  Mortgage  Pool  during the
            calendar month before the  Distribution  Date, which in each case is
            net  of  unreimbursed   expenses   incurred  in  connection  with  a
            liquidation or foreclosure and unreimbursed Advances, if any;

      (c)   all Principal  Prepayments received in respect of the Mortgage Loans
            in such Mortgage  Pool during the related  Prepayment  Period,  plus
            interest received thereon, net of any Prepayment Interest Excess;

      (d)   any  Compensating  Interest in respect of Principal  Prepayments  in
            Full received in respect of the Mortgage Loans in such Mortgage Pool
            during the related  Prepayment  Period (or, in the case of the first
            Distribution Date, from the Cut-off Date); and


                                       6
<PAGE>

      (e)   any  Substitution  Adjustment  Amount or the Purchase  Price for any
            Deleted  Mortgage  Loan in the related  Mortgage  Pool or a Mortgage
            Loan in the related  Mortgage Pool  repurchased by the Seller or the
            Master Servicer as of such Distribution  Date, reduced by amounts in
            reimbursement  for Advances  previously  made and other amounts that
            the Master  Servicer  is entitled  to be  reimbursed  for out of the
            Certificate Account pursuant to this Agreement.

      Bankruptcy  Code:  The United  States  Bankruptcy  Reform Act of 1978,  as
amended.

      Bankruptcy  Coverage  Termination  Date:  The date on which the Bankruptcy
Loss Coverage Amount is reduced to zero.

      Bankruptcy Loss: With respect to any Mortgage Loan, a Deficient  Valuation
or Debt Service Reduction;  provided,  however, that a Bankruptcy Loss shall not
be  deemed a  Bankruptcy  Loss  hereunder  so long as the  Master  Servicer  has
notified the Trustee in writing that the Master Servicer is diligently  pursuing
any remedies  that may exist in  connection  with the related  Mortgage Loan and
either (A) the related  Mortgage  Loan is not in default with regard to payments
due  thereunder or (B)  delinquent  payments of principal and interest under the
related  Mortgage  Loan and any  related  escrow  payments  in  respect  of such
Mortgage Loan are being advanced on a current basis by the Master  Servicer,  in
either case without  giving  effect to any Debt  Service  Reduction or Deficient
Valuation.

      Bankruptcy  Loss  Coverage  Amount:  As of  any  Determination  Date,  the
Bankruptcy Loss Coverage Amount shall equal the Initial Bankruptcy Loss Coverage
Amount as reduced by (i) the aggregate amount of Bankruptcy  Losses allocated to
the Certificates  since the Cut-off Date and (ii) any permissible  reductions in
the  Bankruptcy  Loss  Coverage  Amount as  evidenced by a letter of each Rating
Agency to the Trustee to the effect that any such reduction will not result in a
downgrading of the then current ratings  assigned to the Classes of Certificates
rated by it. As of any  Distribution  Date on or after the Cross-over  Date, the
Bankruptcy Loss Coverage Amount will be zero.

      Blanket  Mortgage:  The mortgage or mortgages  encumbering the Cooperative
Property.

      Book-Entry Certificates: As specified in the Preliminary Statement.

      Business Day: Any day other than (i) a Saturday or a Sunday, or (ii) a day
on which banking  institutions  in the City of Dallas,  or the State of Texas or
the city in which the  Corporate  Trust  Office of the  Trustee is  located  are
authorized or obligated by law or executive order to be closed.

      Certificate:  Any  one of the  Certificates  executed  by the  Trustee  in
substantially the forms attached hereto as exhibits.

      Certificate Account: The separate Eligible Account or Accounts created and
maintained  by the Master  Servicer  pursuant to Section  3.5 with a  depository
institution in the name of the Master Servicer for the benefit of the Trustee on
behalf of Certificateholders and designated "First Horizon Home Loan Corporation
in trust for the  registered  holders of First  Horizon  Asset  Securities  Inc.
Mortgage Pass-Through Certificates, Series 2005-AA1."


                                       7
<PAGE>

      Certificate Group: As specified in the Preliminary Statement.

      Certificate  Owner: With respect to a Book-Entry  Certificate,  the Person
who is the beneficial owner of such Book-Entry Certificate.

      Certificate Principal Balance: With respect to any Certificate (other than
the Notional  Certificates)  and as of any  Distribution  Date, the  Certificate
Principal  Balance on the date of the initial issuance of such  Certificate,  as
reduced by:

      (a)   all  amounts  distributed  on  previous  Distribution  Dates on such
            Certificate on account of principal,

      (b)   the principal portion of all Realized Losses previously allocated to
            such Certificate, and

      (c)   in the case of a Subordinated  Certificate,  such  Certificate's pro
            rata share, if any, of the Subordinated Certificate Writedown Amount
            for previous Distribution Dates.

      Certificate  Register:  The  register  maintained  pursuant to Section 5.2
hereof.

      Certificateholder  or Holder:  The person in whose name a  Certificate  is
registered in the Certificate  Register,  except that, solely for the purpose of
giving any consent pursuant to this Agreement, any Certificate registered in the
name of the  Depositor or the Seller or any  affiliate or agent of the Depositor
or the Seller shall be deemed not to be Outstanding and the Percentage  Interest
evidenced  thereby  shall not be taken into account in  determining  whether the
requisite  amount of Percentage  Interests  necessary to effect such consent has
been  obtained;  provided,  however,  that if any  such  Person  (including  the
Depositor)  owns  100% of the  Percentage  Interests  evidenced  by a  Class  of
Certificates,  such Certificates  shall be deemed to be Outstanding for purposes
of any provision hereof that requires the consent of the Holders of Certificates
of a particular Class as a condition to the taking of any action hereunder.  The
Trustee is entitled to rely  conclusively on a certification of the Depositor or
any affiliate of the Depositor in determining which  Certificates are registered
in the name of an affiliate of the Depositor.

      Class: All Certificates bearing the same class designation as set forth in
the Preliminary Statement.

      Class Certificate  Balance:  With respect to any Class of Certificates and
as of any Distribution Date the aggregate of the Certificate  Principal Balances
of all Certificates of such Class as of such date.

      Class  Prepayment  Distribution  Trigger:  For  a  Class  of  Subordinated
Certificates (other than the Class of Subordinated Certificates with the highest
priority of distribution),  a trigger that is satisfied on any Distribution Date
on which a fraction  (expressed as a percentage),  the numerator of which is the
aggregate  Class  Certificate  Balance of such Class and each Class  subordinate
thereto,  if any, and the  denominator  of which is the aggregate Pool Principal
Balance for both Mortgage Pools with respect to such  Distribution  Date, equals
or exceeds such percentage calculated as of the Closing Date.


                                       8
<PAGE>

      Closing Date: January 28, 2005.

      Code:  The  Internal  Revenue  Code of 1986,  including  any  successor or
amendatory provisions.

      COFI: Not applicable.

      COFI Certificates: Not applicable.

      Compensating  Interest:  As to any  Distribution  Date  and any  Principal
Prepayment in respect of a Mortgage Loan that is received during the period from
the sixteenth day of the month (or, in the case of the first  Distribution Date,
from the Cut-off Date) prior to the month of such  Distribution Date through the
last day of such month, an additional  payment to the related Mortgage Pool made
by the  Master  Servicer,  to the  extent  funds are  available  from the Master
Servicing Fee, equal to the amount of interest at the Adjusted Net Mortgage Rate
for that Mortgage Loan from the date of the  prepayment to the related Due Date;
provided that the  aggregate of all such payments as to the Mortgage  Loans in a
Mortgage  Pool shall not exceed  0.0083% of the Pool  Principal  Balance of such
Mortgage Pool as of the related Determination Date, and provided further that if
a partial Principal Prepayment is applied on or after the first day of the month
following  the month of receipt,  no  additional  payment is  required  for such
Principal Prepayment.

      Component: Not applicable.

      Component Balance: Not applicable.

      Component Certificates: Not applicable.

      Cooperative Corporation: The entity that holds title (fee or an acceptable
leasehold  estate)  to the  real  property  and  improvements  constituting  the
Cooperative  Property  and  which  governs  the  Cooperative   Property,   which
Cooperative  Corporation must qualify as a Cooperative Housing Corporation under
Section  216  of  the  Code.  Coop  Shares:   Shares  issued  by  a  Cooperative
Corporation.

      Cooperative  Loan:  Any  Mortgage  Loan  secured  by  Coop  Shares  and  a
Proprietary Lease.

      Cooperative  Property:  The real  property and  improvements  owned by the
Cooperative  Corporation,  including the allocation of individual dwelling units
to the holders of the Coop Shares of the Cooperative Corporation.

      Cooperative  Unit:  A single  family  dwelling  located  in a  Cooperative
Property.

      Corporate Trust Office:  The designated office of the Trustee in the State
of New York at which at any  particular  time its corporate  trust business with
respect to this Agreement shall be administered, which office at the date of the
execution  of this  Agreement  is located at The Bank of New York,  101  Barclay
Street,  8W, New York,  New York 10286 (Attn:  Corporate  Trust  Mortgage-Backed
Securities  Group,   First  Horizon  Asset  Securities  Inc.  Series  2005-AA1),
facsimile no. (212)  815-3986,  and which is the address to which notices to and
correspondence with the Trustee should be directed.


                                       9
<PAGE>

      Corresponding  Class of  Certificates:  As to any  Middle  REMIC  Interest
identified  in Section 2.7, the Class or Classes that are  identified in Section
2.7 as corresponding to such Middle REMIC Interest.

      Corresponding  Classes of Middle  REMIC  Interests:  As to any Lower REMIC
Interest  identified  in Section 2.7, the Middle REMIC  Interest or Middle REMIC
Interests  that are  identified  in Section 2.7 as  corresponding  to such Lower
REMIC Interest.

      Cross-over  Date:  The  Distribution  Date on which the  respective  Class
Certificate  Balances  of each  Class of  Subordinated  Certificates  have  been
reduced to zero.

      Custodial Agreement:  The Custodial Agreement dated as of January 28, 2005
by and among the Trustee, the Master Servicer and the Custodian.

      Custodian:  First Tennessee Bank National Association,  a national banking
association,  and its successors and assigns,  as custodian  under the Custodial
Agreement.

      Cut-off Date: January 1, 2005.

      Cut-off   Date  Pool   Principal   Balance:   With   respect  to  Pool  I,
$100,030,923.27; and with respect to Pool II, $215,033,995.19.

      Cut-off  Date  Principal  Balance:  As to any  Mortgage  Loan,  the Stated
Principal Balance thereof as of the close of business on the Cut-off Date.

      Debt Service Reduction:  With respect to any Mortgage Loan, a reduction by
a court of competent  jurisdiction in a proceeding  under the Bankruptcy Code in
the   Scheduled   Payment  for  such   Mortgage  Loan  which  became  final  and
non-appealable,  except such a reduction resulting from a Deficient Valuation or
any reduction that results in a permanent forgiveness of principal.

      Defective  Mortgage  Loan:  Any  Mortgage  Loan  which is  required  to be
repurchased pursuant to Section 2.2 or 2.3.

      Deficient  Valuation:  With respect to any Mortgage Loan, a valuation by a
court of competent jurisdiction of the Mortgaged Property in an amount less than
the  then-outstanding  indebtedness under the Mortgage Loan, or any reduction in
the amount of principal to be paid in connection with any Scheduled Payment that
results in a permanent  forgiveness of principal,  which  valuation or reduction
results  from an order of such  court  which is final  and  non-appealable  in a
proceeding under the Bankruptcy Code.

      Definitive   Certificates:   Any  Certificate   evidenced  by  a  Physical
Certificate  and any  Certificate  issued  in lieu of a  Book-Entry  Certificate
pursuant to Section 5.2(e).

      Delay Certificates: Not applicable.


                                       10
<PAGE>

      Delay  Delivery  Mortgage  Loans:  The  Mortgage  Loans for which all or a
portion of a related  Mortgage  File is not  delivered to Trustee on the Closing
Date.  The number of Delay  Delivery  Mortgage Loans shall not exceed 25% of the
aggregate number of Mortgage Loans as of the Closing Date.

      Deleted Mortgage Loan: As defined in Section 2.3(b) hereof.

      Denomination:  With respect to each  Certificate,  the amount set forth on
the face thereof as the "Initial Certificate Balance of this Certificate" or the
Percentage Interest appearing on the face thereof.

      Depositor: First Horizon Asset Securities Inc., a Delaware corporation, or
its successor in interest.

      Depository:  The initial Depository shall be The Depository Trust Company,
the nominee of which is CEDE & Co., as the  registered  Holder of the Book-Entry
Certificates.  The Depository shall at all times be a "clearing  corporation" as
defined in Section  8-102(a)(5) of the Uniform  Commercial  Code of the State of
New York.

      Depository  Participant:   A  broker,  dealer,  bank  or  other  financial
institution  or other  Person  for whom from time to time a  Depository  effects
book-entry transfers and pledges of securities deposited with the Depository.

      Determination  Date: As to any  Distribution  Date, the earlier of (i) the
third  Business  Day  after  the 15th  day of each  month,  and (ii) the  second
Business Day prior to the related Distribution Date.

      Distribution Account: The separate Eligible Account created and maintained
by the  Trustee  pursuant  to  Section  3.5 in the name of the  Trustee  for the
benefit of the Certificateholders and designated "The Bank of New York, in trust
for  registered   Holders  of  First  Horizon  Asset  Securities  Inc.  Mortgage
Pass-Through  Certificates,  Series 2005-AA1." Funds in the Distribution Account
shall be held in trust for the  Certificateholders for the uses and purposes set
forth in this Agreement.

      Distribution  Account Deposit Date: As to any Distribution Date, 1:30 p.m.
Central time on the Business Day immediately preceding such Distribution Date.

      Distribution  Date:  The 25th day of each calendar month after the initial
issuance of the  Certificates,  or if such 25th day is not a Business  Day,  the
next succeeding Business Day, commencing in February 2005.

      Due Date:  With  respect to any  Distribution  Date,  the first day of the
month in which the related Distribution Date occurs.

      Eligible  Account:  Any of (i) an account or  accounts  maintained  with a
federal  or  state  chartered  depository   institution  or  trust  company  the
short-term  unsecured debt obligations of which (or, in the case of a depository
institution  or trust  company  that is the  principal  subsidiary  of a holding
company,  the  debt  obligations  of such  holding  company)  have  the  highest
short-term  ratings of each  Rating  Agency at the time any  amounts are held on
deposit therein,  or (ii) an account or accounts in a depository  institution or
trust company in which such accounts are insured by the FDIC or the SAIF (to the
limits  established  by the FDIC or the SAIF, as  applicable)  and the uninsured
deposits in which  accounts are otherwise  secured such that, as evidenced by an
Opinion of Counsel  delivered  to the  Trustee and to each  Rating  Agency,  the
Certificateholders  have a claim with  respect to the funds in such account or a
perfected first priority  security  interest against any collateral (which shall
be limited to  Permitted  Investments)  securing  such funds that is superior to
claims of any other  depositors or creditors of the  depository  institution  or
trust company in which such account is  maintained,  or (iii) a trust account or
accounts  maintained  with  (a) the  trust  department  of a  federal  or  state
chartered depository institution or (b) a trust company, acting in its fiduciary
capacity or (iv) any other account  acceptable to each Rating  Agency.  Eligible
Accounts may bear interest,  and may include,  if otherwise qualified under this
definition, accounts maintained with the Trustee.


                                       11
<PAGE>

      ERISA: The Employee Retirement Income Security Act of 1974, as amended.

      ERISA-Qualifying  Underwriting:   With  respect  to  any  ERISA-Restricted
Certificate, a best efforts or firm commitment underwriting or private placement
that meets the requirements of the Underwriters' Exemption.

      ERISA-Restricted Certificate: As specified in the Preliminary Statement.

      Escrow  Account:   The  Eligible  Account  or  Accounts   established  and
maintained pursuant to Section 3.6(a) hereof.

      Event of Default: As defined in Section 7.1 hereof.

      Excess Loss:  With respect to a Mortgage Pool, the amount of any (i) Fraud
Loss  realized  after the Fraud Loss  Coverage  Termination  Date,  (ii) Special
Hazard Loss realized after the Special Hazard Coverage Termination Date or (iii)
Deficient Valuation realized after the Bankruptcy Coverage Termination Date.

      Excess Proceeds: With respect to any Liquidated Mortgage Loan, the amount,
if any,  by which the sum of any  Liquidation  Proceeds  of such  Mortgage  Loan
received in the calendar  month in which such  Mortgage Loan became a Liquidated
Mortgage Loan, net of any amounts  previously  reimbursed to the Master Servicer
as  Nonrecoverable  Advance(s)  with respect to such  Mortgage  Loan pursuant to
Section 3.8(a)(iii), exceeds (i) the unpaid principal balance of such Liquidated
Mortgage Loan as of the Due Date in the month in which such Mortgage Loan became
a Liquidated  Mortgage Loan plus (ii) accrued interest at the Mortgage Rate from
the Due Date as to which interest was last paid or advanced (and not reimbursed)
to  Certificateholders  up to the Due Date applicable to the  Distribution  Date
immediately following the calendar month during which such liquidation occurred.

      Expense Fee Rate: As to each Mortgage  Loan, the sum of the related Master
Servicing Fee Rate and the Trustee Fee Rate.

      FDIC: The Federal Deposit Insurance Corporation, or any successor thereto.


                                       12
<PAGE>

      FHLMC:   The  Federal  Home  Loan   Mortgage   Corporation,   a  corporate
instrumentality of the United States created and existing under Title III of the
Emergency Home Finance Act of 1970, as amended, or any successor thereto.

      FIRREA: The Financial  Institutions Reform,  Recovery, and Enforcement Act
of 1989.

      First Horizon:  First Horizon Home Loan Corporation,  a Kansas corporation
and an indirect wholly owned subsidiary of First Horizon National Corporation, a
Tennessee corporation.

      Fitch: Fitch Ratings or any successor thereto. If Fitch is designated as a
Rating Agency in the Preliminary Statement,  for purposes of Section 11.5(b) the
address for notices to Fitch shall be Fitch,  Inc., One State Street Plaza,  New
York, New York 10004,  Attention:  Residential  Mortgage  Surveillance Group, or
such other  address as Fitch may  hereafter  furnish  to the  Depositor  and the
Master Servicer.

      FNMA: The Federal National Mortgage Association, a federally chartered and
privately owned  corporation  organized and existing under the Federal  National
Mortgage Association Charter Act, or any successor thereto.

      Fraud  Loan:  A  Liquidated  Mortgage  Loan as to  which a Fraud  Loss has
occurred.

      Fraud Loss Coverage Amount: As of the Closing Date, $6,301,298.  As of any
Distribution  Date from the first  anniversary  of the Cut-off Date and prior to
the fifth  anniversary of the Cut-off Date, the Fraud Loss Coverage  Amount will
equal $3,150,649 minus the aggregate amount of Fraud Losses that would have been
allocated to the Subordinated Certificates in the absence of the Loss Allocation
Limitation since the Cut-off Date. As of any  Distribution  Date on or after the
earlier of the Cross-over Date or the fifth anniversary of the Cut-off Date, the
Fraud Loss Coverage Amount shall be zero.

      Fraud Loss  Coverage  Termination  Date:  The date on which the Fraud Loss
Coverage Amount is reduced to zero.

      Fraud  Losses:  Realized  Losses on  Mortgage  Loans as to which a loss is
sustained   by  reason  of  a  default   arising  from  fraud,   dishonesty   or
misrepresentation in connection with the related Mortgage Loan, including a loss
by reason of the denial of coverage under any related Primary  Insurance  Policy
because of such fraud, dishonesty or misrepresentation.

      FTBNA:  First  Tennessee  Bank National  Association,  a national  banking
association.

      Group I Senior Certificates: As specified in the Preliminary Statement.

      Group II Senior Certificates: As specified in the Preliminary Statement.

      Group Subordinate  Amount:  For a Mortgage Pool and any Distribution Date;
the  excess of (a) the Pool  Principal  Balance  of such  Mortgage  Pool for the
immediately   preceding   Distribution   Date,  over  (b)  the  aggregate  Class
Certificate  Balance of the Senior Certificates of the related Certificate Group
immediately prior to that Distribution Date.


                                       13
<PAGE>

      Index: Not applicable.

      Indirect   Participant:   A  broker,   dealer,  bank  or  other  financial
institution  or other  Person  that  clears  through or  maintains  a  custodial
relationship with a Depository Participant.

      Initial Bankruptcy Loss Coverage Amount: $150,000.

      Initial Component Balance: Not applicable.

      Insurance Policy:  With respect to any Mortgage Loan included in the Trust
Fund, any insurance  policy,  including all riders and  endorsements  thereto in
effect, including any replacement policy or policies for any Insurance Policies.
Insurance  Proceeds:  Proceeds  paid by an  insurer  pursuant  to any  Insurance
Policy,  in each case other than any amount included in such Insurance  Proceeds
in respect of Insured Expenses.

      Insured  Expenses:  Expenses  covered by an Insurance  Policy or any other
insurance policy with respect to the Mortgage Loans.

      Insured Retail Certificates: Not applicable.

      Interest Accrual Period:  With respect to each Class of Delay Certificates
and any  Distribution  Date,  the  calendar  month  prior  to the  month of such
Distribution   Date.  With  respect  to  any  Non-Delay   Certificates  and  any
Distribution  Date, the one month period commencing on the 25th day of the month
preceding  the month in which such  Distribution  Date  occurs and ending on the
24th day of the month in which such Distribution Date occurs.

      Interest Determination Date: Not applicable.

      Latest Possible Maturity Date: As to each Class of Senior  Certificates in
the Certificate  Group  corresponding to Pool I, the Distribution Date following
the third  anniversary  of the  scheduled  maturity date of the Mortgage Loan in
Pool I having the latest  scheduled  maturity date as of the Cut-off Date. As to
each Class of Subordinated  Certificates,  each Class of Senior  Certificates in
the Certificate Group  corresponding to Pool II, each Lower REMIC Interest,  and
each  Middle  REMIC  Interest,   the  Distribution   Date  following  the  third
anniversary  of the  scheduled  maturity  date of the  Mortgage  Loan in Pool II
having the latest scheduled maturity date as of the Cut-off Date.

      Lender PMI Mortgage Loan: Not applicable.

      LIBOR: Not applicable.

      LIBOR Certificates: Not applicable.

      Liquidated  Mortgage  Loan:  With  respect  to any  Distribution  Date,  a
defaulted Mortgage Loan (including any REO Property) which was liquidated in the
calendar month preceding the month of such Distribution Date and as to which the
Master  Servicer has determined (in accordance  with this Agreement) that it has
received all amounts it expects to receive in connection with the liquidation of
such Mortgage Loan, including the final disposition of an REO Property.


                                       14
<PAGE>

      Liquidation  Proceeds:  Amounts,  including  Insurance  Proceeds  and  any
Unanticipated  Recoveries,  received in connection  with the partial or complete
liquidation  of  defaulted  Mortgage  Loans,  whether  through  trustee's  sale,
foreclosure  sale or  otherwise  or  amounts  received  in  connection  with any
condemnation or partial  release of a Mortgaged  Property and any other proceeds
received  in  connection  with  an  REO  Property,   less  the  sum  of  related
unreimbursed Master Servicing Fees, Servicing Advances and Advances.

      Loan-to-Value  Ratio: With respect to any Mortgage Loan and as to any date
of  determination,  the fraction  (expressed as a  percentage)  the numerator of
which is the  principal  balance of the  related  Mortgage  Loan at such date of
determination and the denominator of which is the Appraised Value of the related
Mortgaged Property.

      Loss Allocation Limitation: As defined in Section 4.4(g).

      Lost  Mortgage   Note:  Any  Mortgage  Note  the  original  of  which  was
permanently lost or destroyed and has not been replaced.

      Lower REMIC:  The segregated  pool of assets  consisting of the Trust Fund
but excluding the Retained Yield,  the Middle REMIC  Interests,  the Lower REMIC
Interests, the RL Interest, the RM Interest, and the RU Interest.

      Lower REMIC Interests: The REMIC regular interests,  within the meaning of
the REMIC Provisions, issued by the Lower REMIC as set forth in Section 2.7.

      Maintenance:  With respect to any  Cooperative  Unit, the rent paid by the
Mortgagor to the Cooperative Corporation pursuant to the Proprietary Lease.

      Majority in Interest: As to any Class of Regular Certificates, the Holders
of Certificates of such Class evidencing,  in the aggregate, at least 51% of the
Percentage Interests evidenced by all Certificates of such Class.

      Master   Servicer:   First  Horizon  Home  Loan   Corporation,   a  Kansas
corporation,  and its successors and assigns, in its capacity as master servicer
hereunder.

      Master  Servicer  Advance Date:  As to any  Distribution  Date,  1:30 p.m.
Central time on the Business Day immediately preceding such Distribution Date.

      Master Servicing Fee: As to each Mortgage Loan and any Distribution  Date,
an amount payable out of each full payment of interest received on such Mortgage
Loan and equal to one-twelfth of the Master Servicing Fee Rate multiplied by the
Stated  Principal  Balance of such Mortgage Loan as of the Due Date in the month
of such Distribution Date (prior to giving effect to any Scheduled  Payments due
on such  Mortgage  Loan on such Due Date),  subject to  reduction as provided in
Section 3.14.


                                       15
<PAGE>

      Master Servicing Fee Rate: A per annum rate equal to 0.369%.

      MERS:  Mortgage  Electronic  Registration  Systems,  Inc.,  a  corporation
organized and existing under the laws of the State of Delaware, or any successor
thereto.

      MERS Mortgage  Loan:  Any Mortgage Loan  registered  with MERS on the MERS
System.

      MERS(R)   System:   The  system  of   recording   transfers  of  mortgages
electronically maintained by MERS.

      Middle REMIC: The segregated pool of assets  consisting of the Lower REMIC
Interests.

      Middle REMIC Interests: The REMIC regular interests, within the meaning of
the REMIC Provisions, issued by the Middle REMIC as set forth in Section 2.7.

      MIN: The Mortgage Identification Number for any MERS Mortgage Loan.

      MLPA I: The Mortgage Loan Purchase Agreement dated as of January 28, 2005,
by and  between  First  Horizon  Home Loan  Corporation,  as  seller,  and First
Tennessee Bank National Association,  as purchaser,  as related to the transfer,
sale and conveyance of the Mortgage Loans.

      MLPA II: The  Mortgage  Loan  Purchase  Agreement  dated as of January 28,
2005, by and between First Tennessee Bank National  Association,  as seller, and
First Horizon Asset Securities  Inc., as purchaser,  as related to the transfer,
sale and conveyance of the Mortgage Loans.

      MOM Loan:  Any  Mortgage  Loan as to which  MERS is  acting as  mortgagee,
solely as nominee for the  originator of such  Mortgage Loan and its  successors
and assigns.

      Monthly  Statement:  The  statement  delivered  to the  Certificateholders
pursuant to Section 4.6.

      Moody's:  Moody's Investors Service,  Inc., or any successor  thereto.  If
Moody's is  designated  as a Rating  Agency in the  Preliminary  Statement,  for
purposes of Section  11.5(b) the address for notices to Moody's shall be Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007,  Attention:
Residential  Pass-Through  Monitoring,  or such other  address  as  Moody's  may
hereafter furnish to the Depositor or the Master Servicer.

      Mortgage: The mortgage, deed of trust or other instrument creating a first
lien on an estate in fee simple or leasehold  interest in real property securing
a Mortgage Note.

      Mortgage  File:  The  mortgage  documents  listed in  Section  2.1  hereof
pertaining to a particular Mortgage Loan and any additional  documents delivered
to the Trustee to be added to the Mortgage File pursuant to this Agreement.

      Mortgage Loan  Schedule:  The list of Mortgage Loans (as from time to time
amended by the Master  Servicer to reflect the addition of  Substitute  Mortgage
Loans and the deletion of Deleted  Mortgage  Loans pursuant to the provisions of
this  Agreement)  transferred  to the Trustee as part of the Trust Fund and from
time to time subject to this  Agreement,  attached hereto as Schedule I, setting
forth the following information with respect to each Mortgage Loan:


                                       16
<PAGE>

            (1)   the loan number;

            (2)   the  Mortgagor's  name and the street address of the Mortgaged
                  Property, including the zip code;

            (3)   the maturity date;

            (4)   the original principal balance;

            (5)   the Cut-off Date Principal Balance;

            (6)   the first payment date of the Mortgage Loan;

            (7)   the Scheduled Payment in effect as of the Cut-off Date;

            (8)   the Loan-to-Value Ratio at origination;

            (9)   a code indicating whether the residential dwelling at the time
                  of origination was represented to be owner-occupied;

            (10)  a code indicating  whether the residential  dwelling is either
                  (a) a detached  single family  dwelling (b) a dwelling in a de
                  minimis  PUD, (c) a  condominium  unit or PUD (other than a de
                  minimis PUD), (d) a two-to-four unit  residential  property or
                  (e) a Cooperative Unit;

            (11)  the Mortgage Rate;

            (12)  the purpose for the Mortgage Loan;

            (13)  the  type of  documentation  program  pursuant  to  which  the
                  Mortgage Loan was originated;

            (14)  the Master Servicing Fee for the Mortgage Loan; and

            (15)  a code indicating whether the Mortgage Loan is a MERS Mortgage
                  Loan.

      Such  schedule  shall  also set forth the total of the  amounts  described
under (4) and (5) above for all of the Mortgage Loans.

      Mortgage Loans: Such of the mortgage loans transferred and assigned to the
Trustee  pursuant  to the  provisions  hereof as from time to time are held as a
part of the Trust Fund (including any REO Property),  the mortgage loans so held
being identified in the Mortgage Loan Schedule,  notwithstanding  foreclosure or
other acquisition of title of the related Mortgaged Property.


                                       17
<PAGE>

      Mortgage   Note:   The  original   executed  note  or  other  evidence  of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.

      Mortgage Pool: Either Pool I or Pool II.

      Mortgage  Rate:  The annual rate of interest borne by a Mortgage Note from
time to time, net of any insurance premium charged by the mortgagee to obtain or
maintain any Primary Insurance Policy.

      Mortgaged  Property:  The  underlying  property  securing a Mortgage Loan,
which,  with  respect to a  Cooperative  Loan,  is the  related  Coop Shares and
Proprietary Lease.

      Mortgagor: The obligor(s) on a Mortgage Note.

      National Cost of Funds Index:  The National  Monthly  Median Cost of Funds
Ratio  to   SAIF-Insured   Institutions   published  by  the  Office  of  Thrift
Supervision.

      Net Interest Shortfall:  For any Distribution Date and each Mortgage Pool,
the sum of (a) the amount of interest  which would  otherwise have been received
for any Mortgage Loan in such Mortgage Pool that was the subject of (x) a Relief
Act Reduction or (y) a Special Hazard Loss, Fraud Loss, or Deficient  Valuation,
after the  exhaustion of the  respective  amounts of coverage for those types of
losses  provided by the  Subordinated  Certificates;  and (b) any Net Prepayment
Interest Shortfalls in respect of such Mortgage Pool.

      Net Prepayment Interest  Shortfalls:  As to any Distribution Date and each
Mortgage  Pool,  the  amount  by which  the  aggregate  of  Prepayment  Interest
Shortfalls  in respect of the Mortgage  Loans or such  Mortgage  Pool during the
related  Prepayment Period exceeds an amount equal to the Compensating  Interest
paid in respect of such Mortgage Loans, if any, for such Distribution Date.

      Non-Delay Certificates: As specified in the Preliminary Statement.

      Non-Excess Loss: Any Realized Loss other than an Excess Loss.

      Nonrecoverable  Advance:  Any  portion  of an Advance  previously  made or
proposed to be made by the Master  Servicer  that, in the good faith judgment of
the Master Servicer,  will not be ultimately  recoverable by the Master Servicer
from the related Mortgagor, related Liquidation Proceeds or otherwise.

      Notice of Final  Distribution:  The  notice  to be  provided  pursuant  to
Section 9.2 to the effect  that final  distribution  on any of the  Certificates
shall be made only upon presentation and surrender thereof.

      Notional Amount: As specified in the Preliminary Statement.

      Notional Amount Component: Not applicable.

      Notional Certificates: As specified in the Preliminary Statement.


                                       18
<PAGE>

      Offered Certificates: As specified in the Preliminary Statement.

      Officer's  Certificate:  A  Certificate  (i) signed by the Chairman of the
Board, the Vice Chairman of the Board,  the President,  a Managing  Director,  a
Vice  President  (however  denominated),   an  Assistant  Vice  President,   the
Treasurer,  the  Secretary,  or one of the  Assistant  Treasurers  or  Assistant
Secretaries of the Depositor or the Master Servicer, or (ii), if provided for in
this Agreement, signed by a Servicing Officer, as the case may be, and delivered
to the  Depositor  and the  Trustee,  as the case may be,  as  required  by this
Agreement.

      Opinion of Counsel:  A written opinion of counsel,  who may be counsel for
the Depositor or the Master Servicer,  including,  in-house counsel,  reasonably
acceptable  to  the  Trustee;  provided,  however,  that  with  respect  to  the
interpretation or application of the REMIC Provisions,  such counsel must (i) in
fact be independent of the Depositor and the Master Servicer,  (ii) not have any
direct  financial  interest in the  Depositor  or the Master  Servicer or in any
affiliate of either, and (iii) not be connected with the Depositor or the Master
Servicer as an  officer,  employee,  promoter,  underwriter,  trustee,  partner,
director or person performing similar functions.

      Optional  Termination:  The termination of the trust created  hereunder in
connection  with the purchase of the Mortgage  Loans  pursuant to Section 9.1(a)
hereof.

      Original Group  Subordinate  Amount:  With respect to a Mortgage Pool, the
related Group Subordinate Amount as of the Cut-off Date.

      Original  Mortgage Loan: The Mortgage Loan  refinanced in connection  with
the origination of a Refinancing Mortgage Loan.

      OTS: The Office of Thrift Supervision.

      Outside Reference Date: Not applicable.

      Outstanding:   With  respect  to  the  Certificates  as  of  any  date  of
determination,  all Certificates  theretofore  executed and authenticated  under
this Agreement except:

                  (i)  Certificates  theretofore  canceled  by  the  Trustee  or
            delivered to the Trustee for cancellation; and

                  (ii)  Certificates  in exchange  for which or in lieu of which
            other  Certificates  have been executed and delivered by the Trustee
            pursuant to this Agreement.

      Outstanding  Mortgage  Loan:  As of any Due Date,  a Mortgage  Loan with a
Stated  Principal  Balance  greater  than zero  which was not the  subject  of a
Principal  Prepayment  in Full prior to such Due Date and which did not become a
Liquidated Mortgage Loan prior to such Due Date.


                                       19
<PAGE>

      Ownership Interest: As to any Residual Certificate, any ownership interest
in such  Certificate  including any interest in such  Certificate  as the Holder
thereof and any other interest  therein,  whether  direct or indirect,  legal or
beneficial.

      Pass-Through  Rate: For any Class of Certificates,  the per annum rate set
forth or calculated in the manner described in the Preliminary Statement.

      Percentage  Interest:  As to  any  Certificate,  the  percentage  interest
evidenced  thereby in  distributions  required to be made on the related  Class,
such  percentage  interest  being set forth on the face  thereof or equal to the
percentage  obtained by dividing the  Denomination  of such  Certificate  by the
aggregate of the Denominations of all Certificates of the same Class.

      Permitted  Investments:  At any  time,  any one or  more of the  following
obligations and securities:

                  (i)  obligations  of the United States or any agency  thereof,
            provided such obligations are backed by the full faith and credit of
            the United States;

                  (ii) general  obligations of or obligations  guaranteed by any
            state of the United States or the District of Columbia receiving the
            highest long-term debt rating of each Rating Agency;

                  (iii)  commercial  or  finance  company  paper  which  is then
            receiving the highest  commercial or finance company paper rating of
            each Rating Agency;

                  (iv)  certificates  of deposit,  demand or time  deposits,  or
            bankers'  acceptances issued by any depository  institution or trust
            company  incorporated  under the laws of the United States or of any
            state thereof and subject to supervision  and examination by federal
            and/or state banking authorities, provided that the commercial paper
            and/or  long term  unsecured  debt  obligations  of such  depository
            institution  or  trust  company  (or in the  case  of the  principal
            depository  institution in a holding company system,  the commercial
            paper  or  long-term  unsecured  debt  obligations  of such  holding
            company,  but only if Moody's is not a Rating Agency) are then rated
            one of the two  highest  long-term  and/or  the  highest  short-term
            ratings of each Rating Agency for such securities;

                  (v) demand or time deposits or  certificates of deposit issued
            by any bank or trust  company or savings  institution  to the extent
            that such  deposits are fully  insured by the FDIC and receiving the
            highest short-term debt rating of each Rating Agency;

                  (vi) guaranteed  reinvestment  agreements  issued by any bank,
            insurance  company or other  corporation  and  receiving the highest
            short-term debt rating of each Rating Agency and containing,  at the
            time of the issuance of such  agreements,  such terms and conditions
            as will not result in the  downgrading  or  withdrawal of the rating
            then assigned to the Certificates by either Rating Agency;


                                       20
<PAGE>

                  (vii)  repurchase  obligations  with  respect to any  security
            described in clauses (i) and (ii) above, in either case entered into
            with a depository institution or trust company (acting as principal)
            described in clause (iv) above;

                  (viii) securities (other than stripped bonds, stripped coupons
            or  instruments  sold at a  purchase  price in excess of 115% of the
            face amount thereof)  bearing  interest or sold at a discount issued
            by any corporation  incorporated under the laws of the United States
            or any state thereof which, at the time of such investment, have one
            of the two  highest  ratings of each  Rating  Agency  (except if the
            Rating  Agency is Moody's or S&P,  such rating  shall be the highest
            commercial  paper rating of Moody's or S&P, as  applicable,  for any
            such securities);

                  (ix)  units of a taxable  money-market  portfolio  having  the
            highest rating  assigned by each Rating Agency (except if Fitch is a
            Rating Agency and has not rated the  portfolio,  the highest  rating
            assigned  by  Moody's)  and  restricted  to  obligations  issued  or
            guaranteed  by the  United  States  of  America  or  entities  whose
            obligations  are  backed by the full  faith and credit of the United
            States of America and repurchase  agreements  collateralized by such
            obligations; and

                  (x)  such  other  investments  bearing  interest  or sold at a
            discount  acceptable to each Rating Agency as will not result in the
            downgrading  or  withdrawal  of  the  rating  then  assigned  to the
            Certificates  by either  Rating  Agency,  as  evidenced  by a signed
            writing delivered by each Rating Agency;

provided  that  no such  instrument  shall  be a  Permitted  Investment  if such
instrument evidences the right to receive interest only payments with respect to
the obligations underlying such instrument.

      Permitted  Transferee:  Any person other than (i) the United  States,  any
State or political  subdivision thereof, or any agency or instrumentality of any
of the foregoing, (ii) a foreign government,  International  Organization or any
agency or  instrumentality  of either of the  foregoing,  (iii) an  organization
(except  certain  farmers'  cooperatives  described  in section 521 of the Code)
which is exempt  from tax  imposed by Chapter 1 of the Code  (including  the tax
imposed by section 511 of the Code on unrelated  business taxable income) on any
excess inclusions (as defined in section 860E(c)(l) of the Code) with respect to
any  Residual  Certificate,  (iv)  rural  electric  and  telephone  cooperatives
described  in  section  1381(a)(2)(C)  of  the  Code,  (v)  an  "electing  large
partnership"  as defined in section  775 of the Code,  (vi) a Person that is not
(a) a citizen or resident of the United States, (b) a corporation,  partnership,
or other entity  created or organized in or under the laws of the United States,
any state  thereof or the District of Columbia,  (c) an estate whose income from
sources  without  the United  States is  includible  in gross  income for United
States federal income tax purposes regardless of its connection with the conduct
of a trade or business within the United States or (d) a trust if a court within
the  United   States  is  able  to  exercise   primary   supervision   over  the
administration  of the  trust and one or more  United  States  persons  have the
authority to control all substantial  decisions of the trust, unless such Person
has  furnished the  transferor  and the Trustee with a duly  completed  Internal
Revenue  Service Form W-8ECI or any  applicable  successor  form,  and (vii) any
other Person so  designated  by the  Depositor  based upon an Opinion of Counsel
that the Transfer of an  Ownership  Interest in a Residual  Certificate  to such
Person may cause any REMIC  created  hereunder  to fail to qualify as a REMIC at
any time that the  Certificates are outstanding;  provided,  however,  that if a
person is classified as a partnership  under the Code, such person shall only be
a  Permitted  Transferee  if all of  its  beneficial  owners  are  described  in
subclauses  (a), (b), (c) or (d) of clause (vi) and the  governing  documents of
such person  prohibits  a transfer of any  interest in such person to any person
described in clause (vi). The terms "United States," "State" and  "International
Organization"  shall have the  meanings set forth in section 7701 of the Code or
successor provisions. A corporation will not be treated as an instrumentality of
the United  States or of any State or  political  subdivision  thereof for these
purposes if all of its  activities are subject to tax and, with the exception of
the Federal Home Loan Mortgage Corporation, a majority of its board of directors
is not selected by such government unit.


                                       21
<PAGE>

      Person:   Any  individual,   corporation,   partnership,   joint  venture,
association,   joint-stock  company,  trust,   unincorporated   organization  or
government, or any agency or political subdivision thereof.

      Physical Certificate: As specified in the Preliminary Statement.

      Planned Balance: Not applicable.

      Planned Principal Classes: Not applicable.

      Pool I: The  aggregate of the Mortgage  Loans  identified  on the Mortgage
Loan Schedule as being included in Pool I.

      Pool II: The  aggregate of the Mortgage  Loans  identified on the Mortgage
Loan Schedule as being included in Pool II.

      Pool  Principal  Balance:  For each  Mortgage  Pool,  with  respect to any
Distribution  Date,  the  aggregate  of the  Stated  Principal  Balances  of the
Mortgage  Loans  which were  Outstanding  Mortgage  Loans on the Due Date in the
month  preceding  the  month  of such  Distribution  Date,  and  for  the  first
Distribution  Date,  as of the  Closing  Date,  less any  Principal  Prepayments
received on or after such Due Date and distributed to  Certificateholders on the
prior Distribution Date.

      Prepayment Interest Excess: As to any Principal Prepayment received by the
Master  Servicer  from the first day through the  fifteenth  day of any calendar
month (other than the  calendar  month in which the Cut-off  Date  occurs),  all
amounts paid by the related  Mortgagor in respect of interest on such  Principal
Prepayment.  All Prepayment Interest Excess shall be paid to the Master Servicer
as additional master servicing compensation.

      Prepayment Interest Shortfall:  As to any Distribution Date, Mortgage Loan
and Principal  Prepayment  received (a) during the period from the sixteenth day
of the month preceding the month of such  Distribution  Date (or, in the case of
the first Distribution Date, from the Cut-off Date) through the last day of such
month,  in the case of a Principal  Prepayment  in Full, or (b) during the month
preceding  the  month  of such  Distribution  Date,  in the  case  of a  partial
Principal  Prepayment,  the amount, if any, by which one month's interest at the
related Adjusted Mortgage Rate on such Principal  Prepayment  exceeds the amount
of interest  actually paid by the Mortgagor in  connection  with such  Principal
Prepayment.


                                       22
<PAGE>

      Prepayment Period:  (a) With respect to any Principal  Prepayments in Full
and any  Distribution  Date,  the  period  from the  sixteenth  day of the month
preceding  the month of such  Distribution  Date  (or,  in the case of the first
Distribution Date, from the Cut-off Date) through the fifteenth day of the month
of  such  Distribution  Date,  and  (b)  with  respect  to any  other  Principal
Prepayments  and any  Distribution  Date, the month  preceding the month of such
Distribution Date.

      Primary  Insurance  Policy:  Each  policy  of  primary  mortgage  guaranty
insurance or any replacement policy therefor with respect to any Mortgage Loan.

      Principal Balance Schedules: Not applicable.

      Principal  Prepayment:  Any  payment  of  principal  by a  Mortgagor  on a
Mortgage  Loan that is received in advance of its  scheduled Due Date and is not
accompanied  by an amount  representing  scheduled  interest  due on any date or
dates in any month or months  subsequent  to the  month of  prepayment.  Partial
Principal Prepayments shall be applied by the Master Servicer in accordance with
the terms of the related Mortgage Note.

      Principal Prepayment in Full: Any Principal Prepayment made by a Mortgagor
of the entire principal balance of a Mortgage Loan.

      Private Certificate: As specified in the Preliminary Statement.

      Proprietary  Lease:  With  respect  to any  Cooperative  Unit,  a lease or
occupancy  agreement  between a Cooperative  Corporation and a holder of related
Coop Shares.

      PUD: Planned Unit Development.

      Purchase Price: With respect to any Mortgage Loan required to be purchased
by the Seller  pursuant to Section 2.2 or 2.3 hereof or  purchased at the option
of the Master  Servicer  pursuant to Section 3.11, an amount equal to the sum of
(i) 100% of the unpaid  principal  balance of the  Mortgage  Loan on the date of
such purchase, (ii) accrued interest thereon at the applicable Mortgage Rate (or
at the  applicable  Adjusted  Mortgage  Rate  if  the  purchaser  is the  Master
Servicer) from the date through which interest was last paid by the Mortgagor to
the Due Date in the month in which the Purchase  Price is to be  distributed  to
Certificateholders,  and (iii) any costs and  damages  incurred  by the Trust in
connection with the  noncompliance  of such Mortgage Loan with any  specifically
applicable predatory or abusive lending law.

      Qualified Insurer: A mortgage guaranty insurance company duly qualified as
such under the laws of the state of its  principal  place of  business  and each
state having  jurisdiction  over such insurer in  connection  with the insurance
policy issued by such insurer,  duly  authorized  and licensed in such states to
transact a mortgage guaranty  insurance business in such states and to write the
insurance  provided  by  the  insurance  policy  issued  by  it,  approved  as a
FNMA-approved  mortgage  insurer and having a claims paying ability rating of at
least "AA" or equivalent rating by a nationally  recognized  statistical  rating
organization.  Any replacement insurer with respect to a Mortgage Loan must have
at least as high a claims paying  ability  rating as the insurer it replaces had
on the Closing Date.


                                       23
<PAGE>

      Rating Agency:  Each of the Rating  Agencies  specified in the Preliminary
Statement.  If any such  organization  or a successor is no longer in existence,
"Rating  Agency"  shall  be  such  nationally   recognized   statistical  rating
organization,  or other  comparable  Person,  as is designated by the Depositor,
notice of which designation shall be given to the Trustee.  References herein to
a given  rating  category of a Rating  Agency  shall mean such  rating  category
without giving effect to any modifiers.

      Realized Loss:  With respect to each  Liquidated  Mortgage Loan, an amount
(not less than zero or more than the Stated  Principal  Balance of the  Mortgage
Loan) as of the date of such  liquidation,  equal  to (i) the  Stated  Principal
Balance of the Liquidated Mortgage Loan as of the date of such liquidation, plus
(ii)  interest at the Adjusted  Net Mortgage  Rate from the Due Date as to which
interest was last paid or advanced (and not reimbursed) to Certificateholders up
to the Due Date in the month in which  Liquidation  Proceeds  are required to be
distributed on the Stated  Principal  Balance of such  Liquidated  Mortgage Loan
from time to time, minus (iii) the Liquidation Proceeds, if any, received during
the  month  in  which  such  liquidation  occurred,  to the  extent  applied  as
recoveries of interest at the Adjusted Net Mortgage Rate and to principal of the
Liquidated  Mortgage  Loan.  With respect to each Mortgage Loan which has become
the  subject of a Deficient  Valuation,  if the  principal  amount due under the
related  Mortgage Note has been reduced,  the  difference  between the principal
balance of the Mortgage Loan  outstanding  immediately  prior to such  Deficient
Valuation  and the  principal  balance  of the  Mortgage  Loan as reduced by the
Deficient Valuation.

      Recognition Agreement:  With respect to any Cooperative Loan, an agreement
between the  Cooperative  Corporation  and the  originator of such Mortgage Loan
which establishes the rights of such originator in the Cooperative Property.

      Record Date: With respect to any Distribution  Date, the close of business
on the last  Business  Day of the  month  preceding  the  month  in  which  such
Distribution Date occurs.

      Reference Bank: Not applicable.

      Refinancing Mortgage Loan: Any Mortgage Loan originated in connection with
the refinancing of an existing mortgage loan.

      Regular Certificates: As specified in the Preliminary Statement.

      Relief Act: The  Servicemembers  Civil Relief Act, or any similar state or
local legislation or regulations.

      Relief  Act  Reductions:  With  respect to any  Distribution  Date and any
Mortgage  Loan as to which there has been a reduction  in the amount of interest
collectible  thereon for the most recently  ended  calendar month as a result of
the  application  of the Relief  Act,  the  amount,  if any,  by which  interest
collectible  on such Mortgage Loan for the most recently ended calendar month is
less than interest accrued thereon for such month pursuant to the Mortgage Note.


                                       24
<PAGE>

      REMIC: A "real estate mortgage  investment  conduit" within the meaning of
section 860D of the Code.

      REMIC Change of Law: Any proposed, temporary or final regulation,  revenue
ruling,  revenue  procedure or other  official  announcement  or  interpretation
relating to REMICs and the REMIC Provisions issued after the Closing Date.

      REMIC Pool: Any of the Lower REMIC, Middle REMIC or Upper REMIC.

      REMIC  Provisions:  Provisions  of the federal  income tax law relating to
real estate mortgage investment conduits,  which appear at sections 860A through
860G of  Subchapter  M of Chapter 1 of the Code,  and  related  provisions,  and
regulations promulgated thereunder,  as the foregoing may be in effect from time
to time as well as provisions of applicable state laws.

      REO  Property:  A Mortgaged  Property  acquired by the Trust Fund  through
foreclosure  or  deed-in-lieu  of  foreclosure  in  connection  with a defaulted
Mortgage Loan.

      Request for  Release:  The Request  for  Release  submitted  by the Master
Servicer  to the  Trustee,  substantially  in the form of  Exhibits  L and M, as
appropriate.

      Required  Insurance  Policy:  With  respect  to  any  Mortgage  Loan,  any
insurance  policy that is required to be maintained from time to time under this
Agreement.

      Required   Recordation  States:  The  states  of  Florida,   Maryland  and
Mississippi.

      Residual Certificates: As specified in the Preliminary Statement.

      Responsible  Officer:  When used with  respect  to the  Trustee,  any Vice
President, any Assistant Vice President, the Secretary, any Assistant Secretary,
any Trust  Officer or any other  officer of the Trustee  customarily  performing
functions similar to those performed by any of the above designated officers and
having direct  responsibility  for the administration of this Agreement and also
to whom, with respect to a particular matter, such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.

      RL Interest: The REMIC residual interest,  within the meaning of the REMIC
Provisions,  issued by the Lower REMIC,  which shall be represented by the Class
II-A-R Certificate.

      RM Interest: The REMIC residual interest,  within the meaning of the REMIC
Provisions,  issued by the Middle REMIC, which shall be represented by the Class
II-A-R Certificate.

      RU Interest: The REMIC residual interest,  within the meaning of the REMIC
Provisions,  issued by the Upper REMIC,  which shall be represented by the Class
II-A-R Certificate.

      Scheduled Balances: Not applicable.

      Scheduled Certificates: Not applicable.


                                       25
<PAGE>

      Scheduled Payment: The scheduled monthly payment on a Mortgage Loan due on
any Due Date allocable to principal and/or interest on such Mortgage Loan which,
unless otherwise specified herein, shall give effect to any related Debt Service
Reduction  and any  Deficient  Valuation  that affects the amount of the monthly
payment due on such Mortgage Loan.

      Scheduled Principal Classes: Not applicable.

      Securities Act: The Securities Act of 1933, as amended.

      Security  Agreement:  The security agreement with respect to a Cooperative
Loan.

      Seller: First Horizon Home Loan Corporation, a Kansas corporation, and its
successors and assigns, in its capacity as seller of the Mortgage Loans pursuant
to MLPA I.

      Senior Certificates: As specified in the Preliminary Statement.

      Senior  Final   Distribution   Date:  For  each  Certificate   Group,  the
Distribution  Date on which  the  Class  Certificate  Balance  of each  Class of
related Senior Certificates has been reduced to zero.

      Senior Optimal Principal Amount: As to a Mortgage Pool and with respect to
each Distribution Date, an amount equal to the sum of:

            (1) the  related  Senior  Percentage  of all  Scheduled  Payments of
principal  due on each  Mortgage  Loan in such Mortgage Pool on the first day of
the  month  in  which  the  Distribution   Date  occurs,  as  specified  in  the
amortization  schedule  at the time  applicable  thereto  after  adjustment  for
previous  principal  prepayments  and the  principal  portion  of  Debt  Service
Reductions  after the Bankruptcy  Loss Coverage Amount has been reduced to zero,
but before any adjustment to such  amortization  schedule by reason of any other
bankruptcy or similar  proceeding or any  moratorium or similar  waiver or grace
period;

            (2) the related Senior Prepayment Percentage of the Stated Principal
Balance of each  Mortgage  Loan in such Mortgage Pool which was the subject of a
Principal  Prepayment  in  Full  received  by the  Master  Servicer  during  the
applicable Prepayment Period;

            (3)  the  related  Senior  Prepayment   Percentage  of  all  partial
Principal  Prepayments  in respect of each  Mortgage  Loan in such Mortgage Pool
received during the applicable Prepayment Period;

            (4) the lesser of:

                  (a) the related Senior Prepayment Percentage of the sum of (x)
            the  Liquidation  Proceeds  allocable to principal on each  Mortgage
            Loan in such Mortgage  Pool which became a Liquidated  Mortgage Loan
            during the related  Prepayment  Period,  other than  Mortgage  Loans
            described  in clause  (y),  and (y) the  principal  balance  of each
            Mortgage  Loan in such Mortgage Pool that was purchased by a private
            mortgage  insurer  during  the  related   Prepayment  Period  as  an
            alternative  to paying a claim under the related  Insurance  Policy;
            and


                                       26
<PAGE>

                  (b)(i) the  related  Senior  Percentage  of the sum of (x) the
            Stated Principal Balance of each Mortgage Loan in such Mortgage Pool
            which  became  a  Liquidated   Mortgage   Loan  during  the  related
            Prepayment  Period,  other than Mortgage  Loans  described in clause
            (y), and (y) the Stated  Principal  Balance of each Mortgage Loan in
            such Mortgage Pool that was purchased by a private  mortgage insurer
            during the related  Prepayment  Period as an alternative to paying a
            claim  under the  related  Insurance  Policy  minus (ii) the related
            Senior  Percentage of the principal  portion of Excess Losses (other
            than Debt  Service  Reductions)  for such  Mortgage  Pool during the
            related Prepayment Period; and

            (5) the related Senior  Prepayment  Percentage of the sum of (a) the
Stated  Principal  Balance of each Mortgage Loan in such Mortgage Pool which was
repurchased by the seller in connection with such  Distribution Date and (b) the
difference,  if any, between the Stated Principal  Balance of a Mortgage Loan in
such  Mortgage  Pool that has been  replaced  by the  seller  with a  Substitute
Mortgage Loan pursuant to this  Agreement in connection  with such  Distribution
Date and the Stated Principal Balance of such Substitute Mortgage Loan.

      Senior  Percentage:  On any Distribution Date for a Certificate Group, the
lesser of 100% and the percentage (carried to six places rounded up) obtained by
dividing  the  aggregate  Class  Certificate  Balances  of all Classes of Senior
Certificates of such Certificate Group  immediately  preceding such Distribution
Date  by the  Pool  Principal  Balance  of the  related  Mortgage  Pool  for the
immediately preceding Distribution Date.

      Senior  Prepayment  Percentage:  On any Distribution Date occurring during
the  periods  set forth  below,  and as to each  Certificate  Group,  the Senior
Prepayment Percentages, described below:

--------------------------------------------------------------------------------
PERIOD (DATES INCLUSIVE)                SENIOR PREPAYMENT PERCENTAGE
--------------------------------------------------------------------------------
February 2005 - January 2012            100%
--------------------------------------------------------------------------------
February 2012 - January 2013            The related Senior Percentage plus 70%
                                        of the related Subordinated Percentage
--------------------------------------------------------------------------------
February 2013 - January 2014            The related Senior Percentage plus 60%
                                        of the related Subordinated Percentage
--------------------------------------------------------------------------------
February 2014 - January 2015            The related Senior Percentage plus 40%
                                        of the related Subordinated Percentage
--------------------------------------------------------------------------------
February 2015 - January 2016            The related Senior Percentage plus 20%
                                        of the related Subordinated Percentage
--------------------------------------------------------------------------------
February 2016 and thereafter            The related Senior Percentage
--------------------------------------------------------------------------------

provided  however,  (i) if on any Distribution  Date the Senior Percentage for a
Certificate  Group exceeds the initial Senior  Percentage  for such  Certificate
Group,  the Senior  Prepayment  Percentage for each  Certificate  Croup for such
Distribution  Date will equal 100%, (ii) if on any Distribution  Date before the
Distribution  Date in February 2008, prior to giving effect to any distributions
on such  Distribution  Date, the  Subordinated  Percentage for such  Certificate
Group for such  Distribution  Date is equal to or greater than twice the initial
Subordinated  Percentage for such Certificate  Group, then the Senior Prepayment
Percentage for such Certificate  Group for such Distribution Date will equal the
Senior  Percentage  for such  Certificate  Group  plus  50% of the  Subordinated
Percentage for such Certificate  Group and (iii) if on any Distribution  Date on
or after the  Distribution  Date in February 2008, prior to giving effect to any
distributions on such  Distribution  Date, the Subordinated  Percentage for such
Certificate  Group for such  Distribution Date is equal to or greater than twice
the initial Subordinated  Percentage for such Certificate Group, then the Senior
Prepayment Percentage for such Certificate Group for such Distribution Date will
equal the Senior Percentage for such Certificate Group.


                                       27
<PAGE>

      The reductions in the Senior  Prepayment  Percentage for each  Certificate
Group described above will not occur,  and the Senior  Prepayment  Percentage or
each Certificate  Group for such prior period will be calculated  without regard
to clause (ii) or (iii) of the paragraph  above,  unless,  as of the last day of
the month preceding the Distribution Date:

      (1)   the aggregate Stated Principal  Balance of Mortgage Loans in both of
            the Mortgage  Pools  delinquent 60 days or more  (including for this
            purpose any Mortgage  Loans in  foreclosure or subject to bankruptcy
            proceedings  and  Mortgage  Loans with  respect to which the related
            Mortgaged Property, including REO Property, has been acquired by the
            Trust  Fund)  does  not  exceed  50%  of the  aggregate  Certificate
            Principal Balances of the Subordinated Certificates as of that date;
            and

      (2)   cumulative  aggregate  Realized Losses in both of the Mortgage Pools
            do not exceed:

            (a) 20% of the aggregate  Original Group Subordinate  Amount of both
            Mortgage  Pools  if  such   Distribution  Date  occurs  between  and
            including February 2005 and January 2008; and

            (b) 30% of the aggregate  Original Group Subordinate  Amount of both
            Mortgage Pools if such Distribution Date occurs on or after February
            2008.

      Senior Support Certificates: Not Applicable.

      Servicing  Advances:  All  customary,  reasonable  and  necessary  "out of
pocket" costs and expenses incurred in the performance by the Master Servicer of
its servicing  obligations,  including,  but not limited to, the cost of (i) the
preservation,  restoration  and  protection  of a Mortgaged  Property,  (ii) any
expenses  reimbursable to the Master  Servicer  pursuant to Section 3.11 and any
enforcement  or  judicial  proceedings,   including   foreclosures,   (iii)  the
management  and  liquidation  of any REO Property and (iv)  compliance  with the
obligations under Section 3.9.

      Servicing  Agreement:  The servicing  agreement,  dated as of November 26,
2002 by and between  First  Horizon Asset  Securities  Inc. and its assigns,  as
owner, and First Tennessee Mortgage Services, Inc., as servicer.

      Servicing  Officer:  Any officer of the Master  Servicer  involved  in, or
responsible  for, the  administration  and servicing of the Mortgage Loans whose
name and facsimile signature appear on a list of servicing officers furnished to
the  Trustee  by the  Master  Servicer  on the  Closing  Date  pursuant  to this
Agreement, as such list may from time to time be amended.


                                       28
<PAGE>

      Servicing Rights Transfer and Subservicing Agreement: The servicing rights
transfer and  subservicing  agreement,  dated as of November  26,  2002,  by and
between First Horizon Home Loan Corporation, as transferor and subservicer,  and
First Tennessee Mortgage Services, Inc., as transferee and servicer.

      Special Hazard  Coverage  Termination  Date: The date on which the Special
Hazard Loss Coverage Amount is reduced to zero.

      Special Hazard Loss: Any Realized Loss suffered by a Mortgaged Property on
account of direct physical loss but not including (i) any loss of a type covered
by a  hazard  insurance  policy  or a  flood  insurance  policy  required  to be
maintained  with respect to such Mortgaged  Property  pursuant to Section 3.9 to
the extent of the amount of such loss covered  thereby,  or (ii) any loss caused
by or resulting from:

            (1) normal wear and tear;

            (2)  fraud,  conversion  or other  dishonest  act on the part of the
Trustee, the Master Servicer or any of their agents or employees (without regard
to any portion of the loss not covered by any errors and omissions policy);

            (3) errors in design, faulty workmanship or faulty materials, unless
the  collapse  of the  property or a part  thereof  ensues and then only for the
ensuing loss;

            (4) nuclear or chemical reaction or nuclear radiation or radioactive
or chemical contamination,  all whether controlled or uncontrolled,  and whether
such loss be direct or  indirect,  proximate or remote or be in whole or in part
caused by,  contributed to or aggravated by a peril covered by the definition of
the term "Special Hazard Loss";

            (5)  hostile or warlike  action in time of peace and war,  including
action in  hindering,  combating  or defending  against an actual,  impending or
expected attack:

                  (i) by any government or sovereign power, de jure or de facto,
            or by any  authority  maintaining  or using  military,  naval or air
            forces;

                  (ii) by military, naval or air forces; or

                  (iii) by an agent of any such government,  power, authority or
            forces;

            (6) any weapon of war  employing  nuclear  fission,  fusion or other
radioactive force, whether in time of peace or war; or

            (7) insurrection, rebellion, revolution, civil war, usurped power or
action  taken by  governmental  authority in  hindering,  combating or defending
against such an occurrence,  seizure or destruction  under quarantine or customs
regulations,  confiscation  by order of any  government  or public  authority or
risks of contraband or illegal transportation or trade.


                                       29
<PAGE>

      Special  Hazard Loss  Coverage  Amount:  Upon the initial  issuance of the
Certificates,  $3,150,649.  As of any Distribution Date, the Special Hazard Loss
Coverage Amount will equal the greater of

      (a)   1.00% (or if greater than 1.00%, the highest  percentage of Mortgage
            Loans by principal  balance  secured by Mortgaged  Properties in any
            single California zip code) of the outstanding  principal balance of
            all the Mortgage Loans as of the related Determination Date; and

      (b)   twice the outstanding  principal  balance of the Mortgage Loan which
            has the  largest  outstanding  principal  balance as of the  related
            Determination Date,

less,  in each case,  the aggregate  amount of Special  Hazard Losses that would
have been previously  allocated to the Subordinated  Certificates in the absence
of the Loss Allocation  Limitation.  As of any Distribution Date on or after the
Cross-over Date, the Special Hazard Loss Coverage Amount will be zero.

      Special  Hazard  Mortgage  Loan: A Liquidated  Mortgage Loan as to which a
Special Hazard Loss has occurred.

      S&P:  Standard  &  Poor's  Corporation,  a  division  of  The  McGraw-Hill
Companies,  Inc.  If S&P is  designated  as a Rating  Agency in the  Preliminary
Statement,  for purposes of Section 11.5(b) the address for notices to S&P shall
be Standard & Poor's,  55 Water Street,  41st Floor,  New York,  New York 10041,
Attention:  Mortgage Surveillance  Monitoring,  or such other address as S&P may
hereafter furnish to the Depositor and the Master Servicer.

      Startup Day: The Closing Date.

      Stated Principal Balance: As to any Mortgage Loan and Due Date, the unpaid
principal  balance of such Mortgage Loan as of such Due Date as specified in the
amortization  schedule at the time relating  thereto  (before any  adjustment to
such  amortization  schedule by reason of any  moratorium  or similar  waiver or
grace period) after giving effect to any previous partial Principal  Prepayments
and Liquidation  Proceeds allocable to principal (other than with respect to any
Liquidated  Mortgage  Loan) and to the payment of principal due on such Due Date
and irrespective of any delinquency in payment by the related Mortgagor.

      Streamlined  Documentation  Mortgage  Loan:  Any Mortgage Loan  originated
pursuant to the Seller's Streamlined Loan Documentation Program then in effect.

      Subordinated Certificates: As specified in the Preliminary Statement.

      Subordinated  Certificate  Writedown Amount: As of any Distribution  Date,
the amount by which (a) the sum of the Class Certificate  Balances of all of the
Certificates,  after giving  effect to the  distribution  of  principal  and the
allocation of Realized Losses in reduction of the Class Certificate  Balances of
all of the  Certificates on such  Distribution  Date,  exceeds (b) the aggregate
Pool Principal  Balance for both Mortgage Pools on the first day of the month of
such  Distribution  Date less any  Deficient  Valuations  occurring  before  the
Bankruptcy Loss Coverage Amount has been reduced to zero.


                                       30
<PAGE>

      Subordinated  Optimal Principal Amount: With respect to each Mortgage Pool
and each Distribution  Date, an amount equal to the sum of the following (but in
no  event  greater  than  the  aggregate  Class  Certificate   Balances  of  the
Subordinated Certificates immediately prior to such Distribution Date):

            (1) the related Subordinated Percentage of all Scheduled Payments of
principal due on each outstanding  Mortgage Loan in the related Mortgage Pool on
the first day of the month in which the Distribution  Date occurs,  as specified
in the amortization  schedule at the time applicable  thereto,  after adjustment
for previous  principal  prepayments  and the principal  portion of Debt Service
Reductions  after the Bankruptcy  Loss Coverage Amount has been reduced to zero,
but before any adjustment to such  amortization  schedule by reason of any other
bankruptcy or similar  proceeding or any  moratorium or similar  waiver or grace
period;

            (2) the related  Subordinated  Prepayment  Percentage  of the Stated
Principal  Balance of each Mortgage Loan in the related  Mortgage Pool which was
the subject of a Principal  Prepayment in Full  received by the Master  Servicer
during the related Prepayment Period;

            (3) the related  Subordinated  Prepayment  Percentage of all partial
Principal  Prepayments  received in respect of each Mortgage Loan in the related
Mortgage Pool during the related  Prepayment  Period,  plus, on the Senior Final
Distribution Date, 100% of any related Senior Optimal Principal Amount remaining
undistributed on such date;

            (4) the amount,  if any, by which the sum of (a) the net Liquidation
Proceeds allocable to principal received during the related Prepayment Period in
respect of each  Liquidated  Mortgage Loan in the related  Mortgage Pool,  other
than Mortgage  Loans  described in clause (b), and (b) the principal  balance of
each Mortgage Loan in the related  Mortgage Pool that was purchased by a private
mortgage  insurer  during the related  Prepayment  Period as an  alternative  to
paying a claim under the  related  Insurance  Policy  exceeds (c) the sum of the
amounts distributable to the Senior  Certificateholders  under clause (4) of the
definition of applicable  Senior Optimal  Principal Amount on such  Distribution
Date; and

            (5) the related Subordinated Prepayment Percentage of the sum of (a)
the Stated Principal  Balance of each Mortgage Loan in the related Mortgage Pool
which was  repurchased by the seller in connection with such  Distribution  Date
and (b) the  difference,  if any,  between  the  Stated  Principal  Balance of a
Mortgage Loan in the related  Mortgage Pool that has been replaced by the seller
with a Substitute  Mortgage Loan  pursuant to the  Agreement in connection  with
such  Distribution Date and the Stated Principal Balance of each such Substitute
Mortgage Loan.

      Subordinated  Percentage:  For any Distribution  Date and each Certificate
Group, 100% minus the related Senior Percentage.

      Subordinated Prepayment Percentage:  For any Distribution Date, 100% minus
the Senior Prepayment Percentage.

      Subservicer: Any person to whom the Master Servicer has contracted for the
servicing  of all or a portion of the  Mortgage  Loans  pursuant  to Section 3.2
hereof.


                                       31
<PAGE>

      Substitute  Mortgage Loan: A Mortgage Loan substituted by the Seller for a
Deleted Mortgage Loan which must, on the date of such substitution, as confirmed
in a Request  for  Release,  substantially  in the form of Exhibit L, (i) have a
Stated  Principal  Balance,  after  deduction  of the  principal  portion of the
Scheduled  Payment due in the month of  substitution,  not in excess of, and not
more than 10% less than the Stated  Principal  Balance of the  Deleted  Mortgage
Loan;  (ii) have an Adjusted Net  Mortgage  Rate not lower than the Adjusted Net
Mortgage Rate of the Deleted  Mortgage Loan,  provided that the Master Servicing
Fee for the  Substitute  Mortgage Loan shall be equal to or greater than that of
the Deleted  Mortgage Loan;  (iii) have a maximum mortgage rate not more than 1%
per annum higher or lower than the maximum mortgage rate of the Deleted Mortgage
Loan; (iv) have a minimum  mortgage rate specified in its related  Mortgage Note
not more than 1% per annum higher or lower than the minimum mortgage rate of the
Deleted  Mortgage  Loan;  (v) have the same  mortgage  index,  reset  period and
periodic  rate as the Deleted  Mortgage Loan and a gross margin not more than 1%
per  annum  higher  or lower  than  that of the  Deleted  Mortgage  Loan (vi) be
accruing  interest at a rate no lower than and not more than 1% per annum higher
than,  that of the Deleted  Mortgage Loan;  (iv) have a  Loan-to-Value  Ratio no
higher than that of the Deleted  Mortgage  Loan;  (vii) have a remaining term to
maturity  no  greater  than  (and not more  than one year less than that of) the
Deleted  Mortgage  Loan;  (viii) not be a  Cooperative  Loan  unless the Deleted
Mortgage  Loan was a Cooperative  Loan and (ix) comply with each  representation
and warranty set forth in Section 2.3 hereof.  Substitution  Adjustment  Amount:
The meaning ascribed to such term pursuant to Section 2.3.

      Super Senior Certificates: As specified in the Preliminary Statement.

      Super  Senior  Support  Certificates:  As  specified  in  the  Preliminary
Statement.

      Support Classes: Not Applicable.

      Targeted Balances: Not applicable.

      Targeted Principal Classes: Not applicable.

      Tax Matters Person:  The person  designated as "tax matters person" in the
manner  provided  under  Treasury   regulation  ss.   1.860F-4(d)  and  Treasury
regulation ss. 301.6231(a)(7)-1.  Initially, the Tax Matters Person shall be the
Trustee.

      Tax Matters  Person  Certificate:  The Class  II-A-R  Certificates  with a
Denomination of $0.01.

      Transfer:  Any  direct  or  indirect  transfer  or sale  of any  Ownership
Interest in a Residual Certificate.

      Trust Fund:  The corpus of the trust created  hereunder  consisting of (i)
the Mortgage  Loans and all interest and  principal  received on or with respect
thereto  after the  Cut-off  Date to the extent not  applied  in  computing  the
Cut-off Date Principal  Balance thereof;  (ii) all of the Depositor's  rights as
purchaser  under MLPA II;  (iii) the  Certificate  Account and the  Distribution
Account and all amounts deposited therein pursuant to the applicable  provisions
of this  Agreement;  (iv)  property  that  secured a Mortgage  Loan and has been
acquired by foreclosure,  deed-in-lieu of foreclosure or otherwise;  and (v) all
proceeds of the conversion, voluntary or involuntary, of any of the foregoing.


                                       32
<PAGE>

      Trustee:  The Bank of New  York and its  successors  and,  if a  successor
trustee is appointed hereunder, such successor.

      Trustee Fee: As to any  Distribution  Date and a Mortgage  Pool, an amount
equal to one-twelfth of the Trustee Fee Rate  multiplied by the applicable  Pool
Principal Balance with respect to such Distribution Date.

      Trustee Fee Rate:  With respect to each Mortgage  Loan, the per annum rate
agreed  upon in writing on or prior to the  Closing  Date by the Trustee and the
Depositor.

      Two Times Test:  A test that is satisfied  with  respect to a  Certificate
Group and any Distribution Date if the related Senior Prepayment  Percentage for
such Distribution Date is determined in accordance with clause (ii) and (iii) of
the proviso in the definition of "Senior Prepayment Percentage."

      Unanticipated Recovery: As defined in Section 4.2(f).

      Undercollateralization Distribution: As defined in Section 4.2(g).

      Undercollateralized  Group:  With respect to any  Distribution  Date,  the
Senior  Certificates  of  any  Certificate  Group  as  to  which  the  aggregate
Certificate  Principal  Balance  thereof,  after giving effect to  distributions
pursuant  to Section  4.2(a) on such date,  is greater  than the Pool  Principal
Balance of the related Mortgage Pool for such Distribution Date.

      Underwriter: As specified in the Preliminary Statement.

      Underwriters' Exemption: Prohibited Transaction Exemption 2002-41, 67 Fed.
Reg. 54487 (2002), as amended (or any successor  thereto),  or any substantially
similar administrative exemption granted by the U.S. Department of Labor.

      Upper REMIC: The segregated pool of assets  consisting of the Middle REMIC
Interests.

      Voting Rights: The portion of the voting rights of all of the Certificates
which is allocated to any Certificate. As of any date of determination,  (a) 98%
of all Voting  Rights will be allocated  among all Holders of the  Certificates,
other than the Class  I-A-IO,  Class II-A-IO and Class II-A-R  Certificates,  in
proportion to their then outstanding Class Certificate Balances; (b) 1.0% of all
Voting Rights will be allocated to the Class I-A-IO  Certificates  and the Class
II-A-IO  Certificates  (such Voting Rights to be allocated  among the Holders of
Certificates  of each such Class in accordance  with their  respective  Notional
Amounts);  and (c) 1.0% of all  Voting  Rights  will be  allocated  to the Class
II-A-R  Certificates  (such Voting  Rights to be allocated  among the Holders of
Certificates of each such Class in accordance with their  respective  Percentage
Interests).


                                       33
<PAGE>

      Weighted  Average  Adjusted Net Mortgage  Rate:  For a Mortgage  Pool, the
average of the Adjusted Net Mortgage  Rates of the Mortgage Loans in the related
Loan Group, weighted on the basis of the Stated Principal Balances thereof.

                                   ARTICLE II
                          CONVEYANCE OF MORTGAGE LOANS;
                         REPRESENTATIONS AND WARRANTIES

            SECTION 2.1 Conveyance of Mortgaget Loans.

      (a)   The Depositor,  concurrently with the execution and delivery hereof,
            hereby sells, transfers, assigns, sets over and otherwise conveys to
            the  Trustee  for the  benefit  of the  Certificateholders,  without
            recourse,  all the right, title and interest of the Depositor in and
            to the Trust Fund  together  with (i) the  Depositor's  right to (A)
            require  the  Seller  to cure  any  breach  of a  representation  or
            warranty made by the Seller pursuant to MLPA I, or (B) repurchase or
            substitute  for any affected  Mortgage Loan in accordance  herewith,
            and (ii) all right,  title and interest of the  Depositor in, to and
            under the Servicing Agreement,  which right has been assigned to the
            Depositor pursuant to MLPA II.

      (b)   In connection  with the transfer and  assignment set forth in clause
            (a) above,  the Depositor has delivered or caused to be delivered to
            the Trustee or the  Custodian  on its behalf (or, in the case of the
            Delay Delivery Mortgage Loans, will deliver or cause to be delivered
            to the Trustee or the  Custodian  on its behalf  within  thirty (30)
            days   following   the   Closing   Date)  for  the  benefit  of  the
            Certificateholders  the  following  documents  or  instruments  with
            respect to each Mortgage Loan so assigned:

            (i)   (A) the original Mortgage Note endorsed by manual or facsimile
                  signature in blank in the following form: "Pay to the order of
                  ________________,  without  recourse,"  with  all  intervening
                  endorsements  showing a complete chain of endorsement from the
                  originator  to the Person  endorsing  the Mortgage  Note (each
                  such endorsement being sufficient to transfer all right, title
                  and  interest  of the party so  endorsing,  as  noteholder  or
                  assignee thereof, in and to that Mortgage Note); or

                  (B)  with  respect  to any Lost  Mortgage  Note,  a lost  note
                  affidavit from the Seller  stating that the original  Mortgage
                  Note  was  lost  or  destroyed,  together  with a copy of such
                  Mortgage Note;

            (ii)  except as provided  below and for each  Mortgage  Loan that is
                  not a MERS Mortgage Loan, the original  recorded Mortgage or a
                  copy of such Mortgage  certified by the Seller as being a true
                  and complete copy of the Mortgage and in the case of each MERS
                  Mortgage Loan, the original  Mortgage,  noting the presence of
                  the MIN of the Mortgage Loans and either  language  indicating
                  that the Mortgage Loan is a MOM Loan if the Mortgage Loan is a
                  MOM  Loan  or if the  Mortgage  Loan  was  not a MOM  Loan  at
                  origination,  the original Mortgage and the assignment thereof
                  to MERS, with evidence of recording  indicated  thereon,  or a
                  copy of the Mortgage  certified by the public recording office
                  in which such Mortgage has been recorded;


                                       34
<PAGE>

            (iii) in the case of a  Mortgage  Loan  that is not a MERS  Mortgage
                  Loan,  a duly  executed  assignment  of the  Mortgage in blank
                  (which   may  be   included   in  a  blanket   assignment   or
                  assignments),  together with,  except as provided  below,  all
                  interim  recorded  assignments  of such  mortgage  (each  such
                  assignment,   when  duly  and  validly  completed,  to  be  in
                  recordable form and sufficient to effect the assignment of and
                  transfer to the assignee thereof,  under the Mortgage to which
                  the  assignment  relates);   provided  that,  if  the  related
                  Mortgage  has not been  returned  from the  applicable  public
                  recording office,  such assignment of the Mortgage may exclude
                  the information to be provided by the recording office;

            (iv)  the  original  or  copies  of each  assumption,  modification,
                  written assurance or substitution agreement, if any;

            (v)   either  the  original  or  duplicate   original  title  policy
                  (including  all riders  thereto)  with  respect to the related
                  Mortgaged  Property,  if  available,  provided  that the title
                  policy  (including  all riders  thereto)  will be delivered as
                  soon as it becomes  available,  and if the title policy is not
                  available,  and to the extent required  pursuant to the second
                  paragraph  below or otherwise in connection with the rating of
                  the  Certificates,  a written  commitment or interim binder or
                  preliminary  report of the title issued by the title insurance
                  or escrow company with respect to the Mortgaged Property, and

            (vi)  in the  case  of a  Cooperative  Loan,  the  originals  of the
                  following documents or instruments:

                  (A)   The Coop Shares, together with a stock power in blank;

                  (B)   The executed Security Agreement;

                  (C)   The executed Proprietary Lease;

                  (D)   The executed Recognition Agreement;

                  (E)   The executed UCC-1 financing  statement with evidence of
                        recording  thereon  which  have been filed in all places
                        required  to perfect the  Seller's  interest in the Coop
                        Shares and the Proprietary Lease; and

                  (F)   Executed UCC-3 financing statements or other appropriate
                        UCC   financing   statements   required  by  state  law,
                        evidencing  a  complete  and  unbroken   line  from  the
                        mortgagee  to the Trustee  with  evidence  of  recording
                        thereon (or in a form suitable for recordation).

                                       35
<PAGE>
      In the event that in connection  with any Mortgage Loan that is not a MERS
Mortgage Loan the Depositor cannot deliver (a) the original recorded Mortgage or
(b) all interim recorded assignments  satisfying the requirements of clause (ii)
or (iii)  above,  respectively,  concurrently  with the  execution  and delivery
hereof  because  such  document or  documents  have not been  returned  from the
applicable  public  recording  office,  the Depositor shall promptly  deliver or
cause to be  delivered  to the  Trustee  or the  Custodian  on its  behalf  such
original Mortgage or such interim assignment,  as the case may be, with evidence
of recording  indicated  thereon upon receipt thereof from the public  recording
office, or a copy thereof,  certified, if appropriate, by the relevant recording
office,  but in no event shall any such  delivery of the  original  Mortgage and
each such interim assignment or a copy thereof,  certified,  if appropriate,  by
the relevant recording office, be made later than one year following the Closing
Date;  provided,  however,  in the event the  Depositor  is unable to deliver or
cause  to be  delivered  by such  date  each  Mortgage  and  each  such  interim
assignment by reason of the fact that any such  documents have not been returned
by the  appropriate  recording  office,  or,  in the case of each  such  interim
assignment,   because  the  related  Mortgage  has  not  been  returned  by  the
appropriate  recording  office,  the  Depositor  shall  deliver  or  cause to be
delivered  such  documents  to the  Trustee  or the  Custodian  on its behalf as
promptly as possible  upon receipt  thereof  and, in any event,  within 720 days
following the Closing Date. The Depositor shall forward or cause to be forwarded
to the Trustee or the  Custodian on its behalf (a) from time to time  additional
original  documents  evidencing an assumption or modification of a Mortgage Loan
and (b) any other  documents  required to be delivered  by the  Depositor or the
Master Servicer to the Trustee.  In the event that the original  Mortgage is not
delivered  and in  connection  with the payment in full of the related  Mortgage
Loan and the  public  recording  office  requires  the  presentation  of a "lost
instruments affidavit and indemnity" or any equivalent document,  because only a
copy of the Mortgage can be delivered  with the  instrument of  satisfaction  or
reconveyance,  the Master  Servicer  shall  execute  and  deliver or cause to be
executed and delivered such a document to the public  recording  office.  In the
case where a public recording office retains the original  recorded  Mortgage or
in the case where a Mortgage  is lost after  recordation  in a public  recording
office,  the Depositor  shall deliver or cause to be delivered to the Trustee or
the  Custodian  on its behalf a copy of such  Mortgage  certified by such public
recording  office  to be a true  and  complete  copy  of the  original  recorded
Mortgage.

      In addition,  in the event that in  connection  with any Mortgage Loan the
Depositor  cannot  deliver or cause to be  delivered  the  original or duplicate
original  lender's title policy (together with all riders  thereto),  satisfying
the  requirements  of clause  (v) above,  concurrently  with the  execution  and
delivery  hereof  because the related  Mortgage has not been  returned  from the
applicable  public  recording  office,  the Depositor shall promptly  deliver or
cause to be  delivered  to the  Trustee  or the  Custodian  on its  behalf  such
original or duplicate  original  lender's title policy (together with all riders
thereto) upon receipt thereof from the applicable title insurer, but in no event
shall any such  delivery of the original or duplicate  original  lender's  title
policy  be made  later  than one year  following  the  Closing  Date;  provided,
however,  in the  event  the  Depositor  is  unable  to  deliver  or cause to be
delivered by such date the original or duplicate  original lender's title policy
(together  with all riders  thereto)  because the related  Mortgage has not been
returned by the  appropriate  recording  office,  the Depositor shall deliver or
cause to be  delivered  such  documents  to the Trustee or the  Custodian on its
behalf as promptly as possible  upon receipt  thereof and, in any event,  within
720  days  following  the  Closing  Date.   Notwithstanding  the  preceding,  in
connection  with any  Mortgage  Loan for which  either the original or duplicate
original title policy has not been delivered to the Trust, if at any time during
the term of this Agreement the parent company of the Seller does not have a long
term senior debt rating of A- or higher from S&P and A- or higher from Fitch (if
rated by Fitch),  then the Depositor shall within 30 days deliver or cause to be
delivered  to  the  Trustee  or  the  Custodian  on its  behalf  (if it has  not
previously done so) a written commitment or interim binder or preliminary report
of the title issued by the title insurance or escrow company with respect to the
Mortgaged Property.


                                       36
<PAGE>

      Subject to the immediately  following sentence, as promptly as practicable
subsequent to such transfer and assignment, and in any event, within thirty (30)
days  thereafter,  the Master  Servicer  shall (i) complete  each  assignment of
Mortgage, as follows: "First Horizon Mortgage Pass-Through Certificates,  Series
2005-AA1, The Bank of New York, as trustee for the holders of the Certificates",
(ii) cause such assignment to be in proper form for recording in the appropriate
public  office for real  property  records and (iii) cause to be  delivered  for
recording  in the  appropriate  public  office  for real  property  records  the
assignments  of the Mortgages to the Trustee,  except that,  with respect to any
assignments  of Mortgage as to which the Master  Servicer  has not  received the
information  required to prepare such assignment in recordable  form, the Master
Servicer's  obligation to do so and to deliver the same for such recording shall
be as soon as  practicable  after receipt of such  information  and in any event
within thirty (30) days after receipt  thereof.  Notwithstanding  the foregoing,
the Master  Servicer need not cause to be recorded any assignment  which relates
to a Mortgage Loan in any state other than the Required Recordation States.

      In the case of  Mortgage  Loans  that have been  prepaid in full as of the
Closing Date,  the Depositor,  in lieu of delivering the above  documents to the
Trustee or the Custodian on its behalf,  will deposit in the Certificate Account
the portion of such payment that is required to be deposited in the  Certificate
Account pursuant to Section 3.8 hereof.

      Notwithstanding anything to the contrary in this Agreement,  within thirty
days after the Closing Date, the Depositor  shall either (i) deliver or cause to
be delivered to the Trustee or the  Custodian on its behalf the Mortgage File as
required  pursuant to this Section 2.1 for each Delay Delivery  Mortgage Loan or
(ii) (A)  substitute or cause to be  substituted a Substitute  Mortgage Loan for
the Delay  Delivery  Mortgage Loan or (B)  repurchase or cause to be repurchased
the Delay Delivery  Mortgage Loan,  which  substitution  or repurchase  shall be
accomplished  in the manner and subject to the  conditions  set forth in Section
2.3 (treating each Delay Delivery  Mortgage Loan as a Deleted  Mortgage Loan for
purposes of such Section 2.3), provided, however, that if the Depositor fails to
deliver  a  Mortgage  File for any  Delay  Delivery  Mortgage  Loan  within  the
thirty-day  period provided in the prior  sentence,  the Depositor shall use its
best reasonable efforts to effect or cause to be effected a substitution, rather
than a repurchase of, such Deleted  Mortgage Loan and provided  further that the
cure period provided for in Section 2.2 or in Section 2.3 shall not apply to the
initial delivery of the Mortgage File for such Delay Delivery Mortgage Loan, but
rather the  Depositor  shall have five (5) Business  Days to cure or cause to be
cured such failure to deliver. At the end of such thirty-day period, the Trustee
or the Custodian,  on its behalf shall send a Delay Delivery  Certification  for
the Delay Delivery  Mortgage Loans delivered  during such  thirty-day  period in
accordance with the provisions of Section 2.2.  Notwithstanding  anything to the
contrary  contained in this  Agreement,  none of the Mortgage Loans in the Trust
Fund is or will be Delay Delivery Mortgage Loans.


                                       37
<PAGE>

            SECTION 2.2 Acceptance by Trustee of the Mortgage Loans.

      The  Trustee  or the  Custodian,  on behalf of the  Trustee,  acknowledges
receipt of the  documents  identified in the Initial  Certification  in the form
annexed hereto as Exhibit E and declares that it or the Custodian holds and will
hold such documents and the other documents delivered to it or the Custodian, as
applicable,  constituting the Mortgage Files,  and that it or the Custodian,  as
applicable,  holds or will hold such other  assets as are  included in the Trust
Fund,  in trust for the  exclusive  use and  benefit of all  present  and future
Certificateholders.  The Trustee  acknowledges  that the Custodian will maintain
possession  of the  Mortgage  Notes in the  State  of  Texas,  unless  otherwise
permitted by the Rating Agencies.

      The Trustee  agrees to execute and  deliver or to cause the  Custodian  to
execute and deliver on the Closing Date to the Depositor and the Master Servicer
an Initial  Certification  in the form annexed hereto as Exhibit E. Based on its
or the  Custodian's  review  and  examination,  and  only  as to  the  documents
identified  in such  Initial  Certification,  the  Custodian,  on  behalf of the
Trustee,  acknowledges  that such  documents  appear  regular  on their face and
relate to such Mortgage  Loan.  Neither the Trustee nor the  Custodian  shall be
under any duty or  obligation  to  inspect,  review or examine  said  documents,
instruments,  certificates  or  other  papers  to  determine  that  the same are
genuine,  enforceable or appropriate  for the  represented  purpose or that they
have actually  been  recorded in the real estate  records or that they are other
than what they purport to be on their face.

      On or about the thirtieth  (30th) day after the Closing Date,  the Trustee
shall  deliver or shall cause the  Custodian to deliver to the Depositor and the
Master  Servicer a Delay  Delivery  Certification  in the form annexed hereto as
Exhibit  F,  with  any  applicable  exceptions  noted  thereon.  Notwithstanding
anything to the contrary contained in this Agreement, none of the Mortgage Loans
in the Trust Fund is or will be Delay Delivery Mortgage Loans.

      Not later than 90 days after the Closing  Date,  the Trustee shall deliver
or shall cause the Custodian to deliver to the Depositor and the Master Servicer
a Final  Certification  in the  form  annexed  hereto  as  Exhibit  G,  with any
applicable exceptions noted thereon.

      If, in the course of such review, the Trustee or the Custodian,  on behalf
of the Trustee,  finds any document constituting a part of a Mortgage File which
does not meet the  requirements  of Section 2.1, the Trustee shall list or shall
cause the  Custodian to list such as an  exception  in the Final  Certification;
provided,  however  that  neither the Trustee nor the  Custodian  shall make any
determination  as to whether (i) any  endorsement  is sufficient to transfer all
right,  title and interest of the party so endorsing,  as noteholder or assignee
thereof,  in and to that Mortgage  Note or (ii) any  assignment is in recordable
form or is sufficient  to effect the  assignment of and transfer to the assignee
thereof  under the mortgage to which the  assignment  relates.  The Seller shall
promptly  correct  or cure  such  defect  within 90 days from the date it was so
notified  of such defect and, if the Seller does not correct or cure such defect
within such  period,  the Seller  shall  either (a)  substitute  for the related
Mortgage  Loan  a  Substitute   Mortgage  Loan,  which   substitution  shall  be
accomplished  in the manner and subject to the  conditions  set forth in Section
2.3, or (b) purchase such Mortgage Loan from the Trustee within 90 days from the
date the Seller was notified of such defect in writing at the Purchase  Price of
such Mortgage Loan; provided,  however, that in no event shall such substitution
or purchase  occur more than 540 days from the Closing Date,  except that if the
substitution  or  purchase of a Mortgage  Loan  pursuant  to this  provision  is
required by reason of a delay in delivery of any  documents  by the  appropriate
recording  office,  and there is a dispute between either the Master Servicer or
the Seller and the Trustee over the location or status of the recorded document,
then such  substitution or purchase shall occur within 720 days from the Closing
Date. The Trustee shall deliver or shall cause the Custodian to deliver  written
notice to each Rating  Agency  within 270 days from the Closing Date  indicating
each Mortgage Loan (a) which has not been returned by the appropriate  recording
office or (b) as to which  there is a dispute as to  location  or status of such
Mortgage Loan. Such notice shall be delivered every 90 days thereafter until the
related Mortgage Loan is returned to the Trustee or the Custodian on its behalf.
Any such  substitution  pursuant to (a) above or purchase  pursuant to (b) above
shall not be  effected  prior to the  delivery  to the Trustee of the Opinion of
Counsel required by Section 2.5 hereof, if any, and any substitution pursuant to
(a) above shall not be effected prior to the additional  delivery to the Trustee
of a Request for Release substantially in the form of Exhibit L. No substitution
is permitted to be made in any calendar month after the  Determination  Date for
such month.  The Purchase Price for any such Mortgage Loan shall be deposited by
the Seller in the Certificate  Account on or prior to the  Distribution  Account
Deposit  Date for the  Distribution  Date in the  month  following  the month of
repurchase  and,  upon  receipt of such deposit and  certification  with respect
thereto in the form of Exhibit M hereto,  the Trustee  shall cause the Custodian
to release the related Mortgage File to the Seller and shall execute and deliver
at the Seller's request such  instruments of transfer or assignment  prepared by
the Seller, in each case without recourse,  as shall be necessary to vest in the
Seller,  or a designee,  the  Trustee's  interest in any Mortgage  Loan released
pursuant hereto. If pursuant to the foregoing  provisions the Seller repurchases
a Mortgage Loan that is a MERS Mortgage Loan,  the Master  Servicer shall either
(i)  cause  MERS to  execute  and  deliver  an  assignment  of the  Mortgage  in
recordable form to transfer the Mortgage from MERS to the Seller and shall cause
such  Mortgage  to be  removed  from  registration  on  the  MERS(R)  System  in
accordance  with MERS' rules and  regulations or (ii) cause MERS to designate on
the MERS(R) System the Seller as the beneficial holder of such Mortgage Loan.


                                       38
<PAGE>

      The Trustee shall retain or shall cause the Custodian to retain possession
and custody of each Mortgage  File in  accordance  with and subject to the terms
and conditions set forth herein.  The Master Servicer shall promptly  deliver to
the  Trustee or the  Custodian  on its  behalf,  upon the  execution  or receipt
thereof,  the originals of such other documents or instruments  constituting the
Mortgage File as come into the  possession  of the Master  Servicer from time to
time.

      It is  understood  and  agreed  that  the  obligation  of  the  Seller  to
substitute  for or to  purchase  any  Mortgage  Loan  which  does  not  meet the
requirements  of Section 2.1 above shall  constitute the sole remedy  respecting
such defect  available to the Trustee,  the Depositor and any  Certificateholder
against the Seller.

      The mortgage loans permitted by the terms of this Agreement to be included
in the Trust Fund are limited to (i) the Mortgage  Loans (with  respect to which
the Seller has made in MLPA I, among other  representations  and  warranties,  a
representation  and  warranty  that no  Mortgage  Loan is a "high  cost loan" as
defined by the specific applicable local, state or federal predatory and abusive
lending laws, and (ii)  Substitute  Mortgage Loans (which,  by definition as set
forth in this  Agreement  and referred to in MLPA I, are required to conform to,
among other representations and warranties, a representation and warranty of the
Seller  set forth in MLPA I that no  Substitute  Mortgage  Loan is a "high  cost
loan" as defined by the specific  applicable  local,  state or federal predatory
and abusive lending laws). It is therefore  understood and agreed by the parties
hereto that it is not intended  that any Mortgage  Loan be included in the Trust
Fund that is a  "high-cost  loan" as defined by the specific  applicable  local,
state or federal predatory and abusive lending laws.


                                       39
<PAGE>

            SECTION 2.3  Representations  and Warranties of the Master Servicer;
            Covenants of the Seller.

      (a)   The Master Servicer hereby makes the  representations and warranties
            set forth in Schedule II hereto and by this  reference  incorporated
            herein, to the Depositor and the Trustee, as of the Closing Date, or
            if so specified therein, as of the Cut-off Date.

      (b)   Upon  discovery  by any of  the  parties  hereto  of a  breach  of a
            representation  or  warranty  made  pursuant to Schedule B to MLPA I
            that   materially  and  adversely   affects  the  interests  of  the
            Certificateholders  in any Mortgage Loan, the party discovering such
            breach shall give prompt notice  thereof to the other  parties.  The
            Seller  hereby  covenants  that within 90 days of the earlier of its
            discovery  or its  receipt  of  written  notice  from any party of a
            breach of any representation or warranty made pursuant to Schedule B
            to MLPA I which  materially  and adversely  affects the interests of
            the  Certificateholders  in any  Mortgage  Loan,  it shall cure such
            breach in all material respects, and if such breach is not so cured,
            shall,  (i) if  such  90-day  period  expires  prior  to the  second
            anniversary  of the  Closing  Date,  remove  such  Mortgage  Loan (a
            "Deleted  Mortgage  Loan") from the Trust Fund and substitute in its
            place a Substitute  Mortgage  Loan, in the manner and subject to the
            conditions  set  forth  in  this  Section;  or (ii)  repurchase  the
            affected  Mortgage  Loan or  Mortgage  Loans from the Trustee at the
            Purchase  Price in the manner set forth  below;  provided,  however,
            that  any such  substitution  pursuant  to (i)  above  shall  not be
            effected  prior to the  delivery  to the  Trustee of the  Opinion of
            Counsel  required  by  Section  2.5  hereof,  if any,  and any  such
            substitution  pursuant to (i) above  shall not be effected  prior to
            the  additional  delivery  to the  Trustee or the  Custodian  on its
            behalf of a Request for Release substantially in the form of Exhibit
            M and the Mortgage File for any such  Substitute  Mortgage Loan. The
            Seller shall promptly  reimburse the Master Servicer and the Trustee
            for any expenses  reasonably  incurred by the Master Servicer or the
            Trustee in respect of enforcing  the remedies for such breach.  With
            respect to the  representations  and  warranties  described  in this
            Section which are made to the best of the Seller's knowledge,  if it
            is  discovered  by either the  Depositor,  the Seller or the Trustee
            that the substance of such representation and warranty is inaccurate
            and such  inaccuracy  materially and adversely  affects the value of
            the related Mortgage Loan or the interests of the Certificateholders
            therein, notwithstanding the Seller's lack of knowledge with respect
            to the substance of such representation or warranty, such inaccuracy
            shall  be  deemed  a  breach  of the  applicable  representation  or
            warranty.


                                       40
<PAGE>

      With respect to any  Substitute  Mortgage Loan or Loans,  the Seller shall
deliver to the  Trustee or the  Custodian  on its behalf for the  benefit of the
Certificateholders  the Mortgage Note, the Mortgage,  the related  assignment of
the Mortgage, and such other documents and agreements as are required by Section
2.1, with the Mortgage  Note  endorsed and the Mortgage  assigned as required by
Section 2.1. No substitution is permitted to be made in any calendar month after
the Determination  Date for such month.  Scheduled  Payments due with respect to
Substitute  Mortgage Loans in the month of substitution shall not be part of the
Trust  Fund  and  will  be  retained  by  the  Seller  on  the  next  succeeding
Distribution   Date.   For  the   month  of   substitution,   distributions   to
Certificateholders  will include the monthly payment due on any Deleted Mortgage
Loan for such month and  thereafter  the Seller  shall be entitled to retain all
amounts  received in respect of such Deleted  Mortgage Loan. The Master Servicer
shall amend the Mortgage Loan Schedule for the benefit of the Certificateholders
to reflect the removal of such Deleted Mortgage Loan and the substitution of the
Substitute  Mortgage  Loan or Loans and the Master  Servicer  shall  deliver the
amended  Mortgage  Loan  Schedule to the Trustee.  Upon such  substitution,  the
Substitute  Mortgage  Loan or  Loans  shall  be  subject  to the  terms  of this
Agreement  in all  respects,  and the  Seller  shall be deemed to have made with
respect  to  such  Substitute  Mortgage  Loan  or  Loans,  as  of  the  date  of
substitution,  the representations and warranties made pursuant to Schedule B to
MLPA I with respect to such Mortgage Loan.  Upon any such  substitution  and the
deposit  to the  Certificate  Account  of the amount  required  to be  deposited
therein in  connection  with such  substitution  as described  in the  following
paragraph, the Trustee shall release or shall cause the Custodian to release the
Mortgage  File held for the benefit of the  Certificateholders  relating to such
Deleted  Mortgage  Loan to the  Seller  and shall  execute  and  deliver  at the
Seller's  direction such  instruments of transfer or assignment  prepared by the
Seller,  in each case without  recourse,  as shall be necessary to vest title in
the Seller, or its designee, the Trustee's interest in any Deleted Mortgage Loan
substituted for pursuant to this Section 2.3.

      For any  month in which  the  Seller  substitutes  one or more  Substitute
Mortgage Loans for one or more Deleted  Mortgage Loans, the Master Servicer will
determine  the amount (if any) by which the aggregate  principal  balance of all
such  Substitute  Mortgage Loans as of the date of substitution is less than the
aggregate  Stated  Principal  Balance of all such Deleted  Mortgage Loans (after
application of the scheduled  principal  portion of the monthly  payments due in
the month of  substitution).  The  amount of such  shortage  (the  "Substitution
Adjustment  Amount") plus an amount equal to the  aggregate of any  unreimbursed
Advances with respect to such Deleted  Mortgage  Loans shall be deposited in the
Certificate Account by the Seller on or before the Distribution  Account Deposit
Date for the Distribution Date in the month succeeding the calendar month during
which the related  Mortgage  Loan became  required to be  purchased  or replaced
hereunder.

      In the event that the Seller shall have  repurchased a Mortgage  Loan, the
Purchase Price therefor shall be deposited in the Certificate  Account  pursuant
to  Section  3.5 on or before  the  Distribution  Account  Deposit  Date for the
Distribution  Date in the month  following  the month  during  which the  Seller
became obligated  hereunder to repurchase or replace such Mortgage Loan and upon
such  deposit of the  Purchase  Price,  the  delivery  of the Opinion of Counsel
required  by Section  2.5 and  receipt of a Request  for  Release in the form of
Exhibit M hereto,  the Trustee  shall  release or shall cause the  Custodian  to
release the related Mortgage File held for the benefit of the Certificateholders
to such  Person,  and the Trustee  shall  execute and deliver or shall cause the
Custodian to execute and deliver at such Person's  direction such instruments of
transfer or assignment  prepared by such Person,  in each case without recourse,
as shall be necessary to transfer  title from the Trustee.  It is understood and
agreed  that  the  obligation  under  this  Agreement  of the  Seller  to  cure,
repurchase or replace any Mortgage Loan as to which a breach has occurred and is
continuing shall  constitute the sole remedy against the Seller  respecting such
breach  available to  Certificateholders,  the Depositor or the Trustee on their
behalf.


                                       41
<PAGE>

      After giving  effect to the sale of the  Certificates  by the Depositor to
the Underwriter, and thereafter, so long as any Certificates remain outstanding,
the Seller, its affiliates and agents, collectively,  shall not beneficially own
Certificates  the aggregate  fair value of which would  represent 90% or more of
the beneficial interests in the Trust Fund.

      The representations and warranties made pursuant to this Section 2.3 shall
survive  delivery  of  the  respective  Mortgage  Files  to the  Trustee  or the
Custodian for the benefit of the Certificateholders.

            SECTION 2.4  Representations  and  Warranties of the Depositor as to
            the Mortgage Loans.

      The Depositor  hereby  represents and warrants to the Trustee with respect
to each  Mortgage Loan as of the date hereof or such other date set forth herein
that as of the Closing Date, and following the transfer of the Mortgage Loans to
it pursuant to MLPA II and  immediately  prior to the conveyance of the Mortgage
Loans by it to the Trustee pursuant to Section 2.1(a) hereof,  the Depositor had
good title to the  Mortgage  Loans and the  Mortgage  Notes  were  subject to no
offsets, defenses or counterclaims.

      It is understood  and agreed that the  representations  and warranties set
forth in this Section 2.4 shall  survive  delivery of the Mortgage  Files to the
Trustee.  Upon  discovery by the  Depositor or the Trustee of a breach of any of
the  foregoing  representations  and  warranties  set forth in this  Section 2.4
(referred  to herein as a  "breach"),  which  breach  materially  and  adversely
affects  the  interest of the  Certificateholders,  the party  discovering  such
breach shall give prompt written notice to the others and to each Rating Agency.

            SECTION  2.5  Delivery  of Opinion of  Counsel  in  Connection  with
            Substitutions.

(a)   Notwithstanding any contrary provision of this Agreement,  no substitution
      pursuant  to Section  2.2 or  Section  2.3 shall be made more than 90 days
      after the  Closing  Date unless the  Depositor  delivers to the Trustee an
      Opinion of Counsel,  which  Opinion of Counsel shall not be at the expense
      of either the Trustee or the Trust Fund,  addressed to the Trustee, to the
      effect that such substitution will not (i) result in the imposition of the
      tax on "prohibited  transactions" on the Trust Fund or contributions after
      the Startup  Date,  as defined in Sections  860F(a)(2)  and 860G(d) of the
      Code,  respectively,  or (ii) cause any REMIC created hereunder to fail to
      qualify as a REMIC at any time that any Certificates are outstanding.

(b)   Upon discovery by the Depositor,  the Master  Servicer or the Trustee that
      any Mortgage Loan does not  constitute a "qualified  mortgage"  within the
      meaning of Section 860G(a)(3) of the Code, the party discovering such fact
      shall  promptly  (and  in any  event  within  five  (5)  Business  Days of
      discovery) give written notice thereof to the other parties. In connection
      therewith,  the Trustee  shall  require the Depositor to cause the Seller,
      pursuant to MLPA I and at the Seller's  option,  to either (i) substitute,
      if the  conditions  in Section  2.3(b) with respect to  substitutions  are
      satisfied,  a Substitute  Mortgage Loan for the affected Mortgage Loan, or
      (ii)  repurchase  the  affected  Mortgage  Loan  within  90  days  of such
      discovery  in the same manner as it would a Mortgage  Loan for a breach of
      representation or warranty made pursuant to Section 2.3. The Trustee shall
      reconvey  or shall  cause the  Custodian  to  reconvey  to the  Seller the
      Mortgage Loan to be released  pursuant  hereto in the same manner,  and on
      the same terms and conditions, as it would a Mortgage Loan repurchased for
      breach of a representation or warranty contained in Section 2.3.


                                       42
<PAGE>

SECTION 2.6 Execution and Delivery of Certificates.

      The Trustee  acknowledges  the transfer and  assignment to it of the Trust
Fund and,  concurrently  with such  transfer  and  assignment,  has executed and
delivered to or upon the order of the Depositor,  the Certificates in authorized
denominations  evidencing  directly or  indirectly  the entire  ownership of the
Trust Fund.  The Trustee  agrees to hold the Trust Fund and  exercise the rights
referred  to above for the  benefit of all  present  and  future  Holders of the
Certificates  and to perform the duties set forth in this  Agreement to the best
of its ability, to the end that the interests of the Holders of the Certificates
may be adequately and effectively protected.

            SECTION 2.7 REMIC Matters.

      The Preliminary  Statement sets forth the "latest possible  maturity date"
for federal income tax purposes of all REMIC regular interests created hereby.

      The  assets of the  Lower  REMIC  shall be as set forth in the  definition
thereof.  Each  interest  identified  in the first table below by a  designation
beginning with "L" shall be a "regular  interest" in the Lower REMIC and a Lower
REMIC  Interest,  and the RL  Interests  shall  be the sole  class  of  residual
interest in the Lower REMIC.  The Lower REMIC Interests shall be  uncertificated
and shall be held by the Trustee as assets of the Middle REMIC.

      The assets of the  Middle  REMIC  shall be as set forth in the  definition
thereof.  Each  interest  identified  in the second table below by a designation
beginning  with "M" shall be a  "regular  interest"  in the  Middle  REMIC and a
Middle REMIC Interest,  and the RM Interests shall be the sole class of residual
interest in the Middle REMIC. The Middle REMIC Interests shall be uncertificated
and shall be held by the Trustee as assets of the Upper REMIC.

      The  assets of the  Upper  REMIC  shall be as set forth in the  definition
thereof.  The Regular  Certificates shall represent  "regular  interests" in the
Upper REMIC. The RU Interest shall be the sole class of residual interest in the
Upper REMIC. The Class II-A-R  Certificate  shall represent  ownership of the RL
Interest, RM Interest and RU Interest.

      The  "Startup  Day" for  purposes of the REMIC  Provisions  for each REMIC
hereunder shall be the Closing Date. The Tax Matters Person with respect to each
REMIC  hereunder shall be the Trustee and the Trustee shall hold the Tax Matters
Person Certificate. Each REMIC's taxable year shall be the calendar year and its
accounts shall be maintained using the accrual method.


                                       43
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
   Lower REMIC
   Interest or     Lower REMIC Interest      Lower REMIC Interest     Corresponding Class of Middle REMIC
    Residual              Balance                    Rate                           Interests
-------------------------------------------------------------------------------------------------------------
                                                                            Interest            Principal
-------------------------------------------------------------------------------------------------------------
<S>                <C>                               <C>                       <C>                 <C>
L-I-A-1            $        56,717.31                (2)                       (1)                 (1)
-------------------------------------------------------------------------------------------------------------
L-I-A-2            $         6,301.92                (2)                       (1)                 (1)
-------------------------------------------------------------------------------------------------------------
L-I-A-ZZZ          $    99,967,904.04                (2)                       (1)                 (1)
-------------------------------------------------------------------------------------------------------------
RL                 $             0.00                N/A                       N/A                 N/A
-------------------------------------------------------------------------------------------------------------
L-II-A-1           $       121,931.06                (3)                       (1)                 (1)
-------------------------------------------------------------------------------------------------------------
L-II-A-2           $        13,547.90                (3)                       (1)                 (1)
-------------------------------------------------------------------------------------------------------------
L-II-A-ZZZ         $   214,898,516.23                (3)                       (1)                 (1)
-------------------------------------------------------------------------------------------------------------
Total
-------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Lower REMIC Interest  L-I-A-1,  Lower REMIC  Interest  L-I-A-2 and Lower
REMIC  Interest  L-I-A-ZZZ  shall be  Corresponding  Classes to these classes of
Middle REMIC Interests:  M-I-A-1,  M-B-1,  M-B-2,  M-B-3, M-B-4, M-B-5 and M-B-6
(provided that with respect to M-B-1, M-B-2, M-B-3, M-B-4, M-B-5 and M-B-6, such
Lower REMIC Interests shall only correspond to the portion supported by Pool I).
The Lower REMIC Interest L-II-A-1, Lower REMIC L-II-A-2 and Lower REMIC Interest
L-II-A-ZZZ  shall be  Corresponding  Classes to these  classes  of Middle  REMIC
Interests:  M-II-A-1,  M-II-A-R,  M-B-1,  M-B-2,  M-B-3,  M-B-4, M-B-5 and M-B-6
(provided that with respect to M-B-1, M-B-2, M-B-3, M-B-4, M-B-5 and M-B-6, such
Lower REMIC  Interests  shall only  correspond to the portion  supported by Pool
II).

(2) The Lower REMIC Interest Rate for the Lower REMIC Interest L-I-A-1,  L-I-A-2
and  L-I-A-ZZZ  will equal the Weighted  Average  Adjusted Net Mortgage Rate for
Pool I.

(3) The  Lower  REMIC  Interest  Rate for the  Lower  REMIC  Interest  L-II-A-1,
L-II-A-2 and L-II-A-ZZZ  will equal the Weighted  Average  Adjusted Net Mortgage
Rate for Pool II.

      "L1 Interests" refers to the L-I-A-1 Lower REMIC Interest and the L-II-A-1
Lower REMIC Interests. "L2 Interests" refers to the L-I-A-2 Lower REMIC Interest
and L-II-A-2 Lower REMIC Interest.  "LZZZ  Interests"  refers to L-I-A-ZZZ Lower
REMIC Interest and L-II-A-ZZZ Lower REMIC Interest.  Each L1 Interest shall have
a principal balance  initially equal to 0.9% of the Group Subordinate  Amount of
its corresponding Mortgage Pool. Each L2 Interest shall have a principal balance
initially  equal to 0.1% of the Group  Subordinate  Amount of its  corresponding
Mortgage Pool. The initial  principal  balance of each LZZZ Interest shall equal
the excess of the Pool Principal Balance of its corresponding Mortgage Pool over
the sum of the initial  principal  balances of the L1 Interests and L2 Interests
corresponding to such Mortgage Pool.

      Unless a Cross-over  Situation (as defined  below)  exists,  principal and
Realized  Losses  arising with respect to each  Mortgage Pool shall be allocated
first to cause the L1 and L2 Interests  corresponding  to such  Mortgage Pool to
equal 0.9% and 0.1% of the Group Subordinate  Amount of such Mortgage Pool as of
such  Distribution  Date (after  distributions  of principal  and  allocation of
Realized Losses are made) and all excess  principal and Realized Losses shall be
allocated to the LZZZ Interest  corresponding to such Mortgage Pool. A L1, L2 or
LZZZ Interest that is allocated principal on any Distribution Date shall receive
such  principal,  and have its principal  balance  reduced by the amount of such
principal,  on such Distribution Date. Similarly, a L1, L2 or LZZZ Interest that
is allocated a Realized Loss on any  Distribution  Date shall have its principal
balance reduced by the amount of such Realized Loss on such Distribution Date.


                                       44
<PAGE>

      A "Cross-over  Situation" exists if on any Distribution Date (after taking
into account  distributions  of principal and  allocations of Realized Losses on
such  Distribution  Date) the L1 and L2 Interests  corresponding to any Mortgage
Pool are in the aggregate  less than 1% of the Group  Subordinate  Amount of the
corresponding   Mortgage  Pool.  If  a  Cross-over   Situation   exists  on  any
Distribution  Date, and the weighted average interest rate of the outstanding L1
and L2 Interests is less than the Pass-Through Rate for any Class of Subordinate
Certificates  for the  following  Distribution  Date,  a Principal  Reallocation
Payment (as defined below) shall be made  proportionately  to the outstanding L1
Interests prior to any other  distributions of principal from each such Mortgage
Pool so that the Calculation Rate equals the Pass-Through Rate for each Class of
Subordinate  Certificates.  If a Cross-over Situation exists on any Distribution
Date,  and the weighted  average rate of the  outstanding L1 and L2 Interests is
greater than the Pass-Through Rate for any Class of Subordinate Certificates for
the following  Distribution Date, a Principal Reallocation Payment shall be made
proportionately to the outstanding L2 Interests prior to any other distributions
of principal  from each such Mortgage Pool so that the  Calculation  Rate equals
the Pass-Through Rate for each Class of Subordinate  Certificates.  A "Principal
Reallocation  Payment" is a distribution of the minimum amount of principal that
causes the  Calculation  Rate (as defined below) with respect to the outstanding
L1 and L2 Interests to equal the Pass-Through Rate for each Class of Subordinate
Certificates.  The "Calculation Rate" shall equal the product of (i) 10 and (ii)
the weighted  average  interest  rate of the  outstanding  L1 and L2  Interests,
treating each L1 Interest as capped at zero or reduced by a fixed  percentage of
100% of the interest  accruing on such class.  Principal  Reallocation  Payments
shall be made from principal received on the Mortgage Loans from a Mortgage Pool
and shall also consist of a proportionate allocation of Realized Losses from the
Mortgage Loans of a Mortgage Pool. For purposes of making Principal Reallocation
Payments,  to the extent  that the  principal  received  during  the  applicable
collection period from the related Mortgage Pool and related Realized Losses are
insufficient to make the necessary  reduction of principal,  then interest shall
accrue  on the LZZZ  Interest  (and be added to its  principal  balance)  of the
related Mortgage Pool to allow the necessary Principal  Reallocation  Payment to
be made. The Calculation Rate is designed to always equal the Pass-Through  Rate
of each Class of Subordinated Certificates.

      If a Cross-over  Situation exists, the aggregate principal balances of the
outstanding  L1 and L2  Interests  of all of the  Mortgage  Pools  shall  not be
reduced below one percent of the aggregate Pool Principal  Balance of all of the
Mortgage  Pools for the  following  Distribution  Date in  excess of the  Senior
Certificates  as of the related  Distribution  Date (after  taking into  account
distributions   of  principal  and   allocations  of  Realized  Losses  on  such
Distribution  Date). To the extent this limitation  prevents the distribution of
principal  to the L1 and L2  Interests  of a Mortgage  Pool and the related LZZZ
Interest  has already  been  reduced to zero,  such excess  principal  from such
Mortgage  Pool  shall  be paid  proportionately  to the  LZZZ  Interests  of the
Mortgage  Pool or Pools whose  aggregate L1 and L2  Interests  are less than one
percent of the Group Subordinate  Amount.  Any such shortfall as a result of the
Mortgage Pool receiving the extra payment having a Weighted Average Adjusted Net
Mortgage Rate lower than the Weighted  Average Adjusted Net Mortgage Rate of the
Mortgage  Pool from  which the  payment  was  reallocated  shall be treated as a
Realized Loss and if excess arises as result of the Mortgage Pool  receiving the
extra payment having a Weighted  Average  Adjusted Net Mortgage Rate higher than
the Mortgage Pool from which the payment was  reallocated it shall reimburse the
Middle REMIC for prior  Realized  Losses.  If on any  Distribution  Date, the L1
Interest or L2 Interest  remains  outstanding  after the related Pool  Principal
Balance is at zero as of the beginning of the Accrual  Period  corresponding  to
such  Distribution  Date,  their Lower REMIC Interest Rate shall be the Weighted
Average Adjusted Net Mortgage Rate of the Mortgage Pool with the lowest Weighted
Average  Adjusted Net Mortgage Rate that remains  outstanding  and the excess of
interest  at the  Pass-Through  Rate  for  the  Subordinated  Certificates  over
interest at such Weighted Average Adjusted Net Mortgage Rate shall be treated as
paid from Lower REMIC to the Middle REMIC as  reimbursement  for prior  Realized
Losses.


                                       45
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
     Middle
 REMIC Interest       Middle REMIC         Middle REMIC Interest        Corresponding Class or Interest
   or Residual       Interest Balance               Rate
-------------------------------------------------------------------------------------------------------------
                                                                            Interest            Principal
-------------------------------------------------------------------------------------------------------------
<S>                <C>                               <C>             <C>                       <C>
M-I-A-1            $    93,729,000.00                (1)                  I-A-1, I-A-IO           I-A-1
-------------------------------------------------------------------------------------------------------------
M-II-A-1           $   201,486,000.00                (2)             II-A-1, II-A-2,II-A-IO   II-A-1, II-A-2
-------------------------------------------------------------------------------------------------------------
M-II-A-R           $           100.00                (2)                   RU Interest         RU Interest
-------------------------------------------------------------------------------------------------------------
M-B-1              $     9,767,000.00                (3)                       B-1                 B-1
-------------------------------------------------------------------------------------------------------------
M-B-2              $     3,466,000.00                (3)                       B-2                 B-2
-------------------------------------------------------------------------------------------------------------
M-B-3              $     2,205,000.00                (3)                       B-3                 B-3
-------------------------------------------------------------------------------------------------------------
M-B-4              $     1,891,000.00                (3)                       B-4                 B-4
-------------------------------------------------------------------------------------------------------------
M-B-5              $     1,418,000.00                (3)                       B-5                 B-5
-------------------------------------------------------------------------------------------------------------
M-B-6              $     1,102,818.46                (3)                       B-6                 B-6
-------------------------------------------------------------------------------------------------------------
RM                 $             0.00                N/A                       N/A                 N/A
-------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Middle REMIC Interest Rate for the Middle REMIC Interest M-I-A-1 will be
equal to the interest rate on Lower REMIC Interest L-I-A-ZZZ.

(2) The Middle REMIC Interest Rate for the Middle REMIC  Interest  M-II-A-1 will
be equal  to the  interest  rate on  Lower  REMIC  Interest  L-II-A-ZZZ  and the
Pass-Through Rate on the Class II-A-R  Certificate will be equal to the interest
rate on Lower REMIC Interest L-II-A-ZZZ.

(3) The Middle REMIC Interest Rate for the Middle REMIC Interest  M-B-1,  Middle
REMIC Interest M-B-2,  Middle REMIC Interest M-B-3, Middle REMIC Interest M-B-4,
Middle  REMIC  Interest  M-B-5,  Middle  REMIC  Interest  M-B-6  shall equal the
Calculation Rate as defined in this Section 2.7. The  Pass-Through  Rate on each
Class of Subordinated Certificates is variable and will be equal to the weighted
average of the Middle  REMIC  Interest  Rates on Middle  REMIC  Interest  M-B-1,
Middle REMIC Interest M-B-2,  Middle REMIC Interest M-B-3, Middle REMIC Interest
M-B-4, Middle REMIC Interest M-B-5, Middle REMIC Interest M-B-6, weighted on the
basis of the principal balance of each such Middle REMIC Interest.

      On each  Distribution  Date  Available  Funds  shall be  distributed  with
respect to the Middle REMIC Interests in a manner such that:


                                       46
<PAGE>

      (a)   interest  accrued,   if  any,  on  each  Middle  REMIC  Interest  is
            distributed  with respect to each such Middle REMIC  Interest in the
            same manner that Accrued  Certificate  Interest is distributed  with
            respect  to the  Corresponding  Class  or  Classes  of  Certificates
            pursuant to Section 4.2; and

      (b)   principal is  distributed  (and Realized  Losses shall be allocated)
            with respect to each such Middle  REMIC  Interest in the same manner
            that  principal is  distributed  (and Realized  Losses is allocated)
            with respect to the Corresponding  Classes or Classes of Certificate
            pursuant to Section 4.2 and Section 4.4.

      The  foregoing  REMIC  structure is intended to cause all of the cash from
the  Mortgage  Loans to flow  through to the Upper REMIC as cash flow on a REMIC
regular interest, without creating any shortfall-actual or potential (other than
for  credit  losses)  to any REMIC  regular  interest.  To the  extent  that the
structure is believed to diverge from such  intention  the Trustee shall resolve
ambiguities to accomplish such result and shall to the extent necessary  rectify
any  drafting   errors  or  seek   clarification   to  the   structure   without
Certificateholder  approval (but with  guidance of counsel) to  accomplish  such
intention.

            SECTION 2.8 Covenants of the Master Servicer.

      The Master Servicer  hereby  covenants to the Depositor and the Trustee as
follows:

      (a)   the  Master   Servicer  shall  comply  in  the  performance  of  its
            obligations  under  this  Agreement  with all  reasonable  rules and
            requirements  of the insurer under each Required  Insurance  Policy;
            and

      (b)   no  written  information,   certificate  of  an  officer,  statement
            furnished in writing or written  report  delivered to the Depositor,
            any  affiliate  of the  Depositor or the Trustee and prepared by the
            Master  Servicer  pursuant to this Agreement will contain any untrue
            statement  of a  material  fact  or omit to  state a  material  fact
            necessary to make such information, certificate, statement or report
            not misleading.

                                  ARTICLE III
                 ADMINISTRATION AND SERVICING OF MORTGAGE LOANS

            SECTION 3.1 Master Servicer to Service Mortgage Loans.

      For and on behalf of the  Certificateholders,  the Master  Servicer  shall
service and administer  the Mortgage  Loans in accordance  with the terms of (i)
the Servicing  Rights  Transfer and  Subservicing  Agreement,  pursuant to which
First  Tennessee  Mortgage  Services,   Inc.  engaged  the  Master  Servicer  to
subservice the Mortgage  Loans,  (ii) this Agreement and (iii) the customary and
usual standards of practice of prudent mortgage loan servicers; provided that if
there is a  conflict  between  the  terms  of the  Servicing  Agreement  and the
Servicing Rights Transfer and Subservicing  Agreement, on the one hand, and this
Agreement,  on the other hand,  the terms of this Agreement  shall  prevail.  In
connection  with such servicing and  administration,  the Master  Servicer shall
have full power and  authority,  acting alone  and/or  through  Subservicers  as
provided  in Section  3.2  hereof,  to do or cause to be done any and all things
that it may deem  necessary or desirable in connection  with such  servicing and
administration,  including but not limited to, the power and authority,  subject
to  the  terms   hereof  (i)  to  execute   and   deliver,   on  behalf  of  the
Certificateholders  and the  Trustee,  customary  consents  or waivers and other
instruments  and  documents,  (ii) to  consent  to  transfers  of any  Mortgaged
Property and  assumptions of the Mortgage Notes and related  Mortgages (but only
in the  manner  provided  in this  Agreement),  (iii) to collect  any  Insurance
Proceeds and other Liquidation Proceeds,  and (iv) to effectuate  foreclosure or
other  conversion  of the  ownership  of the  Mortgaged  Property  securing  any
Mortgage Loan;  provided that the Master Servicer shall not take any action that
is  inconsistent  with or  prejudices  the  interests  of the Trust  Fund or the
Certificateholders  in any  Mortgage  Loan or the  rights and  interests  of the


                                       47
<PAGE>

Depositor,  the Trustee and the  Certificateholders  under this  Agreement.  The
Master  Servicer shall  represent and protect the interests of the Trust Fund in
the same manner as it protects its own  interests  in mortgage  loans in its own
portfolio in any claim,  proceeding or litigation regarding a Mortgage Loan, and
shall not make or permit any  modification,  waiver or amendment of any Mortgage
Loan which would cause any REMIC created hereunder to fail to qualify as a REMIC
or result in the imposition of any tax under Section  860F(a) or Section 860G(d)
of the Code.  Without  limiting  the  generality  of the  foregoing,  the Master
Servicer,  in its own name or in the name of the Depositor  and the Trustee,  is
hereby  authorized  and  empowered by the  Depositor  and the Trustee,  when the
Master Servicer believes it appropriate in its reasonable  judgment,  to execute
and deliver, on behalf of the Trustee, the Depositor,  the Certificateholders or
any of them, any and all  instruments of  satisfaction  or  cancellation,  or of
partial or full release or discharge and all other comparable instruments,  with
respect to the Mortgage Loans, and with respect to the Mortgaged Properties held
for the benefit of the Certificateholders. The Master Servicer shall prepare and
deliver to the Depositor and/or the Trustee such documents  requiring  execution
and delivery by either or both of them as are necessary or appropriate to enable
the Master  Servicer to service and  administer the Mortgage Loans to the extent
that the Master  Servicer is not permitted to execute and deliver such documents
pursuant  to the  preceding  sentence.  Upon  receipt  of  such  documents,  the
Depositor  and/or the Trustee shall  execute such  documents and deliver them to
the Master Servicer.  The Master Servicer further is authorized and empowered by
the Trustee,  on behalf of the  Certificateholders  and the Trustee,  in its own
name or in the name of a Subservicer,  when the Master Servicer or a Subservicer
as the case may be, believes it appropriate in its best judgment to register any
Mortgage Loan on the MERS(R) System,  or cause the removal from the registration
of any Mortgage Loan on the MERS(R) System, to execute and deliver, on behalf of
the Trustee and the  Certificateholders  or any of them, any and all instruments
of assignment and other  comparable  instruments with respect to such assignment
or  re-recording  of a Mortgage  in the name of MERS,  solely as nominee for the
Trustee and its successors and assigns.

      In accordance  with the standards of the preceding  paragraph,  the Master
Servicer  shall  advance  or cause to be  advanced  funds as  necessary  for the
purpose of  effecting  the  payment of taxes and  assessments  on the  Mortgaged
Properties,  which  advances  shall be  reimbursable  in the first instance from
related  collections from the Mortgagors pursuant to Section 3.6, and further as
provided in Section 3.8. The costs incurred by the Master  Servicer,  if any, in
effecting  the  timely  payments  of  taxes  and  assessments  on the  Mortgaged
Properties  and  related  insurance  premiums  shall  not,  for the  purpose  of
calculating  monthly  distributions to the  Certificateholders,  be added to the
Stated Principal  Balances of the related Mortgage Loans,  notwithstanding  that
the terms of such Mortgage Loans so permit.


                                       48
<PAGE>

            SECTION  3.2   Subservicing;   Enforcement  of  the  Obligations  of
            Servicers.

      (a)   The Master Servicer may arrange for the subservicing of any Mortgage
            Loan  by  a  Subservicer  pursuant  to  a  subservicing   agreement;
            provided,  however, that such subservicing arrangement and the terms
            of the related subservicing agreement must provide for the servicing
            of such  Mortgage  Loans in a manner  consistent  with the servicing
            arrangements  contemplated  hereunder.  Unless the context otherwise
            requires,  references  in this  Agreement to actions  taken or to be
            taken by the Master Servicer in servicing the Mortgage Loans include
            actions  taken or to be  taken by a  Subservicer  on  behalf  of the
            Master Servicer.  Notwithstanding the provisions of any subservicing
            agreement,  any of the  provisions  of this  Agreement  relating  to
            agreements  or  arrangements  between  the  Master  Servicer  and  a
            Subservicer  or reference to actions taken through a Subservicer  or
            otherwise,  the Master Servicer shall remain obligated and liable to
            the  Depositor,  the  Trustee  and  the  Certificateholders  for the
            servicing  and  administration  of the Mortgage  Loans in accordance
            with the  provisions of this  Agreement  without  diminution of such
            obligation or liability by virtue of such subservicing agreements or
            arrangements  or by virtue of  indemnification  from the Subservicer
            and to the same extent and under the same terms and conditions as if
            the Master  Servicer  alone were  servicing  and  administering  the
            Mortgage Loans. All actions of each Subservicer  performed  pursuant
            to the related subservicing agreement shall be performed as an agent
            of the  Master  Servicer  with  the  same  force  and  effect  as if
            performed directly by the Master Servicer.

      (b)   For purposes of this Agreement,  the Master Servicer shall be deemed
            to have  received  any  collections,  recoveries  or  payments  with
            respect to the  Mortgage  Loans that are  received by a  Subservicer
            regardless of whether such payments are remitted by the  Subservicer
            to the Master Servicer.

            SECTION  3.3 Rights of the  Depositor  and the Trustee in Respect of
            the Master Servicer.

      The Depositor may, but is not obligated to, enforce the obligations of the
Master Servicer hereunder and may, but is not obligated to, perform,  or cause a
designee to perform,  any defaulted  obligation of the Master Servicer hereunder
and in  connection  with any such  defaulted  obligation to exercise the related
rights of the Master Servicer hereunder; provided that the Master Servicer shall
not  be  relieved  of any  of  its  obligations  hereunder  by  virtue  of  such
performance  by the  Depositor  or its  designee.  Neither  the  Trustee nor the
Depositor shall have any  responsibility  or liability for any action or failure
to act by the  Master  Servicer  nor  shall  the  Trustee  or the  Depositor  be
obligated to  supervise  the  performance  of the Master  Servicer  hereunder or
otherwise.

            SECTION 3.4 Trustee to Act as Master Servicer.

      In the event  that the Master  Servicer  shall for any reason no longer be
the Master Servicer hereunder (including by reason of an Event of Default),  the
Trustee  or  its  successor  shall  thereupon  assume  all  of  the  rights  and
obligations of the Master Servicer hereunder arising thereafter (except that the
Trustee  shall not be (i) liable for losses of the Master  Servicer  pursuant to
Section 3.9 hereof or any acts or omissions of the  predecessor  Master Servicer
hereunder), (ii) obligated to make Advances if it is prohibited from doing so by
applicable law, (iii) obligated to effectuate  repurchases or  substitutions  of
Mortgage  Loans  hereunder  including,   but  not  limited  to,  repurchases  or
substitutions  of Mortgage  Loans  pursuant  to Section 2.2 or 2.3 hereof,  (iv)
responsible for expenses of the Master  Servicer  pursuant to Section 2.3 or (v)
deemed to have made any  representations  and warranties of the Master  Servicer
hereunder).  Any such assumption shall be subject to Section 7.2 hereof.  If the
Master Servicer shall for any reason no longer be the Master Servicer (including
by reason of any Event of Default),  the Trustee or its successor  shall succeed
to any rights and  obligations of the Master  Servicer  under each  subservicing
agreement.


                                       49
<PAGE>

      The Master Servicer shall, upon request of the Trustee, but at the expense
of the Master Servicer,  deliver to the assuming party all documents and records
relating to each subservicing agreement or substitute subservicing agreement and
the Mortgage Loans then being  serviced  thereunder and an accounting of amounts
collected or held by it and otherwise use its best efforts to effect the orderly
and efficient transfer of the substitute  subservicing agreement to the assuming
party.

            SECTION  3.5  Collection  of  Mortgage  Loan  Payments;  Certificate
            Account; Distribution Account.

      (a)   The Master Servicer shall make reasonable efforts in accordance with
            the  customary and usual  standards of practice of prudent  mortgage
            servicers  to collect  all  payments  called for under the terms and
            provisions of the Mortgage Loans to the extent such procedures shall
            be consistent  with this  Agreement and the terms and  provisions of
            any  related  Required   Insurance   Policy.   Consistent  with  the
            foregoing,  the Master  Servicer may in its discretion (i) waive any
            late payment charge or any prepayment  charge or penalty interest in
            connection  with the  prepayment  of a Mortgage Loan and (ii) extend
            the due dates for payments  due on a Mortgage  Note for a period not
            greater than 180 days; provided,  however,  that the Master Servicer
            cannot  extend the maturity of any such  Mortgage Loan past the date
            on which the final  payment is due on the latest  maturing  Mortgage
            Loan as of the Cut-off Date.  In the event of any such  arrangement,
            the Master Servicer shall make Advances on the related Mortgage Loan
            in  accordance  with  the  provisions  of  Section  4.1  during  the
            scheduled  period in accordance  with the  amortization  schedule of
            such  Mortgage Loan without  modification  thereof by reason of such
            arrangements. The Master Servicer shall not be required to institute
            or join in  litigation  with  respect to  collection  of any payment
            (whether under a Mortgage, Mortgage Note or otherwise or against any
            public  or  governmental  authority  with  respect  to a  taking  or
            condemnation) if it reasonably believes that enforcing the provision
            of the Mortgage or other  instrument  pursuant to which such payment
            is required is prohibited by applicable law.

      (b)   The Master  Servicer  shall  establish and maintain the  Certificate
            Account.  The  Certificate  Account  shall  consist of two  separate
            subaccounts,  each of which shall  relate to a  particular  Mortgage
            Pool.  The Master  Servicer  shall  deposit or cause to be deposited
            into the appropriate  subaccount of the Certificate Account no later
            than  two  Business   Days  after   receipt,   except  as  otherwise
            specifically provided herein, the following payments and collections
            remitted  by  Subservicers  or  received  by it in  respect  of  the
            Mortgage Loans subsequent to the Cut-off Date (other than in respect
            of principal and interest due on the Mortgage Loans on or before the
            Cut-off  Date) and the  following  amounts  required to be deposited
            hereunder:


                                       50
<PAGE>

            (i)   all payments on account of principal on the Mortgage  Loans in
                  the related Mortgage Pool, including Principal Prepayments;

            (ii)  all payments on account of interest on the  Mortgage  Loans in
                  the related Mortgage Pool, net of the related Master Servicing
                  Fee and any Prepayment Interest Excess;

            (iii) all Insurance Proceeds and Liquidation  Proceeds in respect of
                  the related Mortgage Loans in the related Mortgage Pool, other
                  than  proceeds to be applied to the  restoration  or repair of
                  the  Mortgaged  Property  or  released  to  the  Mortgagor  in
                  accordance  with  the  Master   Servicer's   normal  servicing
                  procedures;

            (iv)  any amount  required to be deposited by the Master Servicer in
                  respect  of the  related  Mortgage  Pool  pursuant  to Section
                  3.5(c) in connection with any losses on Permitted Investments;

            (v)   any amounts required to be deposited by the Master Servicer in
                  respect  of the  related  Mortgage  Pool  pursuant  to Section
                  3.9(b),  3.9(d),  and in respect of net monthly  rental income
                  from any related REO Property pursuant to Section 3.11 hereof;

            (vi)  all Substitution  Adjustment Amounts in respect of the related
                  Mortgage Pool;

            (vii) all Advances in respect of the related  Mortgage  Pool made by
                  the Master Servicer pursuant to Section 4.1; and

            (viii)any  other  amounts  required  to be  deposited  hereunder  in
                  respect of the related Mortgage Pool.

      In  addition,  with  respect  to any  Mortgage  Loan that is  subject to a
buydown  agreement,  on each Due Date for such Mortgage Loan, in addition to the
monthly payment remitted by the Mortgagor, the Master Servicer shall cause funds
to be deposited into the applicable  subaccount of the Certificate Account in an
amount  required to cause an amount of interest to be paid with  respect to such
Mortgage  Loan equal to the amount of interest that has accrued on such Mortgage
Loan from the preceding Due Date at the related  Adjusted  Mortgage Rate on such
date.


                                       51
<PAGE>

      The foregoing  requirements for remittance by the Master Servicer shall be
exclusive,  it being understood and agreed that, without limiting the generality
of the foregoing,  payments in the nature of prepayment penalties,  late payment
charges,  assumption fees or amounts attributable to reimbursements of Advances,
if collected, need not be remitted by the Master Servicer. In the event that the
Master  Servicer  shall remit any amount not required to be remitted,  it may at
any time withdraw or direct the institution  maintaining the Certificate Account
to withdraw such amount from the Certificate  Account,  any provision  herein to
the contrary  notwithstanding.  Such withdrawal or direction may be accomplished
by delivering  written notice  thereof to the Trustee or such other  institution
maintaining  the Certificate  Account which  describes the amounts  deposited in
error in the Certificate  Account.  The Master Servicer shall maintain  adequate
records with respect to all withdrawals made pursuant to this Section. All funds
deposited  in  the   Certificate   Account  shall  be  held  in  trust  for  the
Certificateholders until withdrawn in accordance with Section 3.8.

(c)   The   Trustee   shall   establish   and   maintain,   on   behalf  of  the
      Certificateholders,  the Distribution  Account.  The Distribution  Account
      shall consist of two separate subaccounts, each of which shall relate to a
      particular  Mortgage  Pool.  The Trustee  shall,  promptly  upon  receipt,
      deposit in the Distribution Account and retain therein the following:

      (i)   the aggregate  amount remitted by the Master Servicer to the Trustee
            in respect of a Mortgage Pool pursuant to Section 3.8(a)(ix);

      (ii)  any amount deposited by the Master Servicer pursuant to this Section
            3.5(c) in connection with any losses on Permitted Investments; and

      (iii) any other  amounts  deposited  hereunder  which are  required  to be
            deposited in the Distribution Account.

      In the event that the Master  Servicer shall remit any amount not required
to be  remitted,  it may at any time direct the Trustee to withdraw  such amount
from the applicable subaccount of the Distribution Account, any provision herein
to  the  contrary  notwithstanding.   Such  direction  may  be  accomplished  by
delivering an Officer's  Certificate to the Trustee which  describes the amounts
deposited  in error in the  Distribution  Account.  All funds  deposited  in the
Distribution  Account  shall be held by the  Trustee  in trust  for the  related
Certificateholders   until  disbursed  in  accordance  with  this  Agreement  or
withdrawn in  accordance  with Section 3.8. In no event shall the Trustee  incur
liability for withdrawals from the Distribution  Account at the direction of the
Master Servicer.

      (iv)  The   institutions  at  which  the   Certificate   Account  and  the
            Distribution  Account are maintained  shall invest funds as directed
            by the Master Servicer in Permitted  Investments which in both cases
            shall  mature  not  later  than (i) in the  case of the  Certificate
            Account,   the  second  Business  Day  next  preceding  the  related
            Distribution  Account  Deposit Date  (except that if such  Permitted
            Investment is an obligation of the  institution  that maintains such
            account,  then such Permitted Investment shall mature not later than
            the Business Day next preceding such  Distribution  Account  Deposit
            Date) and (ii) in the case of the Distribution Account, the Business
            Day  next  preceding  the  Distribution  Date  (except  that if such
            Permitted  Investment  is an  obligation  of  the  institution  that
            maintains such fund or account, then such Permitted Investment shall
            mature not later  than such  Distribution  Date) and,  in each case,
            shall not be sold or  disposed  of prior to its  maturity.  All such
            Permitted  Investments shall be made in the name of the Trustee, for
            the  benefit of the  Certificateholders.  All income and gain net of
            any losses  realized from any such investment of funds on deposit in
            the  Certificate  Account  shall be for the  benefit  of the  Master
            Servicer as  servicing  compensation  and all income and gain net of
            any losses  realized from any such investment of funds on deposit in
            the  Distribution  Account  shall be for the benefit of the Trustee.
            The  amount of any  Realized  Losses in the  Certificate  Account in
            respect of any such  investments  shall promptly be deposited by the
            Master  Servicer  in the  Certificate  Account and the amount of any
            Realized Losses in the  Distribution  Account in respect of any such
            investments  shall  promptly be  deposited  by the Trustee  into the
            Distribution  Account.  All reinvestment income earned on amounts on
            deposit in the Distribution  Account shall be for the benefit of the
            Trustee.  The Trustee in its fiduciary  capacity shall not be liable
            for the amount of any loss incurred in respect of any  investment or
            lack of investment of funds held in the Certificate Account and made
            in accordance with this Section 3.5.


                                       52
<PAGE>

      (v)   The Master  Servicer  shall give notice to the Trustee,  the Seller,
            each Rating Agency and the  Depositor of any proposed  change of the
            location of the Certificate Account prior to any change thereof. The
            Trustee shall give notice to the Master Servicer,  the Seller,  each
            Rating  Agency  and the  Depositor  of any  proposed  change  of the
            location of the Distribution Account prior to any change thereof.

            SECTION 3.6  Collection  of Taxes,  Assessments  and Similar  Items;
            Escrow Accounts.

(a)   To the extent  required by the related  Mortgage Note and not violative of
      current law, the Master  Servicer shall establish and maintain one or more
      accounts  (each,  an "Escrow  Account") and deposit and retain therein all
      collections  from the Mortgagors (or advances by the Master  Servicer) for
      the payment of taxes, assessments, hazard insurance premiums or comparable
      items for the account of the Mortgagors.  Nothing herein shall require the
      Master  Servicer to compel a Mortgagor to  establish an Escrow  Account in
      violation of applicable law.

(b)   Withdrawals of amounts so collected  from the Escrow  Accounts may be made
      only to effect  timely  payment of taxes,  assessments,  hazard  insurance
      premiums,  condominium or PUD  association  dues, or comparable  items, to
      reimburse the Master Servicer out of related  collections for any payments
      made   pursuant  to  Sections  3.1  hereof  (with  respect  to  taxes  and
      assessments and insurance premiums) and 3.9 hereof (with respect to hazard
      insurance),  to  refund  to  any  Mortgagors  any  sums  determined  to be
      overages,  to pay interest, if required by law or the terms of the related
      Mortgage or Mortgage Note, to Mortgagors on balances in the Escrow Account
      or to clear and terminate the Escrow  Account at the  termination  of this
      Agreement in accordance with Section 9.1 hereof. The Escrow Accounts shall
      not be a part of the Trust Fund.


                                       53
<PAGE>

(c)   The Master  Servicer  shall  advance any  payments  referred to in Section
      3.6(a)  that are not timely  paid by the  Mortgagors  on the date when the
      tax,  premium or other cost for which such payment is intended is due, but
      the Master  Servicer  shall be required  so to advance  only to the extent
      that such  advances,  in the good faith  judgment of the Master  Servicer,
      will be  recoverable  by the Master  Servicer out of  Insurance  Proceeds,
      Liquidation Proceeds or otherwise.

            SECTION  3.7  Access  to  Certain   Documentation   and  Information
            Regarding the Mortgage Loans.

      The Master Servicer shall afford the Depositor and the Trustee  reasonable
access to all records and  documentation  regarding  the Mortgage  Loans and all
accounts,  insurance  information and other matters  relating to this Agreement,
such access being afforded without charge,  but only upon reasonable request and
during normal business hours at the office designated by the Master Servicer.

      Upon  reasonable  advance  notice in  writing,  the Master  Servicer  will
provide to each  Certificateholder  or Certificate  Owner which is a savings and
loan  association,  bank or insurance  company  certain  reports and  reasonable
access to information and documentation  regarding the Mortgage Loans sufficient
to permit such  Certificateholder or Certificate Owner to comply with applicable
regulations  of  the  OTS  or  other  regulatory  authorities  with  respect  to
investment  in the  Certificates;  provided  that the Master  Servicer  shall be
entitled to be reimbursed by each such  Certificateholder  or Certificate  Owner
for actual  expenses  incurred by the Master  Servicer in providing such reports
and access.

            SECTION 3.8 Permitted  Withdrawals from the Certificate  Account and
            Distribution Account.

            (a)   The  Master  Servicer  may from time to time make  withdrawals
                  from the applicable  subaccount of the Certificate Account for
                  the following purposes:

                  (i)   to the  extent  not  previously  retained  by the Master
                        Servicer,  to pay  to the  Master  Servicer  the  master
                        servicing  compensation to which it is entitled pursuant
                        to Section 3.14,  and earnings on or  investment  income
                        with respect to funds in or credited to the  Certificate
                        Account as additional master servicing compensation;

                        (ii)  to  the  extent  not  previously  retained  by the
                              Master Servicer,  to reimburse the Master Servicer
                              for unreimbursed Advances made by it in respect of
                              the   related   Mortgage   Pool,   such  right  of
                              reimbursement  pursuant  to  this  subclause  (ii)
                              being limited to amounts  received on the Mortgage
                              Loan(s) in respect of which any such  Advance  was
                              made;


                                       54
<PAGE>

                        (iii) to   reimburse   the  Master   Servicer   for  any
                              Nonrecoverable  Advance previously made in respect
                              of the related Mortgage Pool;

                        (iv)  to  reimburse  the  Master  Servicer  for  Insured
                              Expenses  from the related  Insurance  Proceeds in
                              respect of the related Mortgage Pool;

                        (v)   to   reimburse   the  Master   Servicer   for  (a)
                              unreimbursed  Servicing Advances in respect of the
                              related Mortgage Pool, the Master Servicer's right
                              to reimbursement  pursuant to this clause (a) with
                              respect  to any  Mortgage  Loan  being  limited to
                              amounts  received on such  Mortgage  Loan(s) which
                              represent  late  recoveries  of the  payments  for
                              which such  advances were made pursuant to Section
                              3.1 or  Section  3.6  and (b)  for  unpaid  Master
                              Servicing Fees as provided in Section 3.11 hereof;

                        (vi)  to  pay to  the  Seller  or  Master  Servicer,  as
                              applicable,  with respect to each Mortgage Loan in
                              respect of the related  Mortgage  Pool or property
                              acquired   in  respect   thereof   that  has  been
                              purchased  pursuant to Section  2.2,  2.3 or 3.11,
                              all  amounts  received  thereon  after the date of
                              such purchase;

                        (vii) to reimburse  the Seller,  the Master  Servicer or
                              the Depositor for expenses incurred by any of them
                              and reimbursable pursuant to Section 6.3 hereof;

                        (viii)to   withdraw   any   amount   deposited   in  the
                              Certificate   Account  and  not   required  to  be
                              deposited therein;

                        (ix)  on or prior to the  Distribution  Account  Deposit
                              Date,  to withdraw an amount  equal to the related
                              Available  Funds  and the  Trustee  Fee  for  such
                              Distribution  Date and  remit  such  amount to the
                              Trustee for deposit in the  Distribution  Account;
                              and

                        (x)   to clear and  terminate  the  Certificate  Account
                              upon  termination  of this  Agreement  pursuant to
                              Section 9.1 hereof.

      The Master  Servicer  shall keep and maintain  separate  accounting,  on a
Mortgage  Loan-by-Mortgage  Loan basis and on a Mortgage  Pool-by-Mortgage  Pool
basis, for the purpose of justifying any withdrawal from the Certificate Account
pursuant to such subclauses (i), (ii),  (iv), (v) and (vi).  Prior to making any
withdrawal from the Certificate  Account pursuant to subclause (iii), the Master
Servicer  shall deliver to the Trustee an Officer's  Certificate  of a Servicing
Officer  indicating the amount of any previous Advance  determined by the Master
Servicer to be a  Nonrecoverable  Advance and identifying  the related  Mortgage
Loans(s), and their respective portions of such Nonrecoverable Advance.


                                       55
<PAGE>

      (b)   The Trustee shall withdraw  funds from the applicable  subaccount of
            the   Distribution   Account  for   distributions   to  the  related
            Certificateholders in the manner specified in this Agreement (and to
            withhold from the amounts so withdrawn, the amount of any taxes that
            it is  authorized  to  withhold  pursuant to the last  paragraph  of
            Section  8.11).  In  addition,  the Trustee may (and with respect to
            clauses (i) and (ii) below, shall), prior to making the distribution
            pursuant to Section 4.2 from time to time make  withdrawals from the
            Distribution Account for the following purposes:

            (i)   to pay to itself the Trustee Fee for the related  Distribution
                  Date;

            (ii)  to pay to itself earnings on or investment income with respect
                  to funds in the Distribution Account;

            (iii) to  withdraw  and  return to the  Master  Servicer  any amount
                  deposited in the  Distribution  Account and not required to be
                  deposited therein; and

            (iv)  to  clear  and   terminate  the   Distribution   Account  upon
                  termination of the Agreement pursuant to Section 9.1 hereof.

            SECTION 3.9 Maintenance of Hazard Insurance;  Maintenance of Primary
            Insurance Policies.

      (a)   The Master Servicer shall cause to be maintained,  for each Mortgage
            Loan,  hazard insurance with extended  coverage in an amount that is
            at least equal to the lesser of (i) the maximum  insurable  value of
            the improvements  securing such Mortgage Loan or (ii) the greater of
            (y) the outstanding  principal  balance of the Mortgage Loan and (z)
            an amount such that the proceeds of such policy shall be  sufficient
            to prevent  the  Mortgagor  and/or  the  mortgagee  from  becoming a
            co-insurer.  Each such policy of  standard  hazard  insurance  shall
            contain,  or have  an  accompanying  endorsement  that  contains,  a
            standard  mortgagee  clause.  Any  amounts  collected  by the Master
            Servicer  under any such  policies  (other  than the  amounts  to be
            applied  to the  restoration  or  repair  of the  related  Mortgaged
            Property or amounts released to the Mortgagor in accordance with the
            Master Servicer's normal servicing procedures) shall be deposited in
            the  applicable  subaccount  of the  Certificate  Account.  Any cost
            incurred by the Master  Servicer in  maintaining  any such insurance
            shall not, for the purpose of calculating  monthly  distributions to
            the  Certificateholders  or  remittances  to the  Trustee  for their
            benefit,  be added to the  principal  balance of the Mortgage  Loan,
            notwithstanding  that the terms of the Mortgage Loan so permit. Such
            costs  shall  be  recoverable  by the  Master  Servicer  out of late
            payments by the related Mortgagor or out of Liquidation  Proceeds to
            the extent  permitted by Section 3.8 hereof.  It is  understood  and
            agreed that no  earthquake  or other  additional  insurance is to be
            required of any  Mortgagor  or  maintained  on property  acquired in
            respect of a Mortgage  other than pursuant to such  applicable  laws
            and  regulations  as  shall  at any  time be in  force  and as shall
            require such  additional  insurance.  If the  Mortgaged  Property is
            located  at the  time  of  origination  of the  Mortgage  Loan  in a
            federally  designated  special  flood  hazard  area and such area is
            participating  in the national flood insurance  program,  the Master
            Servicer shall cause flood  insurance to be maintained  with respect
            to such Mortgage Loan.  Such flood  insurance  shall be in an amount
            equal to the  least of (i) the  original  principal  balance  of the
            related   Mortgage  Loan,   (ii)  the   replacement   value  of  the
            improvements  which are part of such Mortgaged  Property,  and (iii)
            the  maximum  amount of such  insurance  available  for the  related
            Mortgaged Property under the national flood insurance program.


                                       56
<PAGE>

      (b)   In the event that the Master  Servicer  shall  obtain and maintain a
            blanket policy insuring against hazard losses on all of the Mortgage
            Loans,  it  shall  conclusively  be  deemed  to have  satisfied  its
            obligations as set forth in the first  sentence of this Section,  it
            being   understood  and  agreed  that  such  policy  may  contain  a
            deductible  clause  on  terms  substantially   equivalent  to  those
            commercially  available and maintained by comparable  servicers.  If
            such policy contains a deductible clause, the Master Servicer shall,
            in the  event  that  there  shall not have  been  maintained  on the
            related  Mortgaged  Property  a  policy  complying  with  the  first
            sentence  of this  Section,  and there  shall  have been a loss that
            would have been  covered by such policy,  deposit in the  applicable
            subaccount  of the  Certificate  Account  the amount  not  otherwise
            payable under the blanket policy because of such deductible  clause.
            In connection with its activities as Master Servicer of the Mortgage
            Loans,  the Master Servicer agrees to present,  on behalf of itself,
            the   Depositor,   and  the   Trustee   for  the   benefit   of  the
            Certificateholders, claims under any such blanket policy.

      (c)   The Master  Servicer shall not take any action which would result in
            non-coverage  under any applicable  Primary  Insurance Policy of any
            loss which, but for the actions of the Master  Servicer,  would have
            been covered  thereunder.  The Master  Servicer  shall not cancel or
            refuse to renew any such Primary  Insurance Policy that is in effect
            at the  date of the  initial  issuance  of the  Certificates  and is
            required  to be kept  in  force  hereunder  unless  the  replacement
            Primary Insurance Policy for such canceled or non-renewed  policy is
            maintained with a Qualified Insurer.

      The  Master  Servicer  shall  not be  required  to  maintain  any  Primary
Insurance  Policy (i) with  respect to any  Mortgage  Loan with a  Loan-to-Value
Ratio less than or equal to 80% as of any date of  determination  or, based on a
new  appraisal,  the principal  balance of such Mortgage Loan  represents 80% or
less of the new appraised  value or (ii) if maintaining  such Primary  Insurance
Policy is prohibited by applicable law.

      The Master Servicer agrees to effect the timely payment of the premiums on
each Primary Insurance Policy, and such costs not otherwise recoverable shall be
recoverable by the Master Servicer from the related liquidation proceeds.

      (d)   In connection with its activities as Master Servicer of the Mortgage
            Loans,  the Master  Servicer  agrees to present on behalf of itself,
            the Trustee and Certificateholders,  claims to the insurer under any
            Primary  Insurance  Policies  and,  in this  regard,  to  take  such
            reasonable action as shall be necessary to permit recovery under any
            Primary Insurance Policies respecting  defaulted Mortgage Loans. Any
            amounts collected by the Master Servicer under any Primary Insurance
            Policies  shall be deposited  in the  applicable  subaccount  of the
            Certificate Account.


                                       57
<PAGE>

            SECTION  3.10   Enforcement  of  Due-on-Sale   Clauses;   Assumption
            Agreements.

      (a)   Except as  otherwise  provided in this  Section,  when any  property
            subject to a Mortgage has been conveyed by the Mortgagor, the Master
            Servicer  shall  to  the  extent  that  it  has  knowledge  of  such
            conveyance, enforce any due-on-sale clause contained in any Mortgage
            Note or Mortgage,  to the extent  permitted under applicable law and
            governmental   regulations,   but  only  to  the  extent  that  such
            enforcement will not adversely  affect or jeopardize  coverage under
            any Required Insurance Policy.  Notwithstanding  the foregoing,  the
            Master Servicer is not required to exercise such rights with respect
            to a  Mortgage  Loan if the  Person  to whom the  related  Mortgaged
            Property has been  conveyed or is proposed to be conveyed  satisfies
            the terms and conditions contained in the Mortgage Note and Mortgage
            related thereto and the consent of the mortgagee under such Mortgage
            Note or Mortgage is not  otherwise so required  under such  Mortgage
            Note or Mortgage as a condition to such transfer.  In the event that
            the Master  Servicer is  prohibited  by law from  enforcing any such
            due-on-sale  clause,  or if coverage  under any  Required  Insurance
            Policy  would  be  adversely  affected,   or  if  nonenforcement  is
            otherwise  permitted  hereunder,  the Master Servicer is authorized,
            subject to Section 3.10(b),  to take or enter into an assumption and
            modification agreement from or with the person to whom such property
            has been or is about to be  conveyed,  pursuant to which such person
            becomes  liable under the Mortgage  Note and,  unless  prohibited by
            applicable state law, the Mortgagor remains liable thereon, provided
            that the Mortgage  Loan shall  continue to be covered (if so covered
            before the Master  Servicer enters such agreement) by the applicable
            Required Insurance Policies. The Master Servicer, subject to Section
            3.10(b),  is also authorized with the prior approval of the insurers
            under any Required  Insurance  Policies to enter into a substitution
            of  liability  agreement  with such  Person,  pursuant  to which the
            original  Mortgagor is released  from  liability  and such Person is
            substituted as Mortgagor and becomes liable under the Mortgage Note.
            Notwithstanding  the  foregoing,  the Master  Servicer  shall not be
            deemed to be in default under this Section by reason of any transfer
            or assumption  which the Master Servicer  reasonably  believes it is
            restricted by law from preventing, for any reason whatsoever.

      (b)   Subject to the Master  Servicer's  duty to enforce  any  due-on-sale
            clause to the  extent set forth in Section  3.10(a)  hereof,  in any
            case in which a Mortgaged  Property has been conveyed to a Person by
            a  Mortgagor,  and  such  Person  is to  enter  into  an  assumption
            agreement or  modification  agreement or  supplement to the Mortgage
            Note or Mortgage that  requires the signature of the Trustee,  or if
            an instrument of release signed by the Trustee is required releasing
            the  Mortgagor  from  liability  on the  Mortgage  Loan,  the Master
            Servicer  shall  prepare  and  deliver or cause to be  prepared  and
            delivered to the Trustee for signature and shall direct, in writing,
            the Trustee to execute the  assumption  agreement with the Person to
            whom the Mortgaged  Property is to be conveyed and such modification
            agreement or  supplement  to the Mortgage  Note or Mortgage or other
            instruments as are reasonable or necessary to carry out the terms of
            the  Mortgage  Note or  Mortgage  or  otherwise  to comply  with any
            applicable  laws  regarding  assumptions  or  the  transfer  of  the
            Mortgaged  Property  to such  Person.  In  connection  with any such
            assumption, no material term of the Mortgage Note may be changed. In
            addition,  the substitute  Mortgagor and the Mortgaged Property must
            be  acceptable  to  the  Master  Servicer  in  accordance  with  its
            underwriting  standards as then in effect.  Together  with each such
            substitution,  assumption or other agreement or instrument delivered
            to the  Trustee  for  execution  by it,  the Master  Servicer  shall
            deliver  an  Officer's  Certificate  signed by a  Servicing  Officer
            stating that the  requirements  of this  subsection have been met in
            connection  therewith.  The Master Servicer shall notify the Trustee
            that  any  such  substitution  or  assumption   agreement  has  been
            completed  by  forwarding  to  the  Trustee  the  original  of  such
            substitution  or  assumption  agreement,  which  in the  case of the
            original shall be added to the related  Mortgage File and shall, for
            all purposes, be considered a part of such Mortgage File to the same
            extent as all other  documents and  instruments  constituting a part
            thereof.  Any fee collected by the Master Servicer for entering into
            an  assumption  or  substitution  of  liability  agreement  will  be
            retained   by  the   Master   Servicer   as   additional   servicing
            compensation.


                                       58
<PAGE>

            SECTION 3.11 Realization Upon Defaulted  Mortgage Loans;  Repurchase
                  of Certain Mortgage Loans.

      The Master  Servicer  shall use  reasonable  efforts to foreclose  upon or
otherwise  comparably  convert the ownership of properties  securing such of the
Mortgage  Loans  as come  into  and  continue  in  default  and as to  which  no
satisfactory  arrangements can be made for collection of delinquent payments. In
connection with such foreclosure or other conversion,  the Master Servicer shall
follow such practices and procedures as it shall deem necessary or advisable and
as shall be normal and usual in its general  mortgage  servicing  activities and
meet the  requirements  of the  insurer  under any  Required  Insurance  Policy;
provided,  however, that the Master Servicer shall not be required to expend its
own funds in connection  with any  foreclosure or towards the restoration of any
property unless it shall determine (i) that such restoration  and/or foreclosure
will  increase  the  proceeds  of   liquidation   of  the  Mortgage  Loan  after
reimbursement  to itself of such  expenses and (ii) that such  expenses  will be
recoverable to it through Liquidation  Proceeds  (respecting which it shall have
priority for purposes of withdrawals from the Certificate  Account).  The Master
Servicer shall be responsible for all other costs and expenses incurred by it in
any  such  proceedings;   provided,  however,  that  it  shall  be  entitled  to
reimbursement  thereof from the liquidation proceeds with respect to the related
Mortgaged Property,  as provided in the definition of Liquidation  Proceeds.  If
the Master  Servicer has knowledge  that a Mortgaged  Property  which the Master
Servicer  is  contemplating  acquiring  in  foreclosure  or by  deed  in lieu of
foreclosure  is  located  within  a 1 mile  radius  of any  site  listed  in the
Expenditure Plan for the Hazardous  Substance Clean Up Bond Act of 1984 or other
site with  environmental  or hazardous waste risks known to the Master Servicer,
the Master Servicer will,  prior to acquiring the Mortgaged  Property,  consider
such risks and only take action in accordance with its established environmental
review procedures.


                                       59
<PAGE>

      With respect to any REO Property, the deed or certificate of sale shall be
taken in the name of the Trust Fund for the  benefit of the  Certificateholders,
or its nominee, on behalf of the  Certificateholders.  The Master Servicer shall
ensure that the title to such REO Property  references the Pooling and Servicing
Agreement and the Trust Fund's capacity  thereunder.  Pursuant to its efforts to
sell such REO Property,  the Master  Servicer  shall either itself or through an
agent selected by the Master Servicer  protect and conserve such REO Property in
the same manner and to such extent as is customary  in the  locality  where such
REO Property is located and may,  incident to its conservation and protection of
the interests of the Certificateholders,  rent the same, or any part thereof, as
the Master  Servicer deems to be in the best interest of the  Certificateholders
for the period prior to the sale of such REO Property. The Master Servicer shall
prepare  for and deliver to the  Trustee a  statement  with  respect to each REO
Property that has been rented showing the aggregate  rental income  received and
all expenses  incurred in connection with the management and maintenance of such
REO  Property at such times as is necessary to enable the Trustee to comply with
the  reporting  requirements  of the REMIC  Provisions.  The net monthly  rental
income,  if any,  from such REO Property  shall be deposited in the  Certificate
Account no later than the close of  business  on each  Determination  Date.  The
Master  Servicer  shall perform the tax reporting  and  withholding  required by
Sections  1445  and  6050J  of  the  Code  with  respect  to  foreclosures   and
abandonments,  the tax  reporting  required  by  Section  6050H of the Code with
respect  to the  receipt  of  mortgage  interest  from  individuals  and any tax
reporting required by Section 6050P of the Code with respect to the cancellation
of  indebtedness  by  certain  financial  entities,  by  preparing  such tax and
information returns as may be required, in the form required, and delivering the
same to the Trustee for filing.

      In the event  that the Trust  Fund  acquires  any  Mortgaged  Property  as
aforesaid  or otherwise in  connection  with a default or imminent  default on a
Mortgage  Loan, the Master  Servicer  shall dispose of such  Mortgaged  Property
prior to the close of the third  taxable  year  after  the  taxable  year of its
acquisition  by the Trust Fund unless the Trustee  shall have been supplied with
an Opinion of Counsel to the effect  that the  holding by the Trust Fund of such
Mortgaged  Property  subsequent to such three-year period will not result in the
imposition  of taxes on  "prohibited  transactions"  of any REMIC  hereunder  as
defined in Section 860F of the Code or cause any REMIC created hereunder to fail
to  qualify as a REMIC at any time that any  Certificates  are  outstanding,  in
which case the Trust Fund may continue to hold such Mortgaged  Property (subject
to any  conditions  contained in such Opinion of Counsel).  Notwithstanding  any
other provision of this Agreement,  no Mortgaged  Property acquired by the Trust
Fund shall be rented (or allowed to continue to be rented) or otherwise used for
the  production  of income by or on behalf of the Trust Fund in such a manner or
pursuant  to any terms that would (i) cause such  Mortgaged  Property to fail to
qualify as "foreclosure  property"  within the meaning of Section  860G(a)(8) of
the Code or (ii) subject any REMIC  hereunder to the  imposition of any federal,
state or local income taxes on the income  earned from such  Mortgaged  Property
under Section  860G(c) of the Code or otherwise,  unless the Master Servicer has
agreed to  indemnify  and hold  harmless  the Trust  Fund  with  respect  to the
imposition of any such taxes.

      In the event of a default on a Mortgage  Loan one or more of whose obligor
is not a United States Person, as that term is defined in Section 7701(a)(30) of
the Code, in connection with any foreclosure or acquisition of a deed in lieu of
foreclosure  (together,  "foreclosure")  in respect of such Mortgage  Loan,  the
Master Servicer will cause compliance with the provisions of Treasury Regulation
Section  1.1445-2(d)(3)  (or any successor  thereto) necessary to assure that no
withholding  tax  obligation  arises  with  respect  to  the  proceeds  of  such
foreclosure  except to the extent, if any, that proceeds of such foreclosure are
required to be remitted to the obligors on such Mortgage Loan.


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<PAGE>

      The decision of the Master  Servicer to foreclose on a defaulted  Mortgage
Loan  shall be  subject  to a  determination  by the  Master  Servicer  that the
proceeds of such  foreclosure  would  exceed the costs and  expenses of bringing
such a proceeding.  The income earned from the management of any REO Properties,
net of reimbursement to the Master Servicer for expenses incurred (including any
property  or  other  taxes)  in  connection  with  such  management  and  net of
unreimbursed Master Servicing Fees,  Advances and Servicing  Advances,  shall be
applied to the payment of  principal  of and  interest on the related  defaulted
Mortgage Loans (with interest  accruing as though such Mortgage Loans were still
current)  and  all  such  income  shall  be  deemed,  for all  purposes  in this
Agreement,  to be payments on account of  principal  and interest on the related
Mortgage  Notes and shall be deposited  into the  applicable  subaccount  of the
Certificate  Account.  To the extent the net income received during any calendar
month is in  excess of the  amount  attributable  to  amortizing  principal  and
accrued  interest at the related  Mortgage Rate on the related Mortgage Loan for
such calendar month, such excess shall be considered to be a partial  prepayment
of principal of the related Mortgage Loan.

      The  proceeds  from any  liquidation  of a Mortgage  Loan,  as well as any
income from an REO Property, will be applied in the following order of priority:
first, to reimburse the Master Servicer for any related  unreimbursed  Servicing
Advances and Master Servicing Fees; second, to reimburse the Master Servicer for
any unreimbursed Advances;  third, to reimburse the applicable subaccount of the
Certificate  Account for any Nonrecoverable  Advances (or portions thereof) that
were previously withdrawn by the Master Servicer pursuant to Section 3.8(a)(iii)
that related to such Mortgage Loan;  fourth,  to accrued and unpaid interest (to
the extent no Advance has been made for such amount or any such Advance has been
reimbursed)  on the Mortgage Loan or related REO  Property,  at the Adjusted Net
Mortgage  Rate to the Due Date  occurring in the month in which such amounts are
required  to be  distributed;  and fifth,  as a  recovery  of  principal  of the
Mortgage Loan.  Excess  Proceeds,  if any, from the  liquidation of a Liquidated
Mortgage Loan will be retained by the Master  Servicer as  additional  servicing
compensation pursuant to Section 3.14.

      The Master Servicer, with the consent of the Trustee, shall have the right
to purchase for its own account  from the Trust Fund any Mortgage  Loan which is
91 days or more delinquent at a price equal to the Purchase Price.  The Purchase
Price for any  Mortgage  Loan  purchased  hereunder  shall be  deposited  in the
applicable  subaccount of the Certificate Account and the Trustee,  upon receipt
of a certificate from the Master Servicer in the form of Exhibit M hereto, shall
release or cause to be  released  to the  purchaser  of such  Mortgage  Loan the
related Mortgage File and shall execute and deliver such instruments of transfer
or  assignment  prepared by the  purchaser of such  Mortgage  Loan, in each case
without  recourse,  as  shall  be  necessary  to vest in the  purchaser  of such
Mortgage Loan any Mortgage Loan  released  pursuant  hereto and the purchaser of
such Mortgage Loan shall succeed to all the Trustee's right,  title and interest
in and to such Mortgage Loan and all security and documents related thereto. The
purchaser of such Mortgage Loan shall  thereupon own such Mortgage Loan, and all
security and  documents,  free of any further  obligation  to the Trustee or the
Certificateholders with respect thereto.


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<PAGE>

            SECTION 3.12 Trustee to Cooperate; Release of Mortgage Files.

      Upon the  payment  in full of any  Mortgage  Loan,  or the  receipt by the
Master  Servicer of a  notification  that  payment in full will be escrowed in a
manner customary for such purposes,  the Master Servicer will immediately notify
the Trustee by  delivering,  or causing to be  delivered a "Request for Release"
substantially  in the form of  Exhibit  M. Upon  receipt  of such  request,  the
Trustee  shall or shall  cause the  Custodian  to  promptly  release the related
Mortgage  File to the  Master  Servicer,  and the  Trustee  shall at the  Master
Servicer's  direction execute and deliver to the Master Servicer the request for
reconveyance,  deed of  reconveyance  or release or  satisfaction of mortgage or
such instrument  releasing the lien of the Mortgage in each case provided by the
Master  Servicer,  together  with the  Mortgage  Note with  written  evidence of
cancellation  thereon.  Expenses  incurred in connection  with any instrument of
satisfaction  or  deed  of  reconveyance  shall  be  chargeable  to the  related
Mortgagor.  From time to time and as shall be  appropriate  for the servicing or
foreclosure of any Mortgage Loan,  including for such purpose,  collection under
any policy of flood insurance,  any fidelity bond or errors or omissions policy,
or for the purposes of  effecting a partial  release of any  Mortgaged  Property
from the lien of the Mortgage or the making of any  corrections  to the Mortgage
Note or the  Mortgage or any of the other  documents  included  in the  Mortgage
File, the Trustee  shall,  upon delivery to the Trustee of a Request for Release
in the form of Exhibit L signed by a Servicing  Officer,  release  the  Mortgage
File to the Master Servicer. Subject to the further limitations set forth below,
the Master Servicer shall cause the Mortgage File or documents so released to be
returned to the Trustee or its  Custodian  when the need  therefor by the Master
Servicer  no longer  exists,  unless the  Mortgage  Loan is  liquidated  and the
proceeds  thereof are deposited in the applicable  subaccount of the Certificate
Account,  in which  case the Master  Servicer  shall  deliver  to the  Trustee a
Request for Release in the form of Exhibit M, signed by a Servicing Officer.

      If the  Master  Servicer  at any time  seeks  to  initiate  a  foreclosure
proceeding in respect of any Mortgaged Property as authorized by this Agreement,
the Master  Servicer shall deliver or cause to be delivered to the Trustee,  for
signature, as appropriate,  any court pleadings,  requests for trustee's sale or
other  documents  necessary to effectuate  such  foreclosure or any legal action
brought to obtain  judgment  against the  Mortgagor on the Mortgage  Note or the
Mortgage or to obtain a deficiency  judgment or to enforce any other remedies or
rights  provided by the Mortgage Note or the Mortgage or otherwise  available at
law or in equity.

            SECTION 3.13  Documents  Records and Funds in  Possession  of Master
            Servicer to be Held for the Trustee.

      Notwithstanding  any  other  provisions  of  this  Agreement,  the  Master
Servicer  shall  transmit  to the  Trustee as  required  by this  Agreement  all
documents  and  instruments  in  respect  of a  Mortgage  Loan  coming  into the
possession  of the Master  Servicer from time to time and shall account fully to
the Trustee for any funds received by the Master Servicer or which otherwise are
collected by the Master Servicer as Liquidation  Proceeds or Insurance  Proceeds
in respect of any Mortgage Loan. All Mortgage Files and funds  collected or held
by, or under the  control  of, the Master  Servicer  in respect of any  Mortgage
Loans,  whether from the  collection of principal and interest  payments or from
Liquidation Proceeds,  including but not limited to, any funds on deposit in the
Certificate  Account,  shall be held by the Master Servicer for and on behalf of
the  Trustee  and shall be and remain  the sole and  exclusive  property  of the
Trustee,  subject to the  applicable  provisions of this  Agreement.  The Master
Servicer  also agrees that it shall not  create,  incur or subject any  Mortgage
File or any funds that are deposited in the  Certificate  Account,  Distribution
Account or any Escrow Account, or any funds that otherwise are or may become due
or payable to the  Trustee  for the  benefit of the  Certificateholders,  to any
claim,  lien,  security  interest,  judgment,  levy, writ of attachment or other
encumbrance, or assert by legal action or otherwise any claim or right of setoff
against any Mortgage File or any funds  collected  on, or in connection  with, a
Mortgage Loan,  except,  however,  that the Master Servicer shall be entitled to
set off against and deduct from any such funds any amounts that are properly due
and payable to the Master Servicer under this Agreement.


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<PAGE>

            SECTION 3.14 Master Servicing Compensation.

      As compensation  for its activities as Master Servicer  hereunder and as a
subservicer   pursuant  to  the  Servicing   Rights  Transfer  and  Subservicing
Agreement,  the Master Servicer shall be entitled to retain or withdraw from the
Certificate  Account  an  amount  equal  to the  Master  Servicing  Fee for each
Mortgage Loan,  provided that the aggregate Master Servicing Fee with respect to
any  Distribution  Date shall be reduced  (i) by the amount of any  Compensating
Interest paid by the Master Servicer with respect to such Distribution Date, and
(ii) with respect to the first  Distribution Date, an amount equal to any amount
to be  deposited  into the  Distribution  Account by the  Depositor  pursuant to
Section 2.1(a) and not so deposited.

      Additional  servicing  compensation  in the form of (i)  Excess  Proceeds,
Prepayment  Interest  Excess and all income and gain net of any losses  realized
from Permitted  Investments and (ii) prepayment  penalties,  assumption fees and
late payment charges in each case under the  circumstances and in the manner set
forth in the  applicable  Mortgage  Note or  Mortgage  shall be  retained by the
Master  Servicer to the extent not required to be  deposited in the  Certificate
Account pursuant to Section 3.5 hereof. The Master Servicer shall be required to
pay  all  expenses  incurred  by it in  connection  with  its  master  servicing
activities hereunder (including payment of any premiums for hazard insurance and
any Primary  Insurance  Policy and  maintenance  of the other forms of insurance
coverage  required by this Agreement) and shall not be entitled to reimbursement
therefor except as specifically provided in this Agreement.

            SECTION 3.15 Access to Certain Documentation.

      The  Master  Servicer  shall  provide  to the  OTS  and  the  FDIC  and to
comparable  regulatory  authorities   supervising  Holders  of  Certificates  or
Certificate Owners and the examiners and supervisory agents of the OTS, the FDIC
and such other authorities,  access to the documentation  regarding the Mortgage
Loans required by applicable  regulations  of the OTS and the FDIC.  Such access
shall be afforded  without  charge,  but only upon  reasonable and prior written
request and during normal business hours at the offices designated by the Master
Servicer.  Nothing in this  Section  shall  limit the  obligation  of the Master
Servicer to observe any  applicable  law  prohibiting  disclosure of information
regarding  the  Mortgagors  and the  failure of the Master  Servicer  to provide
access as  provided  in this  Section as a result of such  obligation  shall not
constitute a breach of this Section.


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<PAGE>

            SECTION 3.16 Annual Statement as to Compliance.

      The Master  Servicer  shall deliver to the Depositor and the Trustee on or
before 120 days after the end of the Master Servicer's  fiscal year,  commencing
with its 2005 fiscal year, an Officer's  Certificate  stating,  as to the signer
thereof,  that (i) a review of the activities of the Master  Servicer during the
preceding calendar year and of the performance of the Master Servicer under this
Agreement has been made under such officer's supervision and (ii) to the best of
such  officer's  knowledge,  based  on such  review,  the  Master  Servicer  has
fulfilled all its obligations under this Agreement  throughout such year, or, if
there has been a default in the fulfillment of any such  obligation,  specifying
each such default known to such officer and the nature and status  thereof.  The
Trustee shall forward a copy of each such statement to each Rating Agency.

            SECTION  3.17  Annual  Independent  Public  Accountants'   Servicing
            Statement; Financial Statements.

      On or before 120 days after the end of the Master  Servicer's fiscal year,
commencing  with its 2005 fiscal year, the Master  Servicer at its expense shall
cause  a  nationally  or  regionally   recognized  firm  of  independent  public
accountants  (who may also render  other  services to the Master  Servicer,  the
Seller or any affiliate  thereof) which is a member of the American Institute of
Certified  Public  Accountants  to furnish a  statement  to the  Trustee and the
Depositor  to the effect  that-such  firm has  examined  certain  documents  and
records  relating to the servicing of the Mortgage Loans under this Agreement or
of mortgage loans under pooling and servicing agreements  substantially  similar
to this Agreement  (such statement to have attached  thereto a schedule  setting
forth the pooling and  servicing  agreements  covered  thereby) and that, on the
basis  of such  examination,  conducted  substantially  in  compliance  with the
Uniform Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages  serviced for FNMA and FHLMC,  such  servicing  has been  conducted in
compliance  with  such  pooling  and  servicing   agreements   except  for  such
significant  exceptions  or errors in records that, in the opinion of such firm,
the Uniform Single Attestation Program for Mortgage Bankers or the Audit Program
for Mortgages  serviced for FNMA and FHLMC  requires it to report.  In rendering
such statement,  such firm may rely, as to matters  relating to direct servicing
of mortgage loans by Subservicers,  upon comparable  statements for examinations
conducted  substantially  in  compliance  with the  Uniform  Single  Attestation
Program for Mortgage  Bankers or the Audit  Program for  Mortgages  serviced for
FNMA and FHLMC  (rendered  within  one year of such  statement)  of  independent
public  accountants  with  respect to the  related  Subservicer.  Copies of such
statement  shall  be  provided  by  the  Trustee  to  any  Certificateholder  or
Certificate Owner upon request at the Master Servicer's  expense,  provided such
statement is delivered by the Master Servicer to the Trustee.

            SECTION 3.18 Errors and Omissions Insurance; Fidelity Bonds.

      The Master  Servicer shall for so long as it acts as master servicer under
this  Agreement,  obtain  and  maintain  in force  (a) a policy or  policies  of
insurance covering errors and omissions in the performance of its obligations as
Master  Servicer  hereunder  and (b) a fidelity bond in respect of its officers,
employees  and agents.  Each such policy or policies  and bond shall,  together,
comply  with the  requirements  from time to time of FNMA or FHLMC  for  persons
performing servicing for mortgage loans purchased by FNMA or FHLMC. In the event
that any such policy or bond ceases to be in effect,  the Master  Servicer shall
obtain a  comparable  replacement  policy or bond  from an  insurer  or  issuer,
meeting the requirements set forth above as of the date of such replacement.


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<PAGE>

            SECTION 3.19 Notification of Adjustments.

      On each  Adjustment  Date,  the Master  Servicer  shall make interest rate
adjustments  for each Mortgage Loan in compliance  with the  requirements of the
related  Mortgage  and  Mortgage  Note and  applicable  regulations.  The Master
Servicer  shall  execute and deliver the notices  required by each  Mortgage and
Mortgage Note and applicable  regulations  regarding  interest rate adjustments.
The Master Servicer also shall provide timely notification to the Trustee of all
applicable data and information regarding such interest rate adjustments and the
Master Servicer's methods of implanting such interest rate adjustments. Upon the
discovery  by the Master  Servicer or the Trustee  that the Master  Servicer has
failed  to adjust  or has  incorrectly  adjusted  a  Mortgage  Rate or a monthly
payment  pursuant to the terms of the related  Mortgage Note and  Mortgage,  the
Master Servicer shall  immediately  deposit in the Certificate  Account from its
own funds the amount of any interest loss caused thereby  without  reimbursement
therefor;  provided,  however,  the Master  Servicer shall be held harmless with
respect to any  interest  rate  adjustments  made by any  servicer  prior to the
Master Servicer.

                                   ARTICLE IV
                DISTRIBUTIONS AND ADVANCES BY THE MASTER SERVICER

            SECTION 4.1 Advances.

      The Master  Servicer  shall  determine  on the  Business Day prior to each
Master Servicer  Advance Date whether it is required to make an Advance pursuant
to the definition  thereof.  If the Master Servicer determines it is required to
make an Advance, it shall, on or before the Master Servicer Advance Date, either
(i) deposit into the applicable  subaccount of the Certificate Account an amount
equal to the Advance or (ii) make an appropriate  entry in its records  relating
to the applicable subaccount of the Certificate Account that any Amount Held for
Future  Distribution  has been used by the Master  Servicer in  discharge of its
obligation to make any such  Advance.  Any funds so applied shall be replaced by
the Master  Servicer by deposit in the applicable  subaccount of the Certificate
Account no later than the close of business on the  Business Day  preceding  the
next Master  Servicer  Advance Date. The Master Servicer shall be entitled to be
reimbursed  from the applicable  subaccount of the  Certificate  Account for all
Advances of its own funds made  pursuant to this  Section as provided in Section
3.8. The  obligation  to make  Advances  with respect to any Mortgage Loan shall
continue  until  the  ultimate  disposition  of the REO  Property  or  Mortgaged
Property relating to such Mortgage Loan. As to any Distribution Date, the Master
Servicer  shall inform the Trustee in writing of the amount of the Advance to be
made by the Master Servicer on each Master  Servicer  Advance Date no later 1:30
p.m.  Central  time  on the  second  Business  Day  immediately  preceding  such
Distribution Date.


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<PAGE>

      The Master  Servicer  shall  deliver to the Trustee on the related  Master
Servicer Advance Date an Officer's Certificate of a Servicing Officer indicating
the amount of any proposed  Advance  determined  by the Master  Servicer to be a
Nonrecoverable Advance.

            SECTION 4.2 Priorities of Distribution.

      (a)   On each Distribution  Date, the Trustee shall withdraw the Available
            Funds for each Certificate  Group from the applicable  subaccount of
            the  Distribution  Account and apply such funds to  distributions on
            the Certificates of the related  Certificate  Group in the following
            order and  priority  and, in each case,  to the extent of  Available
            Funds remaining:

            (i)   to  the  Classes  of  Senior   Certificates   of  the  related
                  Certificate  Group, the Accrued  Certificate  Interest on each
                  such Class for such Distribution Date;

            (ii)  to  the  Classes  of  Senior   Certificates   of  the  related
                  Certificate  Group, any Accrued  Certificate  Interest thereon
                  remaining  undistributed from previous  Distribution Dates, to
                  the  extent of  remaining  Available  Funds  from the  related
                  Mortgage Pool; (iii) to the Classes of Senior  Certificates of
                  the related  Certificate  Group entitled to  distributions  of
                  principal, to the extent of remaining Available Funds from the
                  related  Mortgage Pool,  the related Senior Optimal  Principal
                  Amount  for such  Distribution  Date  and,  in the case of the
                  Group II Senior  Certificates  entitled  to  distributions  of
                  principal, in the order of priority set forth below in Section
                  4.2(b),   until  the  respective  Class  Certificate  Balances
                  thereof have been reduced to zero;

            (iv)  to the  Class B-1  Certificates,  to the  extent of  remaining
                  Available  Funds for the  Mortgage  Pools,  but subject to the
                  prior payment of amounts  described under Section  4.2(g),  in
                  the  following  order:  (1) the Accrued  Certificate  Interest
                  thereon   for  such   Distribution   Date,   (2)  any  Accrued
                  Certificate  Interest  thereon  remaining  undistributed  from
                  previous  Distribution  Dates  and (3) such  Class'  Allocable
                  Share for such Distribution Date;

            (v)   to the  Class B-2  Certificates,  to the  extent of  remaining
                  Available  Funds for both Mortgage  Pools,  but subject to the
                  prior payment of amounts  described under Section  4.2(g),  in
                  the  following  order:  (1) the Accrued  Certificate  Interest
                  thereon   for  such   Distribution   Date,   (2)  any  Accrued
                  Certificate  Interest  thereon  remaining  undistributed  from
                  previous  Distribution  Dates  and (3) such  Class'  Allocable
                  Share for such Distribution Date;

            (vi)  to the  Class B-3  Certificates,  to the  extent of  remaining
                  Available  Funds for both Mortgage  Pools,  but subject to the
                  prior payment of amounts  described under Section  4.2(g),  in
                  the  following  order:  (1) the Accrued  Certificate  Interest
                  thereon   for  such   Distribution   Date,   (2)  any  Accrued
                  Certificate  Interest  thereon  remaining  undistributed  from
                  previous  Distribution  Dates  and (3) such  Class'  Allocable
                  Share for such Distribution Date;


                                       66
<PAGE>

            (vii) to the  Class B-4  Certificates,  to the  extent of  remaining
                  Available  Funds for both Mortgage  Pools,  but subject to the
                  prior payment of amounts  described under Section  4.2(g),  in
                  the  following  order:  (1) the Accrued  Certificate  Interest
                  thereon   for  such   Distribution   Date,   (2)  any  Accrued
                  Certificate  Interest  thereon  remaining  undistributed  from
                  previous  Distribution  Dates  and (3) such  Class'  Allocable
                  Share for such Distribution Date;

            (viii)to the  Class B-5  Certificates,  to the  extent of  remaining
                  Available  Funds for both Mortgage  Pools,  but subject to the
                  prior payment of amounts  described under Section  4.2(g),  in
                  the  following  order:  (1) the Accrued  Certificate  Interest
                  thereon   for  such   Distribution   Date,   (2)  any  Accrued
                  Certificate  Interest  thereon  remaining  undistributed  from
                  previous  Distribution  Dates  and (3) such  Class'  Allocable
                  Share for such Distribution Date; and

            (ix)  to the  Class B-6  Certificates,  to the  extent of  remaining
                  Available  Funds for both Mortgage  Pools,  but subject to the
                  prior payment of amounts  described under Section  4.2(g),  in
                  the  following  order:  (1) the Accrued  Certificate  Interest
                  thereon   for  such   Distribution   Date,   (2)  any  Accrued
                  Certificate  Interest  thereon  remaining  undistributed  from
                  previous  Distribution  Dates  and (3) such  Class'  Allocable
                  Share for such Distribution Date.

      (b)   Amounts  allocated to the Group II Senior  Certificates  pursuant to
            Section 4.2(a)(iii) above will be distributed in the following order
            of priority:

            (i)   to the Class II-A-R Certificates,  until the Class Certificate
                  Balance thereof has been reduced to zero; and

            (ii)  concurrently,   to  the  Class   II-A-1   and   Class   II-A-2
                  Certificates,   pro  rata,   until  their   respective   Class
                  Certificate Balances have been reduced to zero.

      (c)   On each  Distribution  Date,  the Trustee  shall  distribute  to the
            Holders  of  the  Class  II-A-R  Certificates  representing  the  RL
            Interest  and RU  Interest,  any  Available  Funds  remaining in the
            related REMIC created  hereunder  for such  Distribution  Date after
            application of all amounts  described in clauses (a) and (b) of this
            Section 4.2. Any distributions pursuant to this subsection (d) shall
            not  reduce  the Class  Certificate  Balances  of the  Class  II-A-R
            Certificates.

      (d)   On and after the Cross-Over  Date, the amount  distributable  to the
            Group II Senior Certificates pursuant to Section 4.2(a)(iii) for the
            related  Distribution  Date  shall be  allocated  among the  related
            Classes of Group II Senior  Certificates,  pro rata, on the basis of
            their respective Class  Certificate  Balances  immediately  prior to
            such Distribution Date, regardless of the priorities and amounts set
            forth in Section 4.2(b).


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<PAGE>

      (e)   If on any Distribution Date (i) the Class Certificate Balance of any
            Class  of  Subordinated   Certificates  (other  than  the  Class  of
            Subordinated Certificates with the highest priority of distribution)
            for which the  related  Class  Prepayment  Distribution  Trigger was
            satisfied  on such  Distribution  Date is  reduced  to zero and (ii)
            amounts  distributable  to such  Class or  Classes  of  Subordinated
            Certificates  pursuant to clauses (2), (3) and (5) of the applicable
            Subordinated  Optimal Principal Amount remain  undistributed on such
            Distribution Date after all amounts otherwise  distributable on such
            date  pursuant to clauses (iv)  through (ix) of Section  4.2(a) have
            been  distributed,  such  amounts,  to the  extent  of  such  Class'
            remaining Allocable Share, shall be distributed on such Distribution
            Date to the remaining Classes of Subordinated  Certificates on a pro
            rata basis, subject to the priority of payments described in Section
            4.2(a)(iii).

      (f)   In the event that in any calendar month the Master Servicer recovers
            an amount (an "Unanticipated Recovery") in respect of principal of a
            Mortgage Loan which had previously been allocated as a Realized Loss
            to any  Class  of  Certificates  pursuant  to  Section  4.4,  on the
            Distribution Date in the next succeeding calendar month, the Trustee
            shall  withdraw the  Unanticipated  Recovery  from the  Distribution
            Account and sequentially  increase the Class Certificate  Balance of
            each  Class of  Certificates  to which  such  Realized  Losses  were
            previously  allocated by the amount of such Unanticipated  Recovery,
            but not to  exceed  the  amount  of such  Realized  Loss  previously
            allocated  to such Class,  and shall  distribute  the amount of such
            Unanticipated  Recovery  to each such Class of  Certificates  in the
            order of  payment  priority  described  in  Section  4.2(a)  of this
            Agreement..  When  the  Class  Certificate  Balance  of a  Class  of
            Certificates  has been  reduced to zero,  the  Holders of such Class
            shall not be entitled to any share of an Unanticipated Recovery, and
            such Unanticipated Recovery shall be allocated among all outstanding
            Classes of  Certificates  entitled  thereto in  accordance  with the
            preceding sentence, subject to the remainder of this subsection (f).
            In  the  event   that  (i)  any   Unanticipated   Recovery   remains
            undistributed in accordance with the preceding  sentence or (ii) the
            amount  of an  Unanticipated  Recovery  exceeds  the  amount  of the
            Realized Loss previously  allocated to any outstanding  Classes with
            respect to the related Mortgage Loan, on the applicable Distribution
            Date the Trustee shall distribute such  Unanticipated  Recoveries in
            accordance with the priorities set forth in Section 4.2(a)(iii).

                  For  purposes  of the  preceding  paragraph,  the  share of an
            Unanticipated  Recovery  allocable to any Class of Certificates with
            respect to a Mortgage  Loan shall be based on its pro rata share (in
            proportion to the Class Certificate Balances thereof with respect to
            such  Distribution  Date)  of the  principal  portion  of  any  such
            Realized  Loss  previously  allocated  with respect to such Mortgage
            Loan (or Loans).


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<PAGE>

      (g)   On any Distribution  Date on which any Certificate Group constitutes
            an Undercollateralized Group, all amounts otherwise distributable as
            principal  on the  Subordinated  Certificates,  in reverse  order of
            priority (or,  following  the  Cross-over  Date,  such other amounts
            described  in  the   immediately   following   sentence),   will  be
            distributed  as  principal  to  the  Senior   Certificates  of  such
            Undercollateralized  Group in  accordance  with the  priorities  set
            forth in  Section  4.2(a)(iii),  until the total  Class  Certificate
            Balance  of  such  Senior   Certificates  (after  giving  effect  to
            distributions  to be made  on that  Distribution  Date)  equals  the
            Stated  Principal   Balance  of  the  related  Mortgage  Pool  (such
            distribution,  an  "Undercollateralization  Distribution").  If  the
            Senior   Certificates   of  a   Certificate   Group   constitute  an
            Undercollateralized  Group on any  Distribution  Date  following the
            Cross-over Date,  Undercollateralization  Distributions will be made
            from the excess of the  Available  Funds for the  Mortgage  Pool not
            related to an Undercollateralized Group remaining after all required
            amounts  for that  Distribution  Date have been  distributed  to the
            Senior  Certificates of such other  Certificate  Group. In addition,
            the amount of any unpaid Accrued  Certificate  Interest with respect
            to any Undercollateralized Group on any Distribution Date (including
            any Accrued Certificate  Interest for the related Distribution Date)
            will   be   distributed   to  the   Senior   Certificates   of  such
            Undercollateralized    Group   prior   to   the   payment   of   any
            Undercollateralization    Distributions   from   amounts   otherwise
            distributable  as principal  on the  Subordinated  Certificates,  in
            reverse order of priority (or,  following  the  Cross-over  Date, as
            provided in the preceding sentence). Except as provided otherwise in
            this Section  4.2(g),  no  distribution of principal will be made to
            any Class of Subordinated  Certificates until an Undercollateralized
            Group  is  no   longer   undercollateralized.   If  more   than  one
            Undercollateralized Group on any Distribution Date is entitled to an
            Undercollateralization   Distribution,  such  Undercollateralization
            Distribution  shall  be  allocated  among  the   Undercollateralized
            Groups,  pro rata, on the basis of the amount by which the aggregate
            Class  Certificate  Balance of the related  Senior  Certificates  is
            greater than the aggregate Stated Principal  Balance of the Mortgage
            Loans in the related Undercollateralized Groups.

            In addition, if on any Distribution Date the total Class Certificate
            Balance of the Senior  Certificates  of a  Certificate  Group (after
            giving effect to distributions to be made on that Distribution Date)
            has been reduced to zero,  all amounts  otherwise  distributable  as
            prepayments  of  principal  to  the  Subordinated  Certificates,  in
            reverse order of priority,  will instead be distributed as principal
            to the Senior  Certificates of the other Certificate Group pro rata,
            on the  basis of the  aggregate  Class  Certificate  Balance  of the
            related Senior Certificates,  unless (a) the weighted average of the
            Subordinated  Percentages  for the Mortgage  Pools,  weighted on the
            basis of the Stated  Principal  Balance of the Mortgage Loans in the
            related Mortgage Pool, is at least two times the weighted average of
            the  initial   Subordinate   Percentage   for  the  Mortgage   Pools
            (calculated  on such basis) and (b) the aggregate  Stated  Principal
            Balance  of  all  of  the  Mortgage  Loans  in  the  Mortgage  Pools
            delinquent  60 days or more  (including  for this  purpose  any such
            Mortgage Loans in  foreclosure or subject to bankruptcy  proceedings
            and  Mortgage  Loans  with  respect to which the  related  Mortgaged
            Property  has been  acquired by the Trust Fund),  averaged  over the
            preceding  six month  period,  as a  percentage  of the then current
            aggregate   Class   Certificate    Balance   of   the   Subordinated
            Certificates, is less than 50%. Except as provided otherwise in this
            Section 4.2(g),  all  distributions  described above will be made in
            accordance with the priorities set forth in Section 4.2(a)(iii).


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<PAGE>

            SECTION 4.3 Method of Distribution.

      (a)   All distributions with respect to each Class of Certificates on each
            Distribution  Date  shall  be made pro rata  among  the  outstanding
            Certificates of such Class, based on the Percentage Interest in such
            Class   represented   by   each   Certificate.   Payments   to   the
            Certificateholders  on each  Distribution  Date  will be made by the
            Trustee to the  Certificateholders  of record on the related  Record
            Date by check or money order  mailed to a  Certificateholder  at the
            address  appearing  in the  Certificate  Register,  or upon  written
            request by such Certificateholder to the Trustee made not later than
            the  applicable  Record Date, by wire transfer to a U.S.  depository
            institution  acceptable  to the  Trustee,  or by such other means of
            payment as such Certificateholder and the Trustee shall agree.

      (b)   Each distribution with respect to a Book-Entry  Certificate shall be
            paid to the  Depository,  which  shall  credit  the  amount  of such
            distribution  to the  accounts  of its  Depository  Participants  in
            accordance with its normal procedures.  Each Depository  Participant
            shall  be  responsible  for  disbursing  such  distribution  to  the
            Certificate   Owners  that  it  represents  and  to  each  financial
            intermediary  for  which  it  acts as  agent.  Each  such  financial
            intermediary  shall  be  responsible  for  disbursing  funds  to the
            Certificate  Owners  that  it  represents.   All  such  credits  and
            disbursements  with  respect to a Book-Entry  Certificate  are to be
            made by the Depository and the Depository Participants in accordance
            with the  provisions  of the  applicable  Certificates.  Neither the
            Trustee  nor the  Master  Servicer  shall  have  any  responsibility
            therefor except as otherwise provided by applicable law.

      (c)   The Trustee  shall  withhold or cause to be withheld such amounts as
            it  reasonably  determines  are  required by the Code  (giving  full
            effect to any exemptions from withholding and related certifications
            required to be furnished by Certificateholders or Certificate Owners
            and any  reductions  to  withholding  by virtue of any bilateral tax
            treaties and any applicable  certification  required to be furnished
            by  Certificateholders  or Certificate  Owners with respect thereto)
            from  distributions to be made to Non-U.S.  Persons.  If the Trustee
            reasonably  determines  that a more  accurate  determination  of the
            amount required to be withheld for a distribution can be made within
            a reasonable period after the scheduled date for such  distribution,
            it may hold such  distribution  in trust for a Holder of a  Residual
            Certificate  until such  determination can be made. For the purposes
            of this paragraph,  a "Non-U.S.  Person" is (i) an individual  other
            than a citizen or resident of the United States, (ii) a partnership,
            corporation or entity  treated as a partnership  or corporation  for
            U.S.  federal  income tax  purposes not formed under the laws of the
            United  States,  any  state  thereof  or the  District  of  Columbia
            (unless, in the case of a partnership,  Treasury regulations provide
            otherwise),  (iii) any estate, the income of which is not subject to
            U.S.  federal income  taxation,  regardless of source,  and (iv) any
            trust,  other than a trust that a court within the United  States is
            able to exercise primary  supervision over the administration of the
            trust and one or more U.S. Persons have the authority to control all
            substantial decisions of the trust.


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<PAGE>

            SECTION 4.4 Allocation of Losses.

      (a)   On or prior to each  Determination  Date, the Master  Servicer shall
            determine  the  amount  of any  Realized  Loss  in  respect  of each
            Mortgage  Loan  that  occurred  during  the  immediately   preceding
            calendar  month.  (b) With  respect to any  Distribution  Date,  the
            principal portion of each Realized Loss (other than any Excess Loss)
            with respect to a Mortgage  Pool shall be allocated in the following
            order of priority:

      (i)   to the Class B-6 Certificates  until the Class  Certificate  Balance
            thereof has been reduced to zero;

            (ii)  to the Class  B-5  Certificates  until  the Class  Certificate
                  Balance thereof has been reduced to zero;

            (iii) to the Class  B-4  Certificates  until  the Class  Certificate
                  Balance thereof has been reduced to zero;

            (iv)  to the Class  B-3  Certificates  until  the Class  Certificate
                  Balance thereof has been reduced to zero;

            (v)   to the Class  B-2  Certificates  until  the Class  Certificate
                  Balance thereof has been reduced to zero;

            (vi)  to the Class  B-1  Certificates  until  the Class  Certificate
                  Balance thereof has been reduced to zero;

            (vii) to  the  Classes  of  Senior   Certificates   of  the  related
                  Certificate  Group,  pro rata, in accordance  with their Class
                  Certificate Balances;  provided, that the principal portion of
                  Realized  Losses  (other than Excess  Losses) on the  Mortgage
                  Loans allocable to the Super Senior  Certificates will instead
                  be borne by the Super Senior Support Certificates (in addition
                  to other Realized Losses allocated to the Super Senior Support
                  Certificates),  and not by the Super Senior Certificates,  for
                  so long as the Class  Certificate  Balance of the Super Senior
                  Support Certificates is greater than zero.

      (c)   With respect to any Distribution  Date, the principal portion of any
            Excess  Loss with  respect to a Mortgage  Pool  (other  than  Excess
            Bankruptcy Losses  attributable to Debt Service Reductions) shall be
            allocated  pro rata to each  Class of  Certificates  of the  related
            Certificate  Group  based  on  their  respective  Class  Certificate
            Balances  (in the case of the Senior  Certificates)  or  Apportioned
            Principal Balances (in the case of the Subordinated Certificates).


                                       71
<PAGE>

      (d)   Any Realized Losses allocated to a Class of Certificates pursuant to
            Section 4.4(b) or (c) shall be allocated  among the  Certificates of
            such Class in proportion to their respective  Certificate  Principal
            Balances.  Any  allocation  of  Realized  Losses  pursuant  to  this
            paragraph  (d) shall be  accomplished  by reducing  the  Certificate
            Principal  Balances  of the  related  Certificates  on  the  related
            Distribution Date in accordance with Section 4.4(e).

      (e)   Realized Losses  allocated in accordance with this Section 4.4 shall
            be allocated on the  Distribution  Date in the month  following  the
            month  in  which  such  loss was  incurred  and,  in the case of the
            principal portion thereof,  after giving effect to the distributions
            made on such Distribution Date.

      (f)   On each  Distribution  Date, the Master Servicer shall determine the
            Subordinated   Certificate   Writedown  Amount,  if  any.  Any  such
            Subordinated  Certificate  Writedown  Amount shall  effect,  without
            duplication of any other provision in this Section 4.4 that provides
            for a reduction in the Class Certificate Balance of the Subordinated
            Certificates,  a  corresponding  reduction in the Class  Certificate
            Balance of the  Subordinated  Certificates,  which  reduction  shall
            occur on such Distribution Date after giving effect to distributions
            made on such Distribution Date.

      (g)   Notwithstanding  the foregoing,  no such  allocation of any Realized
            Loss shall be made on a Distribution Date to a Class of Certificates
            to the extent that such allocation  would result in the reduction of
            the  aggregate  Class   Certificate   Balances  of  all  the  Senior
            Certificates of a related  Certificate Group as of such Distribution
            Date plus the  Apportioned  Principal  Balances of the  Subordinated
            Certificates of such Certificate Group as of such Distribution Date,
            after giving effect to all  distributions  and prior  allocations of
            Realized  Losses on such date,  to an amount less than the aggregate
            Stated  Principal  Balance  of the  Mortgage  Loans  in the  related
            Mortgage Pool as of the first day of the month of such  Distribution
            Date,  less any  Deficient  Valuations  occurring on or prior to the
            Bankruptcy  Coverage  Termination Date (such  limitation,  the "Loss
            Allocation Limitation").

            SECTION 4.5 [RESERVED]

            SECTION 4.6 Monthly Statements to Certificateholders.

      (a)   Not later than each Distribution Date, the Trustee shall prepare and
            cause to be forwarded by first class mail to each Certificateholder,
            the  Master  Servicer,  the  Depositor  and  each  Rating  Agency  a
            statement  setting  forth with  respect to the related  distribution
            and/or  may  post  such   statement   on  its  website   located  at
            www.bnyinvestorreporting.com:


                                       72
<PAGE>

            (i)   the  amount   thereof   allocable  to  principal,   separately
                  identifying the aggregate amount of any Principal  Prepayments
                  and Liquidation Proceeds included therein;

            (ii)  the amount  thereof  allocable to interest,  the amount of any
                  Compensating  Interest  included in such  distribution and any
                  remaining Net Interest  Shortfalls after giving effect to such
                  distribution;

            (iii) if  the   distribution   to  the  Holders  of  such  Class  of
                  Certificates  is less  than  the  full  amount  that  would be
                  distributable  to such Holders if there were sufficient  funds
                  available  therefor,  the  amount  of the  shortfall  and  the
                  allocation thereof as between principal and interest;

            (iv)  the Class  Certificate  Balance of each Class of  Certificates
                  after giving effect to the  distribution  of principal on such
                  Distribution Date;

            (v)   the Pool  Principal  Balance  for each  Mortgage  Pool for the
                  following Distribution Date;

            (vi)  the Senior  Percentage  and  Subordinated  Percentage for each
                  Certificate Group for the following Distribution Date;

            (vii) the amount of the Master Servicing Fees paid to or retained by
                  the Master Servicer with respect to such Distribution Date;

            (viii)the  Pass-Through  Rate for each  such  Class of  Certificates
                  with respect to such Distribution Date;

            (ix)  the amount of Advances for each  Mortgage Pool included in the
                  distribution  on such  Distribution  Date  and  the  aggregate
                  amount of Advances for each  Mortgage Pool  outstanding  as of
                  the close of business on such Distribution Date;

            (x)   the number and aggregate  principal  amounts of Mortgage Loans
                  (A) delinquent  (exclusive of Mortgage  Loans in  foreclosure)
                  (1) 1 to 30 days  (2) 31 to 60 days  (3) 61 to 90 days and (4)
                  91 or more days and (B) in foreclosure and delinquent (1) 1 to
                  30 days (2) 31 to 60 days (3) 61 to 90 days and (4) 91 or more
                  days,  as of the  close  of  business  on the  last day of the
                  calendar month preceding such Distribution Date;

            (xi)  with  respect to any  Mortgage  Loan in a  Mortgage  Pool that
                  became an REO Property  during the preceding  calendar  month,
                  the loan number and Stated Principal  Balance of such Mortgage
                  Loan as of the close of  business  on the  Determination  Date
                  preceding such  Distribution  Date and the date of acquisition
                  thereof;


                                       73
<PAGE>

            (xii) the total number and principal  balance of any REO  Properties
                  (and market  value,  if available) in each Mortgage Pool as of
                  the close of business on the Determination Date preceding such
                  Distribution Date;

            (xiii)the Senior  Prepayment  Percentage for each Certificate  Group
                  for the following Distribution Date;

            (xiv) the aggregate amount of Realized Losses incurred in respect of
                  each Mortgage Pool during the preceding calendar month;

            (xv)  the cumulative  amount of Realized Losses applied in reduction
                  of the principal  balance of each class of Certificates  since
                  the Closing Date;

            (xvi) the  Special  Hazard  Loss  Coverage  Amount,  the Fraud  Loss
                  Coverage  Amount and the Bankruptcy Loss Coverage  Amount,  in
                  each case as of the related Determination Date; and

            (xvii)with respect to the second  Distribution  Date, the number and
                  aggregate  balance of any Delay  Delivery  Mortgage  Loans not
                  delivered within thirty days after the Closing Date.

      (b)   The Trustee's responsibility for disbursing the above information to
            the  Certificateholders  is limited to the availability,  timeliness
            and accuracy of the information provided by the Master Servicer.

      (c)   On or  before  the  fifth  Business  Day  following  the end of each
            Prepayment Period (but in no event later than the third Business Day
            prior to the related  Distribution  Date), the Master Servicer shall
            deliver to the Trustee  (which  delivery may be by  electronic  data
            transmission)  a report  in  substantially  the  form  set  forth as
            Schedule III hereto.

      (d)   Within a  reasonable  period of time after the end of each  calendar
            year,  the Trustee shall cause to be furnished to each Person who at
            any  time  during  the  calendar  year  was a  Certificateholder,  a
            statement  containing the  information  set forth in clauses (a)(i),
            (a)(ii)  and  (a)(vii)  of this  Section  4.6  aggregated  for  such
            calendar year or applicable portion thereof during which such Person
            was a  Certificateholder.  Such  obligation  of the Trustee shall be
            deemed to have  been  satisfied  to the  extent  that  substantially
            comparable  information shall be provided by the Trustee pursuant to
            any requirements of the Code as from time to time in effect.

                                   ARTICLE V
                                THE CERTIFICATES

            SECTION 5.1 The Certificates.

      The  Certificates  shall be  substantially in the forms attached hereto as
exhibits.  The Certificates shall be issuable in registered form, in the minimum
denominations, integral multiples in excess thereof (except that one Certificate
in each Class may be issued in a different amount which must be in excess of the
applicable minimum denomination) and aggregate denominations per Class set forth
in the Preliminary Statement.


                                       74
<PAGE>

      Subject to Section 9.2 hereof  respecting  the final  distribution  on the
Certificates,  on each Distribution Date the Trustee shall make distributions to
each Certificateholder of record on the preceding Record Date either (x) by wire
transfer in immediately  available funds to the account of such Holder at a bank
or other entity having appropriate  facilities therefor,  if (i) such Holder has
so notified the Trustee at least five Business Days prior to the related  Record
Date and (ii) such Holder shall hold (A) 100% of the Class  Certificate  Balance
of any Class of  Certificates  or (B)  Certificates  of any Class with aggregate
principal  Denominations  of not less than  $1,000,000 or (y) by check mailed by
first  class  mail to  such  Certificateholder  at the  address  of such  Holder
appearing in the Certificate Register.

      The  Certificates  shall be executed by manual or  facsimile  signature on
behalf of the Trustee by an authorized officer.  Certificates bearing the manual
or  facsimile  signatures  of  individuals  who  were,  at the  time  when  such
signatures were affixed,  authorized to sign on behalf of the Trustee shall bind
the Trustee, notwithstanding that such individuals or any of them have ceased to
be so authorized prior to the countersignature and delivery of such Certificates
or did not hold such  offices at the date of such  Certificate.  No  Certificate
shall be  entitled  to any  benefit  under this  Agreement,  or be valid for any
purpose,  unless  countersigned  by the  Trustee by manual  signature,  and such
countersignature upon any Certificate shall be conclusive evidence, and the only
evidence,  that such Certificate has been duly executed and delivered hereunder.
All  Certificates  shall be dated  the  date of their  countersignature.  On the
Closing Date, the Trustee shall countersign the Certificates to be issued at the
direction of the Depositor, or any affiliate thereof.

      The Depositor shall provide, or cause to be provided,  to the Trustee on a
continuous basis, an adequate inventory of Certificates to facilitate transfers.

            SECTION 5.2  Certificate  Register;  Registration  of  Transfer  and
            Exchange of Certificates.

      (a)   The Trustee shall maintain,  or cause to be maintained in accordance
            with the  provisions of Section 5.6 hereof,  a Certificate  Register
            for  the  Trust  Fund  in  which,   subject  to  the  provisions  of
            subsections (b) and (c) below and to such reasonable  regulations as
            it may prescribe,  the Trustee shall provide for the registration of
            Certificates  and of  transfers  and  exchanges of  Certificates  as
            herein provided.  Upon surrender for registration of transfer of any
            Certificate,  the Trustee shall execute and deliver,  in the name of
            the  designated   transferee  or   transferees,   one  or  more  new
            Certificates of the same Class and aggregate Percentage Interest.

            At the option of a Certificateholder,  Certificates may be exchanged
      for other  Certificates of the same Class in authorized  denominations and
      evidencing  the same aggregate  Percentage  Interest upon surrender of the
      Certificates  to be  exchanged  at the  office or  agency of the  Trustee.
      Whenever any  Certificates  are so surrendered  for exchange,  the Trustee
      shall  execute,  authenticate,  and  deliver  the  Certificates  which the
      Certificateholder  making the  exchange  is  entitled  to  receive.  Every
      Certificate  presented  or  surrendered  for  registration  of transfer or
      exchange shall be accompanied by a written  instrument of transfer in form
      satisfactory  to the Trustee  duly  executed by the Holder  thereof or his
      attorney duly authorized in writing.


                                       75
<PAGE>

            No service  charge to the  Certificateholders  shall be made for any
      registration of transfer or exchange of Certificates, but payment of a sum
      sufficient to cover any tax or governmental  charge that may be imposed in
      connection with any transfer or exchange of Certificates may be required.

            All  Certificates   surrendered  for  registration  of  transfer  or
      exchange shall be cancelled and  subsequently  destroyed by the Trustee in
      accordance with the Trustee's customary procedures.

      (b)   No  transfer  of a Private  Certificate  shall be made  unless  such
            transfer is made  pursuant to an  effective  registration  statement
            under the Securities Act and any applicable state securities laws or
            is exempt from the registration requirements under said Act and such
            state securities laws. In the event that a transfer is to be made in
            reliance upon an exemption from the Securities Act and such laws, in
            order to assure  compliance  with the  Securities Act and such laws,
            the  Certificateholder  desiring  to effect such  transfer  and such
            Certificateholder's prospective transferee shall each certify to the
            Trustee  in  writing   the  facts   surrounding   the   transfer  in
            substantially  the  forms set  forth in  Exhibit I (the  "Transferor
            Certificate")  and (i) deliver a letter in substantially the form of
            either Exhibit J (the  "Investment  Letter") or Exhibit K (the "Rule
            144A Letter") or (ii) there shall be delivered to the Trustee at the
            expense of the  transferor  an Opinion of Counsel that such transfer
            may be made pursuant to an exemption  from the  Securities  Act. The
            Depositor  shall provide to any Holder of a Private  Certificate and
            any   prospective   transferee   designated   by  any  such  Holder,
            information  regarding  the related  Certificates  and the  Mortgage
            Loans and such other  information  as shall be  necessary to satisfy
            the  condition  to  eligibility  set  forth in Rule  144A(d)(4)  for
            transfer of any such Certificate without  registration thereof under
            the Securities Act pursuant to the registration  exemption  provided
            by Rule 144A. The Trustee and the Master  Servicer  shall  cooperate
            with the Depositor in providing the Rule 144A information referenced
            in the preceding sentence, including providing to the Depositor such
            information regarding the Certificates, the Mortgage Loans and other
            matters  regarding the Trust Fund as the Depositor shall  reasonably
            request to meet its obligation  under the preceding  sentence.  Each
            Holder of a Private  Certificate  desiring to effect  such  transfer
            shall,  and does  hereby  agree to,  indemnify  the  Trustee and the
            Depositor,  the Seller and the Master Servicer against any liability
            that may result if the  transfer  is not so exempt or is not made in
            accordance with such federal and state laws.


                                       76
<PAGE>

                  No transfer of an  ERISA-Restricted  Certificate shall be made
      unless the Trustee shall have received a Transferor  Certificate  from the
      related transferor and either (i) a representation  from the transferee of
      such Certificate  acceptable to and in form and substance  satisfactory to
      the Trustee (in the event such Certificate is a Private Certificate,  such
      requirement is satisfied only by the Trustee's receipt of a representation
      letter  from the  transferee  substantially  in the form of  Exhibit  J or
      Exhibit K), to the effect that such transferee is not an employee  benefit
      plan  or  arrangement  subject  to  Section  406 of  ERISA  or a  plan  or
      arrangement  subject to Section 4975 of the Code,  nor a person  acting on
      behalf of any such plan or  arrangement,  nor using the assets of any such
      plan or arrangement to effect such transfer, (ii) in the case of a Private
      Certificate (that has been subject to an ERISA-Qualified  Underwriting) or
      a Residual  Certificate,  if the  purchaser  is an  insurance  company,  a
      representation  that  the  purchaser  is an  insurance  company  which  is
      purchasing such Certificates with funds contained in an "insurance company
      general  account" (as such term is defined in Section  V(e) of  Prohibited
      Transaction  Class  Exemption  95-60 ("PTCE 95-60")) and that the purchase
      and holding of such  Certificates  are covered under Sections I and III of
      PTCE 95-60 or (iii) in the case of any such  ERISA-Restricted  Certificate
      presented for registration in the name of an employee benefit plan subject
      to ERISA, or a plan or arrangement subject to Section 4975 of the Code (or
      comparable provisions of any subsequent  enactments),  or a trustee of any
      such  plan or any  other  person  acting  on  behalf  of any such  plan or
      arrangement,  or using such plan's or arrangement's  assets, an Opinion of
      Counsel satisfactory to the Trustee, which Opinion of Counsel shall not be
      an expense of either the Trustee,  the Depositor,  the Master  Servicer or
      the Trust Fund,  addressed  to the Trustee to the effect that the purchase
      or  holding  of such  ERISA-Restricted  Certificate  will  not  result  in
      prohibited transactions under Section 406 of ERISA and Section 4975 of the
      Code and  will not  subject  the  Trustee,  the  Depositor  or the  Master
      Servicer to any  obligation in addition to those  expressly  undertaken in
      this Agreement or to any liability.  Notwithstanding  anything else to the
      contrary herein, any purported transfer of an ERISA-Restricted Certificate
      to or on behalf of an  employee  benefit  plan  subject to ERISA or to the
      Code  without  the  delivery  to the  Trustee  of an  Opinion  of  Counsel
      satisfactory  to the  Trustee as  described  above shall be void and of no
      effect.

            To the extent  permitted under  applicable law  (including,  but not
      limited to, ERISA),  the Trustee shall be under no liability to any Person
      for any registration of transfer of any ERISA-Restricted  Certificate that
      is in fact not permitted by this Section 5.2(b) or for making any payments
      due on such  Certificate  to the Holder thereof or taking any other action
      with respect to such Holder under the provisions of this Agreement so long
      as the  transfer  was  registered  by the Trustee in  accordance  with the
      foregoing requirements.

      (c)   Each  Person who has or who  acquires  any  Ownership  Interest in a
            Residual   Certificate   shall  be  deemed  by  the   acceptance  or
            acquisition of such Ownership Interest to have agreed to be bound by
            the following  provisions,  and the rights of each Person  acquiring
            any  Ownership  Interest  in a Residual  Certificate  are  expressly
            subject to the following provisions:

            (i)   Each Person  holding or acquiring any Ownership  Interest in a
                  Residual Certificate shall be a Permitted Transferee and shall
                  promptly notify the Trustee of any change or impending  change
                  in its status as a Permitted Transferee.


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<PAGE>

            (ii)  No  Ownership  Interest  in  a  Residual  Certificate  may  be
                  registered on the Closing Date or thereafter transferred,  and
                  the Trustee  shall not  register  the Transfer of any Residual
                  Certificate  unless, in addition to the certificates  required
                  to be delivered to the Trustee under  subparagraph  (b) above,
                  the Trustee  shall have been  furnished  with an  affidavit (a
                  "Transfer  Affidavit")  of the initial  owner or the  proposed
                  transferee in the form attached hereto as Exhibit H.

            (iii) Each Person  holding or acquiring any Ownership  Interest in a
                  Residual  Certificate  shall  agree (A) to  obtain a  Transfer
                  Affidavit  from any other Person to whom such Person  attempts
                  to Transfer its Ownership Interest in a Residual  Certificate,
                  (B) to obtain a  Transfer  Affidavit  from any Person for whom
                  such  Person  is  acting  as  nominee,  trustee  or  agent  in
                  connection with any Transfer of a Residual Certificate and (C)
                  not  to  Transfer  its   Ownership   Interest  in  a  Residual
                  Certificate or to cause the Transfer of an Ownership  Interest
                  in a Residual Certificate to any other Person if it has actual
                  knowledge that such Person is not a Permitted Transferee.

            (iv)  Any attempted or purported  Transfer of any Ownership Interest
                  in a Residual  Certificate  in violation of the  provisions of
                  this  Section  5.2(c)  shall be  absolutely  null and void and
                  shall  vest no  rights  in the  purported  Transferee.  If any
                  purported  transferee  shall  become  a Holder  of a  Residual
                  Certificate  in  violation of the  provisions  of this Section
                  5.2(c), then the last preceding Permitted  Transferee shall be
                  restored to all rights as Holder  thereof  retroactive  to the
                  date of registration of Transfer of such Residual Certificate.
                  The Trustee  shall be under no liability to any Person for any
                  registration of Transfer of a Residual  Certificate that is in
                  fact not permitted by Section  5.2(b) and this Section  5.2(c)
                  or for  making any  payments  due on such  Certificate  to the
                  Holder thereof or taking any other action with respect to such
                  Holder under the  provisions of this  Agreement so long as the
                  Transfer was registered  after receipt of the related Transfer
                  Affidavit,  Transferor  Certificate  and,  in  the  case  of a
                  Residual  Certificate  which  is also a  Private  Certificate,
                  either  the Rule 144A  Letter or the  Investment  Letter.  The
                  Trustee  shall be entitled  but not  obligated to recover from
                  any  Holder of a Residual  Certificate  that was in fact not a
                  Permitted  Transferee  at the time it  became a Holder  or, at
                  such  subsequent  time as it  became  other  than a  Permitted
                  Transferee,  all payments made on such Residual Certificate at
                  and after either such time.  Any such payments so recovered by
                  the Trustee  shall be paid and delivered by the Trustee to the
                  last preceding Permitted Transferee of such Certificate.

            (v)   The  Depositor  shall use its best efforts to make  available,
                  upon  receipt  of  written  request  from  the  Trustee,   all
                  information necessary to compute any tax imposed under Section
                  860E(e) of the Code as a result of a Transfer of an  Ownership
                  Interest in a Residual  Certificate to any Holder who is not a
                  Permitted Transferee.


                                       78
<PAGE>

            The restrictions on Transfers of a Residual Certificate set forth in
      this Section 5.2(c) shall cease to apply (and the  applicable  portions of
      the legend on a  Residual  Certificate  may be  deleted)  with  respect to
      Transfers  occurring  after  delivery  to the  Trustee  of an  Opinion  of
      Counsel,  which  Opinion of  Counsel  shall not be an expense of the Trust
      Fund, the Trustee,  the Seller or the Master Servicer,  to the effect that
      the  elimination  of such  restrictions  will not cause any REMIC  created
      hereunder to fail to qualify as a REMIC at any time that the  Certificates
      are  outstanding or result in the imposition of any tax on the Trust Fund,
      a  Certificateholder  or another Person.  Each Person holding or acquiring
      any Ownership  Interest in a Residual  Certificate  hereby consents to any
      amendment  of  this  Agreement  which,  based  on an  Opinion  of  Counsel
      furnished to the Trustee,  is reasonably  necessary (a) to ensure that the
      record ownership of, or any beneficial interest in, a Residual Certificate
      is not  transferred,  directly  or  indirectly,  to a Person that is not a
      Permitted Transferee and (b) to provide for a means to compel the Transfer
      of a  Residual  Certificate  which  is  held  by a  Person  that  is not a
      Permitted Transferee to a Holder that is a Permitted Transferee.

      (d)   The  preparation  and  delivery  of all  certificates  and  opinions
            referred to above in this Section 5.2 in  connection  with  transfer
            shall be at the expense of the parties to such transfers.

      (e)   Except as provided below, the Book-Entry  Certificates  shall at all
            times remain registered in the name of the Depository or its nominee
            and at all times:  (i)  registration of the  Certificates may not be
            transferred  by the Trustee except to another  Depository;  (ii) the
            Depository  shall  maintain  book-entry  records with respect to the
            Certificate  Owners and with respect to ownership  and  transfers of
            such  Book-Entry  Certificates;  (iii)  ownership  and  transfers of
            registration  of the  Book-Entry  Certificates  on the  books of the
            Depository shall be governed by applicable rules  established by the
            Depository;  (iv) the Depository may collect its usual and customary
            fees, charges and expenses from its Depository Participants; (v) the
            Trustee shall deal with the Depository,  Depository Participants and
            indirect  participating  firms as representatives of the Certificate
            Owners of the Book-Entry Certificates for purposes of exercising the
            rights of holders under this Agreement,  and requests and directions
            for and  votes of such  representatives  shall  not be  deemed to be
            inconsistent if they are made with respect to different  Certificate
            Owners;  and (vi) the Trustee may rely and shall be fully  protected
            in relying upon information furnished by the Depository with respect
            to its  Depository  Participants  and  furnished  by the  Depository
            Participants  with  respect  to  indirect  participating  firms  and
            persons shown on the books of such indirect  participating  firms as
            direct or indirect Certificate Owners.

            All transfers by Certificate Owners of Book-Entry Certificates shall
      be made in accordance  with the  procedures  established by the Depository
      Participant or brokerage firm  representing  such Certificate  Owner. Each
      Depository  Participant  shall only transfer  Book-Entry  Certificates  of
      Certificate  Owners it represents or of brokerage  firms for which it acts
      as agent in accordance with the Depository's normal procedures.


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<PAGE>

            If (x) (i) the  Depository or the  Depositor  advises the Trustee in
      writing  that the  Depository  is no longer  willing  or able to  properly
      discharge its responsibilities as Depository,  and (ii) the Trustee or the
      Depositor is unable to locate a qualified successor,  (y) the Depositor at
      its option  advises the Trustee in writing that it elects to terminate the
      book-entry system through the Depository or (z) after the occurrence of an
      Event of  Default,  Certificate  Owners  representing  at least 51% of the
      Class Certificate Balance of the Book-Entry  Certificates  together advise
      the Trustee and the  Depository  through the  Depository  Participants  in
      writing  that  the  continuation  of  a  book-entry   system  through  the
      Depository is no longer in the best interests of the  Certificate  Owners,
      the Trustee shall notify all Certificate  Owners,  through the Depository,
      of the occurrence of any such event and of the availability of definitive,
      fully-registered   Certificates   (the   "Definitive   Certificates")   to
      Certificate  Owners  requesting the same. Upon surrender to the Trustee of
      the related Class of Certificates  by the  Depository,  accompanied by the
      instructions from the Depository for registration, the Trustee shall issue
      the Definitive  Certificates.  Neither the Master Servicer,  the Depositor
      nor the  Trustee  shall  be  liable  for any  delay  in  delivery  of such
      instruction and each may  conclusively  rely on, and shall be protected in
      relying on,  such  instructions.  The Master  Servicer  shall  provide the
      Trustee  with an adequate  inventory of  certificates  to  facilitate  the
      issuance and  transfer of  Definitive  Certificates.  Upon the issuance of
      Definitive  Certificates all references herein to obligations imposed upon
      or to be  performed by the  Depository  shall be deemed to be imposed upon
      and  performed by the Trustee,  to the extent  applicable  with respect to
      such Definitive  Certificates  and the Trustee shall recognize the Holders
      of the Definitive Certificates as Certificateholders  hereunder;  provided
      that the Trustee shall not by virtue of its assumption of such obligations
      become  liable  to  any  party  for  any  act  or  failure  to  act of the
      Depository.

            SECTION 5.3 Mutilated, Destroyed, Lost or Stolen Certificates.

      If (a) any mutilated  Certificate is  surrendered  to the Trustee,  or the
Trustee receives evidence to its satisfaction of the destruction,  loss or theft
of any  Certificate  and (b) there is delivered  to the Master  Servicer and the
Trustee  such  security or  indemnity as may be required by them to save each of
them  harmless,  then,  in the  absence  of  notice  to the  Trustee  that  such
Certificate  has been  acquired  by a bona fide  purchaser,  the  Trustee  shall
execute,  countersign  and  deliver,  in  exchange  for or in lieu  of any  such
mutilated,  destroyed,  lost or stolen  Certificate,  a new  Certificate of like
Class, tenor and Percentage Interest. In connection with the issuance of any new
Certificate under this Section 5.3, the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental  charge that may be imposed in
relation thereto and any other expenses  (including the fees and expenses of the
Trustee)  connected  therewith.  Any replacement  Certificate issued pursuant to
this  Section  5.3  shall  constitute  complete  and  indefeasible  evidence  of
ownership, as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.

            SECTION 5.4 Persons Deemed Owners.

      The Master  Servicer,  the Trustee and any agent of the Master Servicer or
the Trustee may treat the Person in whose name any  Certificate is registered as
the owner of such  Certificate  for the purpose of  receiving  distributions  as
provided in this  Agreement and for all other purposes  whatsoever,  and neither
the Master  Servicer,  the Trustee  nor any agent of the Master  Servicer or the
Trustee shall be affected by any notice to the contrary.


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<PAGE>

            SECTION  5.5  Access  to  List  of  Certificateholders'   Names  and
            Addresses.

      If three or more Certificateholders or Certificate Owners (a) request such
information in writing from the Trustee, (b) state that such  Certificateholders
or Certificate Owners desire to communicate with other  Certificateholders  with
respect to their rights under this Agreement or under the Certificates,  and (c)
provide a copy of the communication which such Certificateholders or Certificate
Owners propose to transmit, or if the Depositor or Master Servicer shall request
such information in writing from the Trustee, then the Trustee shall, within ten
Business  Days after the receipt of such  request,  provide the  Depositor,  the
Master  Servicer  or  such  Certificateholders  or  Certificate  Owners  at such
recipients' expense the most recent list of the Certificateholders of such Trust
Fund held by the Trustee, if any. The Depositor and every  Certificateholder  or
Certificate  Owner,  by  receiving  and  holding a  Certificate,  agree that the
Trustee shall not be held  accountable  by reason of the  disclosure of any such
information as to the list of the  Certificateholders  hereunder,  regardless of
the source from which such information was derived.

SECTION 5.6 Maintenance of Office or Agency.

      The  Trustee  will  maintain or cause to be  maintained  at its expense an
office or offices or agency or agencies in New York City where  Certificates may
be surrendered for registration of transfer or exchange.  The Trustee  initially
designates its Corporate  Trust Office for such purposes.  The Trustee will give
prompt written notice to the  Certificateholders  of any change in such location
of any such office or agency.

                                   ARTICLE VI
                      THE DEPOSITOR AND THE MASTER SERVICER

            SECTION 6.1  Respective  Liabilities of the Depositor and the Master
            Servicer.

      The Depositor and the Master  Servicer  shall each be liable in accordance
herewith only to the extent of the  obligations  specifically  and  respectively
imposed upon and undertaken by them herein.

            SECTION 6.2 Merger or  Consolidation  of the Depositor or the Master
            Servicer.

      The  Depositor  and the Master  Servicer will each keep in full effect its
existence,  rights and franchises as a corporation  under the laws of the United
States or under the laws of one of the states  thereof  and will each obtain and
preserve  its  qualification  to do  business as a foreign  corporation  in each
jurisdiction in which such qualification is or shall be necessary to protect the
validity and enforceability of this Agreement,  or any of the Mortgage Loans and
to perform its respective duties under this Agreement.

      Any Person into which the  Depositor or the Master  Servicer may be merged
or  consolidated,  or any Person  resulting from any merger or  consolidation to
which the  Depositor  or the  Master  Servicer  shall be a party,  or any person
succeeding to the business of the Depositor or the Master Servicer, shall be the
successor  of the  Depositor  or  the  Master  Servicer,  as the  case  may  be,
hereunder,  without the  execution  or filing of any paper or any further act on
the  part  of  any  of the  parties  hereto,  anything  herein  to the  contrary
notwithstanding;  provided,  however,  that the successor or surviving Person to
the Master Servicer shall be qualified to sell mortgage loans to, and to service
mortgage loans on behalf of, FNMA or FHLMC.


                                       81
<PAGE>

            SECTION 6.3  Limitation  on Liability of the  Depositor,  the Master
            Servicer and Others.

      None  of the  Depositor,  the  Master  Servicer  or any of the  directors,
officers,  employees or agents of the Depositor or the Master  Servicer shall be
under  any  liability  to the  Certificateholders  for any  action  taken or for
refraining  from  the  taking  of any  action  in good  faith  pursuant  to this
Agreement,  or for errors in judgment;  provided,  however,  that this provision
shall not protect the Depositor,  the Master Servicer or any such Person against
any breach of  representations  or  warranties  made by it herein or protect the
Depositor, the Master Servicer or any such Person from any liability which would
otherwise  be imposed by  reasons  of  willful  misfeasance,  bad faith or gross
negligence in the  performance  of duties or by reason of reckless  disregard of
obligations  and duties  hereunder.  The Depositor,  the Master Servicer and any
director, officer, employee or agent of the Depositor or the Master Servicer may
rely in good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising hereunder. The Depositor,
the  Master  Servicer  and any  director,  officer,  employee  or  agent  of the
Depositor or the Master Servicer shall be indemnified by the Trust Fund and held
harmless against any loss,  liability or expense incurred in connection with any
audit,  controversy or judicial  proceeding  relating to a  governmental  taxing
authority or any legal action  relating to this  Agreement or the  Certificates,
other than any loss,  liability or expense related to any specific Mortgage Loan
or  Mortgage  Loans  (except as any such  loss,  liability  or expense  shall be
otherwise  reimbursable  pursuant to this Agreement) and any loss,  liability or
expense incurred by reason of willful misfeasance, bad faith or gross negligence
in the  performance  of duties  hereunder or by reason of reckless  disregard of
obligations and duties hereunder.  Neither the Depositor nor the Master Servicer
shall be under any obligation to appear in, prosecute or defend any legal action
that is not  incidental  to its  respective  duties  hereunder  and which in its
opinion may  involve it in any expense or  liability;  provided,  however,  that
either the Depositor, or the Master Servicer may in its discretion undertake any
such action that it may deem necessary or desirable in respect of this Agreement
and the rights and duties of the parties hereto and interests of the Trustee and
the Certificateholders hereunder. In such event, the legal expenses and costs of
such action and any liability resulting  therefrom shall be expenses,  costs and
liabilities of the Trust Fund, and the Depositor,  and the Master Servicer shall
be entitled to be reimbursed  therefor out of the  applicable  subaccount of the
Certificate Account.

            SECTION 6.4 Limitation on Resignation of Master Servicer.

      The Master  Servicer  shall not  resign  from the  obligations  and duties
hereby  imposed on it except (a) upon  appointment  of a successor  servicer and
receipt  by the  Trustee  of a  letter  from  each  Rating  Agency  that  such a
resignation  and  appointment  will not result in a downgrading of the rating of
any of the Certificates, or (b) upon determination that its duties hereunder are
no longer permissible under applicable law. Any such determination  under clause
(b) permitting the  resignation of the Master  Servicer shall be evidenced by an
Opinion of Counsel to such effect delivered to the Trustee.  No such resignation
shall become  effective  until the Trustee or other  successor  master  servicer
shall have assumed the Master Servicer's  responsibilities,  duties, liabilities
and obligations hereunder.


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<PAGE>

                                  ARTICLE VII
                                     DEFAULT

            SECTION 7.1 Events of Default.

      "Event of Default,"  wherever used herein,  means any one of the following
events:

            (i)   any  failure  by  the  Master   Servicer  to  deposit  in  the
                  applicable  subaccount of the Certificate  Account or remit to
                  the Trustee any payment required to be made under the terms of
                  this  Agreement,  which failure shall continue  unremedied for
                  five days  after the date upon  which  written  notice of such
                  failure  shall have been given to the Master  Servicer  by the
                  Trustee or the  Depositor  or to the Master  Servicer  and the
                  Trustee by the  Holders of  Certificates  having not less than
                  25% of the Voting Rights evidenced by the Certificates; or

            (ii)  any  failure by the Master  Servicer  to observe or perform in
                  any material  respect any other of the covenants or agreements
                  on  the  part  of  the  Master  Servicer   contained  in  this
                  Agreement,  which  failure  materially  affects  the rights of
                  Certificateholders,  which failure continues  unremedied for a
                  period of 60 days  after the date on which  written  notice of
                  such failure  shall have been given to the Master  Servicer by
                  the Trustee or the  Depositor,  or to the Master  Servicer and
                  the Trustee by the Holders of Certificates evidencing not less
                  than 25% of the Voting Rights  evidenced by the  Certificates;
                  provided, however, that the 60-day cure period shall not apply
                  to  the  initial  delivery  of the  Mortgage  File  for  Delay
                  Delivery  Mortgage  Loans nor the  failure  to  substitute  or
                  repurchase in lieu thereof; or

            (iii) a  decree  or  order  of a  court  or  agency  or  supervisory
                  authority   having   jurisdiction  in  the  premises  for  the
                  appointment  of a receiver or  liquidator  in any  insolvency,
                  readjustment of debt, marshalling of assets and liabilities or
                  similar  proceedings,  or for the winding-up or liquidation of
                  its  affairs,  shall  have been  entered  against  the  Master
                  Servicer and such decree or order shall have remained in force
                  undischarged or unstayed for a period of 60 consecutive  days;
                  or

            (iv)  the Master  Servicer  shall  consent to the  appointment  of a
                  receiver or  liquidator  in any  insolvency,  readjustment  of
                  debt,   marshalling  of  assets  and  liabilities  or  similar
                  proceedings  of or relating  to the Master  Servicer or all or
                  substantially all of the property of the Master Servicer; or

            (v)   the Master  Servicer  shall admit in writing its  inability to
                  pay its debts generally as they become due, file a petition to
                  take  advantage  of, or commence a voluntary  case under,  any
                  applicable  insolvency  or  reorganization  statute,  make  an
                  assignment  for the benefit of its  creditors,  or voluntarily
                  suspend payment of its obligations; or


                                       83
<PAGE>

            (vi)  the  failure  of the  Master  Servicer  to remit  any  Advance
                  required  to be remitted  by the Master  Servicer  pursuant to
                  Section 4.1 which failure continues  unremedied at 11:00 a.m.,
                  Central time, on the related Distribution Date.

      If an Event of Default  described  in clauses  (i) to (v) of this  Section
shall  occur,  then,  and in each and every such case,  so long as such Event of
Default  shall not have been  remedied,  the Trustee may, or at the direction of
the  Holders  of  Certificates  evidencing  not less than 66 2/3% of the  Voting
Rights evidenced by the Certificates,  the Trustee shall by notice in writing to
the Master  Servicer (with a copy to each Rating  Agency),  terminate all of the
rights and obligations of the Master Servicer under this Agreement and in and to
the  Mortgage  Loans  and the  proceeds  thereof,  other  than its  rights  as a
Certificateholder  hereunder. If an Event of Default described in clause (vi) of
this Section shall occur, the Trustee shall immediately, by notice in writing to
the Master  Servicer (with a copy to each Rating  Agency),  terminate all of the
rights and obligations of the Master Servicer under this Agreement and in and to
the  Mortgage  Loans  and  proceeds   thereof,   other  than  its  rights  as  a
Certificateholder  hereunder. On and after the receipt by the Master Servicer of
such written notice,  all authority and power of the Master Servicer  hereunder,
whether with respect to the Mortgage  Loans or  otherwise,  shall pass to and be
vested in the Trustee or another  successor to the Master Servicer  appointed by
the Trustee  pursuant to Section 7.2. The Trustee,  in its capacity as successor
to the  Master  Servicer,  shall  thereupon  make any  Advance  which the Master
Servicer  failed to make  subject to Section 4.1  hereof.  The Trustee is hereby
authorized  and  empowered  to  execute  and  deliver,  on behalf of the  Master
Servicer,  as  attorney-in-fact  or  otherwise,  any and all documents and other
instruments,  and to do or  accomplish  all other  acts or things  necessary  or
appropriate  to effect the  purposes of such notice of  termination,  whether to
complete the transfer and  endorsement  or assignment of the Mortgage  Loans and
related  documents,  or  otherwise.  Unless  expressly  provided in such written
notice,  no such termination  shall affect any obligation of the Master Servicer
to pay amounts owed  pursuant to Article  VIII.  The Master  Servicer  agrees to
cooperate with the Trustee in effecting the termination of the Master Servicer's
responsibilities  and  rights  hereunder,  including,  without  limitation,  the
transfer to the Trustee of all cash amounts  which shall at the time be credited
to the  Certificate  Account,  or  thereafter  be received  with  respect to the
Mortgage  Loans.  All expenses  incurred in the  transferring  of the  servicing
duties from the Master  Servicer to a  Successor  Servicer  shall be paid by the
Master  Servicer,  and if not paid by the  Master  Servicer,  shall be paid from
amounts on deposit in the Certificate Account.

      Notwithstanding  any  termination of the activities of the Master Servicer
hereunder,  the Master  Servicer  shall be entitled to receive,  out of any late
collection of a Scheduled  Payment on a Mortgage Loan which was due prior to the
notice  terminating  such Master  Servicer's  rights and  obligations  as Master
Servicer hereunder and received after such notice, that portion thereof to which
such Master  Servicer  would have been entitled  pursuant to Sections  3.8(a)(i)
through  (viii),and any other amounts payable to such Master Servicer  hereunder
the  entitlement  to which  arose  prior to the  termination  of its  activities
hereunder.  Any termination of the activities of the Master  Servicer  hereunder
will simultaneously result in the termination of the Master Servicer's duties as
a  subservicer  pursuant  to the  Servicing  Rights  Transfer  and  Subservicing
Agreement.


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<PAGE>

SECTION 7.2 Trustee to Act; Appointment of Successor.

      On and after the time the Master Servicer receives a notice of termination
pursuant to Section 7.1 hereof, the Trustee shall,  subject to and to the extent
provided in Section  3.4, be the  successor  to the Master  Servicer  under this
Agreement  and the  transactions  set forth or provided  for herein and shall be
subject to all the  responsibilities,  duties and liabilities  relating  thereto
placed on the Master Servicer by the terms and provisions  hereof and applicable
law  including  the  obligation  to make  Advances  pursuant to Section  4.1. As
compensation  therefor,  the Trustee shall be entitled to all funds  relating to
the Mortgage  Loans that the Master  Servicer would have been entitled to charge
to the Certificate  Account or  Distribution  Account if the Master Servicer had
continued to act hereunder.  Notwithstanding  the foregoing,  if the Trustee has
become the  successor  to the Master  Servicer in  accordance  with  Section 7.1
hereof,  the Trustee may, if it shall be unwilling to so act, or shall, if it is
prohibited by applicable law from making Advances pursuant to Section 4.1 hereof
or if it is  otherwise  unable  to so act,  appoint,  or  petition  a  court  of
competent  jurisdiction  to appoint,  any  established  mortgage loan  servicing
institution the appointment of which does not adversely  affect the then current
rating of the  Certificates by each Rating Agency as the successor to the Master
Servicer hereunder in the assumption of all or any part of the responsibilities,
duties or liabilities  of the Master  Servicer  hereunder.  Any successor to the
Master  Servicer  shall be an  institution  which is a FNMA and  FHLMC  approved
seller/servicer in good standing, which has a net worth of at least $10,000,000,
and which is willing to service the Mortgage  Loans and executes and delivers to
the  Depositor  and the  Trustee an  agreement  accepting  such  delegation  and
assignment,  which contains an assumption by such Person of the rights,  powers,
duties,  responsibilities,  obligations  and  liabilities of the Master Servicer
(other than liabilities of the Master Servicer under Section 6.3 hereof incurred
prior to termination of the Master Servicer under Section 7.1), with like effect
as if originally  named as a party to this Agreement;  and provided further that
each Rating Agency  acknowledges  that its rating of the  Certificates in effect
immediately  prior to such  assignment and  delegation  will not be qualified or
reduced, as a result of such assignment and delegation. Pending appointment of a
successor to the Master Servicer hereunder,  the Trustee,  unless the Trustee is
prohibited by law from so acting,  shall,  subject to Section 3.4 hereof, act in
such  capacity  as provided  above.  In  connection  with such  appointment  and
assumption,  the Trustee may make such arrangements for the compensation of such
successor  out of  payments  on Mortgage  Loans as it and such  successor  shall
agree;  provided,  however,  that no such compensation shall be in excess of the
Master  Servicing Fee permitted the Master Servicer  hereunder.  The Trustee and
such successor shall take such action,  consistent with this Agreement, as shall
be  necessary to  effectuate  any such  succession.  Neither the Trustee nor any
other successor  master  servicer shall be deemed to be in default  hereunder by
reason  of any  failure  to make,  or any  delay  in  making,  any  distribution
hereunder  or any portion  thereof or any  failure to  perform,  or any delay in
performing,  any duties or responsibilities  hereunder, in either case caused by
the  failure of the Master  Servicer  to  deliver  or  provide,  or any delay in
delivering or providing, any cash, information, documents or records to it.

      Any successor to the Master  Servicer as master servicer shall give notice
to the  Mortgagors of such change of servicer and shall,  during the term of its
service as master  servicer  maintain in force the policy or  policies  that the
Master Servicer is required to maintain pursuant to Section 3.18.


                                       85
<PAGE>

      In connection  with the  termination or resignation of the Master Servicer
hereunder,  either (i) the successor Master  Servicer,  including the Trustee if
the Trustee is acting as successor Master Servicer,  shall represent and warrant
that it is a member of MERS in good  standing  and shall  agree to comply in all
material  respects with the rules and procedures of MERS in connection  with the
servicing  of the  Mortgage  Loans that are  registered  with MERS,  or (ii) the
predecessor  Master Servicer shall cooperate with the successor  Master Servicer
either (x) in causing MERS to execute and deliver an  assignment  of Mortgage in
recordable form to transfer the Mortgage from MERS to the Trustee and to execute
and  deliver  such other  notices,  documents  and other  instruments  as may be
necessary or desirable to effect a transfer of such  Mortgage  Loan or servicing
of such mortgage Loan on the MERS(R) System to the successor  Master Servicer or
(y) in causing  MERS to  designate on the MERS(R)  System the  successor  Master
Servicer as the servicer of such Mortgage Loan. The predecessor  Master Servicer
shall file or cause to be filed any such assignment in the appropriate recording
office.  The  successor  Master  Servicer  shall  cause  such  assignment  to be
delivered to the Trustee  promptly upon receipt of the original with evidence of
recording  thereon or a copy certified by the public  recording  office in which
such assignment was recorded.

            SECTION 7.3 Notification to Certificateholders.

      (a)   Upon any  termination of or appointment of a successor to the Master
            Servicer,  the Trustee shall give prompt  written  notice thereof to
            Certificateholders and to each Rating Agency.

      (b)   Within 60 days after the  occurrence  of any Event of  Default,  the
            Trustee shall transmit by mail to all  Certificateholders  notice of
            each such Event of Default  hereunder  known to the Trustee,  unless
            such Event of Default shall have been cured or waived.

                                  ARTICLE VIII
                             CONCERNING THE TRUSTEE

            SECTION 8.1 Duties of Trustee.

      The  Trustee,  prior to the  occurrence  of an Event of Default of which a
Responsible  Officer of the Trustee has actual knowledge and after the curing of
all Events of Default that may have  occurred,  shall  undertake to perform such
duties and only such duties as are specifically set forth in this Agreement.  In
case an Event of  Default of which a  Responsible  Officer  of the  Trustee  has
actual  knowledge has occurred and remains  uncured,  the Trustee shall exercise
such of the rights and powers vested in it by this  Agreement,  and use the same
degree of care and skill in their exercise as a prudent person would exercise or
use under the circumstances in the conduct of such person's own affairs.

      The Trustee,  upon receipt of all resolutions,  certificates,  statements,
opinions,  reports,  documents,  orders or other  instruments  furnished  to the
Trustee that are specifically required to be furnished pursuant to any provision
of this Agreement  shall examine them to determine  whether they are in the form
required by this  Agreement;  provided,  however,  that the Trustee shall not be
responsible  for the  accuracy or content of any such  resolution,  certificate,
statement,  opinion, report,  document,  order or other instrument.  If any such
instrument is found not to conform in any material  respect to the  requirements
of this  Agreement,  the Trustee  shall  notify the  Certificateholders  of such
instrument in the event that the Trustee, after so requesting,  does not receive
a satisfactorily corrected instrument.


                                       86
<PAGE>

      No provision of this  Agreement  shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own willful misconduct; provided, however, that:

            (i)   unless an Event of Default of which a  Responsible  Officer of
                  the Trustee has actual  knowledge  shall have  occurred and be
                  continuing, the duties and obligations of the Trustee shall be
                  determined solely by the express provisions of this Agreement,
                  the Trustee shall not be liable except for the  performance of
                  such duties and obligations as are  specifically  set forth in
                  this Agreement,  no implied  covenants or obligations shall be
                  read into this  Agreement  against the Trustee and the Trustee
                  may  conclusively  rely, as to the truth of the statements and
                  the correctness of the opinions  expressed  therein,  upon any
                  certificates   or  opinions   furnished  to  the  Trustee  and
                  conforming  to the  requirements  of this  Agreement  which it
                  believed  in good  faith to be  genuine  and to have been duly
                  executed  by the proper  authorities  respecting  any  matters
                  arising hereunder;

            (ii)  the Trustee  shall not be liable for an error of judgment made
                  in good faith by a Responsible Officer or Responsible Officers
                  of the  Trustee,  unless it shall be finally  proven  that the
                  Trustee was negligent in ascertaining the pertinent facts;

            (iii) the  Trustee  shall not be liable  with  respect to any action
                  taken,  suffered or omitted to be taken by it in good faith in
                  accordance  with the  direction  of  Holders  of  Certificates
                  evidencing   not  less  than  25%  of  the  Voting  Rights  of
                  Certificates  relating  to  the  time,  method  and  place  of
                  conducting  any  proceeding  for any remedy  available  to the
                  Trustee,  or exercising any trust or power  conferred upon the
                  Trustee under this Agreement;

            (iv)  the  Trustee  shall not be  required to expend or risk its own
                  funds  or   otherwise   incur   financial   liability  in  the
                  performance of any of its duties  hereunder or the exercise of
                  any of its rights or powers if there is reasonable  ground for
                  believing  that  the  repayment  of  such  funds  or  adequate
                  indemnity against such risk or liability is not assured to it,
                  and none of the provisions  contained in this Agreement  shall
                  in any event require the Trustee to perform, or be responsible
                  for the manner of  performance  of, any of the  obligations of
                  the Master  Servicer under this  Agreement  except during such
                  time, if any, as the Trustee shall be the successor to, and be
                  vested with the rights,  duties, powers and privileges of, the
                  Master Servicer; and


                                       87
<PAGE>

            (v)   without  limiting  the  generality  of this  Section  8.1, the
                  Trustee  shall  have  no  duty  (A) to  see to any  recording,
                  filing,  or  depositing  of this  Agreement  or any  agreement
                  referred to herein or any financing  statement or continuation
                  statement  evidencing  a security  interest,  or to see to the
                  maintenance  of any such  recording or filing or deposit or to
                  any rerecording,  refiling or redepositing of any thereof, (B)
                  to see  to any  insurance,  (C)  to  see  to  the  payment  or
                  discharge of any tax, assessment, or other governmental charge
                  or any lien or  encumbrance of any kind owing with respect to,
                  assessed or levied  against,  any part of the Trust Fund other
                  than from funds available in the  Distribution  Account (D) to
                  confirm or verify the contents of any reports or  certificates
                  of the  Servicer  delivered  to the  Trustee  pursuant to this
                  Agreement  believed  by the  Trustee to be genuine and to have
                  been signed or presented by the proper party or parties.

            SECTION 8.2 Certain Matters Affecting the Trustee.

      Except as otherwise provided in Section 8.1:

            (i)   the Trustee  may request and rely upon and shall be  protected
                  in acting  or  refraining  from  acting  upon any  resolution,
                  Officers'  Certificate,  certificate  of auditors or any other
                  certificate,  statement,  instrument, opinion, report, notice,
                  request,  consent,  order,  appraisal,  bond or other paper or
                  document  believed by it to be genuine and to have been signed
                  or  presented  by the proper  party or parties and the Trustee
                  shall have no  responsibility  to  ascertain  or  confirm  the
                  genuineness of any signature of any such party or parties;

            (ii)  the Trustee may consult with  counsel,  financial  advisers or
                  accountants  and the  advice  of any such  counsel,  financial
                  advisers or  accountants  and any Opinion of Counsel  shall be
                  full and complete  authorization  and protection in respect of
                  any action  taken or  suffered or omitted by it  hereunder  in
                  good faith and in accordance with such Opinion of Counsel;

            (iii) the Trustee shall not be liable for any action taken, suffered
                  or  omitted  by it in  good  faith  and  believed  by it to be
                  authorized  or  within  the  discretion  or  rights  or powers
                  conferred upon it by this Agreement;

            (iv)  the Trustee shall not be bound to make any investigation  into
                  the facts or matters  stated in any  resolution,  certificate,
                  statement,   instrument,  opinion,  report,  notice,  request,
                  consent,  order,  approval,  bond or other paper or  document,
                  unless   requested   in   writing  so  to  do  by  Holders  of
                  Certificates evidencing not less than 25% of the Voting Rights
                  allocated to each Class of  Certificates;  provided,  however,
                  that if the payment within a reasonable time to the Trustee of
                  the costs, expenses or liabilities likely to be incurred by it
                  in the making of such  investigation is, in the opinion of the
                  Trustee,  not assured to the Trustee by the security  afforded
                  to it by the terms of this Agreement,  the Trustee may require
                  indemnity  satisfactory  to the  Trustee  against  such  cost,
                  expense or liability as a condition to taking any such action.
                  The reasonable expense of every such examination shall be paid
                  by the Master  Servicer or, if paid by the  Trustee,  shall be
                  repaid by the Master  Servicer upon demand from the Servicer's
                  own funds.


                                       88
<PAGE>

            (v)   the Trustee may execute any of the trusts or powers  hereunder
                  or  perform  any duties  hereunder  either  directly  or by or
                  through agents, accountants or attorneys and the Trustee shall
                  not be  responsible  for any  misconduct  or negligence on the
                  part of such agent,  accountant  or attorney  appointed by the
                  Trustee with due care;

            (vi)  the  Trustee  shall not be  required to risk or expend its own
                  funds  or  otherwise  incur  any  financial  liability  in the
                  performance  of any of its duties or in the exercise of any of
                  its rights or powers  hereunder  if it shall  have  reasonable
                  grounds for believing that repayment of such funds or adequate
                  indemnity against such risk or liability is not assured to it;

            (vii) the Trustee shall not be liable for any loss on any investment
                  of funds pursuant to this  Agreement  (other than as issuer of
                  the investment security);

            (viii)the Trustee shall not be deemed to have  knowledge of an Event
                  of Default  until a  Responsible  Officer of the Trustee shall
                  have  received  written  notice  thereof and in the absence of
                  such notice, the Trustee may conclusively assume that there is
                  no Event of Default;

            (ix)  the Trustee  shall be under no  obligation  to exercise any of
                  the trusts, rights or powers vested in it by this Agreement or
                  to institute, conduct or defend any litigation hereunder or in
                  relation  hereto at the request,  order or direction of any of
                  the  Certificateholders,  pursuant to the  provisions  of this
                  Agreement,  unless such Certificateholders  shall have offered
                  to the Trustee reasonable  security or indemnity  satisfactory
                  to the Trustee  against the costs,  expenses  and  liabilities
                  which may be incurred therein or thereby;

            (x)   the right of the  Trustee to  perform  any  discretionary  act
                  enumerated in this Agreement shall not be construed as a duty,
                  and the  Trustee  shall not be  answerable  for other than its
                  negligence or willful  misconduct in the  performance  of such
                  act; and

            (xi)  the  Trustee  shall not be required to give any bond or surety
                  in respect of the  execution of the Trust Fund created  hereby
                  or the powers granted hereunder.


                                       89
<PAGE>

            SECTION 8.3 Trustee Not Liable for Certificates or Mortgage Loans.

      The recitals  contained herein and in the  Certificates  shall be taken as
the statements of the Depositor and the Trustee  assumes no  responsibility  for
their  correctness.  The Trustee makes no  representations as to the validity or
sufficiency of this Agreement or of the  Certificates or of any Mortgage Loan or
related document or of MERS or the MERS(R) System other than with respect to the
Trustee's execution and counter-signature of the Certificates. The Trustee shall
not be  accountable  for the use or  application  by the Depositor or the Master
Servicer of any funds paid to the Depositor or the Master Servicer in respect of
the Mortgage Loans or deposited in or withdrawn from the Certificate  Account by
the Depositor or the Master Servicer.

            SECTION 8.4 Trustee May Own Certificates.

      The Trustee in its  individual or any other  capacity may become the owner
or pledgee of Certificates  with the same rights as it would have if it were not
the Trustee.

            SECTION 8.5 Trustee's Fees and Expenses.

      The  Trustee,  as  compensation  for its  activities  prior to making  the
distributions  pursuant to Section 4.2 hereunder,  shall be entitled to withdraw
from the Distribution  Account on each  Distribution Date an amount equal to the
Trustee Fee for such Distribution  Date. The Trustee and any director,  officer,
employee or agent of the Trustee shall be indemnified by the Master Servicer and
held  harmless  against any loss,  liability  or expense  (including  reasonable
attorney's  fees) (i)  incurred  in  connection  with any claim or legal  action
relating to (a) this Agreement,  (b) the  Certificates or (c) in connection with
the performance of any of the Trustee's duties  hereunder,  other than any loss,
liability  or expense  incurred by reason of willful  misfeasance,  bad faith or
negligence  in the  performance  of any of the  Trustee's  duties  hereunder  or
incurred by reason of any action of the Trustee  taken at the  direction  of the
Certificateholders  and (ii)  resulting from any error in any tax or information
return  prepared  by the Master  Servicer.  Such  indemnity  shall  survive  the
termination  of this  Agreement  or the  resignation  or removal of the  Trustee
hereunder.  Without  limiting the foregoing,  the Master Servicer  covenants and
agrees,  except as  otherwise  agreed upon in writing by the  Depositor  and the
Trustee,  and except for any such expense,  disbursement or advance as may arise
from the  Trustee's  negligence,  bad  faith or  willful  misconduct,  to pay or
reimburse the Trustee, for all reasonable  expenses,  disbursements and advances
incurred or made by the Trustee in accordance with any of the provisions of this
Agreement with respect to: (A) the reasonable  compensation and the expenses and
disbursements  of its counsel not associated with the closing of the issuance of
the Certificates, (B) the reasonable compensation, expenses and disbursements of
any  accountant,  engineer or appraiser  that is not  regularly  employed by the
Trustee, to the extent that the Trustee must engage such persons to perform acts
or services hereunder and (C) printing and engraving expenses in connection with
preparing any Definitive Certificates.  Except as otherwise provided herein, the
Trustee  shall not be  entitled  to payment  or  reimbursement  for any  routine
ongoing expenses incurred by the Trustee in the ordinary course of its duties as
Trustee,  Registrar,  Tax Matters  Person or Paying  Agent  hereunder or for any
other expenses.


                                       90
<PAGE>

            SECTION 8.6 Eligibility Requirements for Trustee.

      The Trustee  hereunder  shall at all times be a corporation or association
organized and doing  business  under the laws of a state or the United States of
America, authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000,  subject to supervision or
examination  by federal or state  authority and with a credit rating which would
not cause either of the Rating Agencies to reduce their  respective then current
ratings of the  Certificates (or having provided such security from time to time
as is sufficient to avoid such  reduction).  If such  corporation or association
publishes  reports of  condition  at least  annually,  pursuant to law or to the
requirements of the aforesaid  supervising or examining authority,  then for the
purposes  of  this  Section  8.6  the  combined  capital  and  surplus  of  such
corporation  or  association  shall be deemed  to be its  combined  capital  and
surplus as set forth in its most recent  report of  condition so  published.  In
case at any time the Trustee shall cease to be eligible in  accordance  with the
provisions  of this  Section 8.6, the Trustee  shall resign  immediately  in the
manner and with the effect  specified in Section 8.7 hereof.  The entity serving
as Trustee may have normal  banking and trust  relationships  with the Depositor
and its affiliates or the Master Servicer and its affiliates; provided, however,
that such entity  cannot be an affiliate of the Master  Servicer  other than the
Trustee in its role as successor to the Master Servicer.

            SECTION 8.7 Resignation and Removal of Trustee.

      The  Trustee  may at any time  resign  and be  discharged  from the trusts
hereby  created by giving written notice of resignation to the Depositor and the
Master  Servicer  and each  Rating  Agency not less than 60 days before the date
specified in such notice when,  subject to Section 8.8, such  resignation  is to
take effect,  and acceptance by a successor  trustee in accordance  with Section
8.8 meeting the qualifications set forth in Section 8.6. If no successor trustee
meeting  such  qualifications  shall have been so  appointed  and have  accepted
appointment  within 30 days after the giving of such notice or resignation,  the
resigning  Trustee may  petition  any court of  competent  jurisdiction  for the
appointment of a successor trustee.

      If at any time the Trustee shall cease to be eligible in  accordance  with
the  provisions  of Section  8.6 hereof and shall fail to resign  after  written
request  thereto by the  Depositor,  or if at any time the Trustee  shall become
incapable  of acting,  or shall be  adjudged  as  bankrupt  or  insolvent,  or a
receiver of the Trustee or of its  property  shall be  appointed,  or any public
officer  shall  take  charge or control of the  Trustee  or of its  property  or
affairs for the purpose of rehabilitation, conservation or liquidation, or a tax
is imposed  with  respect to the Trust Fund by any state in which the Trustee or
the Trust Fund is located and the imposition of such tax would be avoided by the
appointment of a different  trustee,  then the Depositor or the Master  Servicer
may remove the Trustee and appoint a successor trustee by written instrument, in
triplicate,  one copy of which instrument shall be delivered to the Trustee, one
copy of which  shall be  delivered  to the Master  Servicer  and one copy to the
successor trustee.

      The Holders of Certificates  entitled to at least 51% of the Voting Rights
may at any time remove the  Trustee  and appoint a successor  trustee by written
instrument  or  instruments,  in  triplicate,  signed by such  Holders  or their
attorneys-in-fact  duly authorized,  one complete set of which instruments shall
be delivered by the successor  Trustee to the Master Servicer,  one complete set
to the Trustee so removed and one  complete set to the  successor so  appointed.
Notice of any removal of the Trustee shall be given to each Rating Agency by the
Successor Trustee.


                                       91
<PAGE>

      Any  resignation or removal of the Trustee and  appointment of a successor
trustee  pursuant to any of the  provisions  of this  Section  8.7 shall  become
effective upon acceptance of appointment by the successor trustee as provided in
Section 8.8 hereof.

            SECTION 8.8 Successor Trustee.

      Any  successor  trustee  appointed as provided in Section 8.7 hereof shall
execute, acknowledge and deliver to the Depositor and to its predecessor trustee
and the Master Servicer an instrument  accepting such appointment  hereunder and
thereupon the  resignation  or removal of the  predecessor  trustee shall become
effective  and  such  successor  trustee,  without  any  further  act,  deed  or
conveyance,  shall become fully vested with all the rights,  powers,  duties and
obligations of its predecessor hereunder,  with the like effect as if originally
named as trustee herein. The Depositor,  the Master Servicer and the predecessor
trustee shall execute and deliver such  instruments  and do such other things as
may  reasonably be required for more fully and certainly  vesting and confirming
in the successor trustee all such rights, powers, duties, and obligations.

      No successor trustee shall accept  appointment as provided in this Section
8.8  unless  at the time of such  acceptance  such  successor  trustee  shall be
eligible  under the provisions of Section 8.6 hereof and its  appointment  shall
not adversely affect the then current rating of the Certificates.

      Upon acceptance of appointment by a successor  trustee as provided in this
Section 8.8, the Depositor  shall mail notice of the  succession of such trustee
hereunder to all Holders of  Certificates.  If the Depositor  fails to mail such
notice within 10 days after acceptance of appointment by the successor  trustee,
the successor trustee shall cause such notice to be mailed at the expense of the
Depositor.

            SECTION 8.9 Merger or Consolidation of Trustee.

      Any corporation  into which the Trustee may be merged or converted or with
which it may be  consolidated  or any  corporation  resulting  from any  merger,
conversion  or  consolidation  to which  the  Trustee  shall be a party,  or any
corporation succeeding to the business of the Trustee, shall be the successor of
the Trustee  hereunder,  provided that such corporation  shall be eligible under
the  provisions  of Section 8.6 hereof  without the  execution  or filing of any
paper or further act on the part of any of the parties  hereto,  anything herein
to the contrary notwithstanding.

            SECTION 8.10 Appointment of Co-Trustee or Separate Trustee.

      Notwithstanding  any other provisions of this Agreement,  at any time, for
the purpose of meeting any legal  requirements of any  jurisdiction in which any
part of the Trust Fund or property securing any Mortgage Note may at the time be
located, the Master Servicer and the Trustee acting jointly shall have the power
and shall  execute and deliver all  instruments  to appoint one or more  Persons
approved by the Trustee to act as  co-trustee  or  co-trustees  jointly with the
Trustee,  or separate  trustee or separate  trustees,  of all or any part of the
Trust Fund, and to vest in such Person or Persons,  in such capacity and for the
benefit  of the  Certificateholders,  such  title to the Trust  Fund or any part
thereof,  whichever is applicable,  and, subject to the other provisions of this
Section 8.10, such powers, duties, obligations,  rights and trusts as the Master
Servicer and the Trustee may  consider  necessary  or  desirable.  If the Master
Servicer  shall not have  joined in such  appointment  within 15 days  after the
receipt by it of a request  to do so, or in the case an Event of  Default  shall
have occurred and be continuing,  the Trustee alone shall have the power to make
such appointment.  No co-trustee or separate trustee hereunder shall be required
to meet the terms of eligibility as a successor trustee under Section 8.6 and no
notice to  Certificateholders  of the  appointment of any co-trustee or separate
trustee shall be required under Section 8.8.


                                       92
<PAGE>

      Every separate  trustee and co-trustee  shall, to the extent  permitted by
law, be appointed and act subject to the following provisions and conditions:

            (i)   To the extent  necessary  to  effectuate  the purposes of this
                  Section  8.10,  all  rights,  powers,  duties and  obligations
                  conferred  or imposed  upon the Trustee  shall be conferred or
                  imposed  upon and  exercised  or  performed by the Trustee and
                  such  separate   trustee  or  co-trustee   jointly  (it  being
                  understood  that such  separate  trustee or  co-trustee is not
                  authorized to act  separately  without the Trustee  joining in
                  such  act),  except to the  extent  that  under any law of any
                  jurisdiction  in which  any  particular  act or acts are to be
                  performed (whether as Trustee hereunder or as successor to the
                  Master Servicer  hereunder),  the Trustee shall be incompetent
                  or  unqualified  to perform  such act or acts,  in which event
                  such rights,  powers,  duties and  obligations  (including the
                  holding of title to the  applicable  Trust Fund or any portion
                  thereof  in any  such  jurisdiction)  shall be  exercised  and
                  performed singly by such separate  trustee or co-trustee,  but
                  solely at the direction of the Trustee;

            (ii)  No trustee hereunder shall be held personally liable by reason
                  of any act or omission of any other trustee hereunder and such
                  appointment  shall not, and shall not be deemed to, constitute
                  any  such  separate  trustee  or  co-trustee  as  agent of the
                  Trustee;

            (iii) The  Trustee  may at any time  accept  the  resignation  of or
                  remove any separate trustee or co-trustee; and

            (iv)  The Master Servicer,  and not the Trustee, shall be liable for
                  the  payment of  reasonable  compensation,  reimbursement  and
                  indemnification to any such separate trustee or co-trustee.

      Any notice,  request or other writing given to the Trustee shall be deemed
to have been given to each of the separate trustees and co-trustees, when and as
effectively  as if  given  to each of  them.  Every  instrument  appointing  any
separate  trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VIII. Each separate trustee and co-trustee,  upon its acceptance
of the trusts conferred,  shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Trustee or separately,
as may be provided  therein,  subject to all the  provisions of this  Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording  protection to, the Trustee.  Every
such instrument  shall be filed with the Trustee and a copy thereof given to the
Master Servicer and the Depositor.


                                       93
<PAGE>

      Any  separate  trustee or  co-trustee  may,  at any time,  constitute  the
Trustee its agent or  attorney-in-fact,  with full power and  authority,  to the
extent not  prohibited  by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name.  If any separate  trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties,  rights,  remedies  and trusts shall vest in and be exercised by the
Trustee,  to the extent  permitted by law,  without the  appointment of a new or
successor trustee.

            SECTION 8.11 Tax Matters.

      It is intended  that the assets with respect to which each REMIC  election
is to be made, as set forth in the preliminary  statement shall constitute,  and
that the conduct of matters  relating to such assets shall be such as to qualify
such assets as, a "real estate mortgage investment conduit" as defined in and in
accordance  with the REMIC  Provisions.  In furtherance of such  intention,  the
Trustee  covenants  and agrees  that it shall act as agent  (and the  Trustee is
hereby  appointed  to act as agent) on behalf of any such REMIC and that in such
capacity it shall: (a) prepare and file, or cause to be prepared and filed, in a
timely manner, a U.S. Real Estate Mortgage  Investment Conduit Income Tax Return
(Form 1066 or any successor  form adopted by the Internal  Revenue  Service) and
prepare and file or cause to be  prepared  and filed with the  Internal  Revenue
Service and applicable state or local tax authorities  income tax or information
returns for each taxable year with  respect to any such REMIC,  containing  such
information and at the times and in the manner as may be required by the Code or
state or local  tax laws,  regulations,  or rules,  and  furnish  or cause to be
furnished to Certificateholders the schedules, statements or information at such
times and in such manner as may be required  thereby;  (b) within thirty days of
the Closing  Date,  furnish or cause to be  furnished  to the  Internal  Revenue
Service,  on Forms 8811 or as otherwise  may be required by the Code,  the name,
title,  address,  and  telephone  number of the person  that the  Holders of the
Certificates  may contact for tax information  relating  thereto,  together with
such  additional  information  as may be required by such Form,  and update such
information at the time or times in the manner required by the Code; (c) make or
cause to be made elections that such assets be treated as a REMIC on the federal
tax return for its first taxable year (and, if necessary, under applicable state
law);  (d) prepare and forward,  or cause to be prepared and  forwarded,  to the
Certificateholders and to the Internal Revenue Service and, if necessary,  state
tax authorities,  all information returns and reports as and when required to be
provided to them in  accordance  with the REMIC  Provisions,  including  without
limitation,  the calculation of any original issue discount using the prepayment
assumption; (e) provide information necessary for the computation of tax imposed
on the  transfer of a Residual  Certificate  to a Person that is not a Permitted
Transferee,  or an agent  (including a broker,  nominee or other middleman) of a
Non-Permitted  Transferee,  or a  pass-through  entity in which a  Non-Permitted
Transferee is the record holder of an interest (the reasonable cost of computing
and  furnishing  such  information  may be charged to the Person liable for such
tax); (f) to the extent that they are under its control conduct matters relating
to such  assets at all times  that any  Certificates  are  outstanding  so as to
maintain the status as a REMIC under the REMIC Provisions;  (g) not knowingly or
intentionally  take any action or omit to take any action  that would  cause the
termination of any REMIC status; (h) pay, from the sources specified in the last
paragraph  of this  Section  8.11,  the  amount  of any  federal  or state  tax,
including  prohibited  transaction taxes as described below, imposed on any such
REMIC  prior to its  termination  when and as the same shall be due and  payable
(but such  obligation  shall not prevent  the  Trustee or any other  appropriate
Person from  contesting  any such tax in appropriate  proceedings  and shall not
prevent the Trustee from  withholding  payment of such tax, if permitted by law,
pending the outcome of such  proceedings);  (i) ensure  that  federal,  state or
local income tax or  information  returns shall be signed by the Trustee or such
other  person as may be  required  to sign such  returns by the Code or state or
local laws,  regulations  or rules;  (j) maintain  records  relating to any such
REMIC, including but not limited to the income, expenses, assets and liabilities
thereof and the fair market value and adjusted basis of the assets determined at
such  intervals  as may be required by the Code,  as may be necessary to prepare
the foregoing returns, schedules, statements or information; and (k) as and when
necessary and  appropriate,  represent any such REMIC in any  administrative  or
judicial  proceedings  relating to an examination  or audit by any  governmental
taxing authority, request an administrative adjustment as to any taxable year of
any such REMIC,  enter into settlement  agreements with any governmental  taxing
agency,  extend any statute of limitations  relating to any tax item of any such
REMIC,  and  otherwise  act on behalf of any such REMIC in  relation  to any tax
matter or controversy involving it.


                                       94
<PAGE>

      In order to enable the Trustee to perform its duties as set forth  herein,
the Depositor shall provide, or cause to be provided,  to the Trustee within ten
(10) days  after  the  Closing  Date all  information  or data that the  Trustee
requests  in writing  and  determines  to be  relevant  for tax  purposes to the
valuations  and  offering  prices  of  the  Certificates,   including,   without
limitation,  the price, yield, prepayment assumption and projected cash flows of
the Certificates and the Mortgage Loans. Thereafter, the Depositor shall provide
to the Trustee  promptly  upon written  request  therefor,  any such  additional
information or data that the Trustee may, from time to time,  reasonably request
in order to enable the  Trustee to perform its duties as set forth  herein.  The
Depositor hereby indemnifies the Trustee for any losses,  liabilities,  damages,
claims or expenses of the Trustee arising from any errors or  miscalculations of
the Trustee  that result from any  failure of the  Depositor  to provide,  or to
cause to be provided,  accurate  information  or data to the Trustee on a timely
basis.

      In the event that any tax is imposed on "prohibited  transactions"  of any
REMIC as defined in Section  860F(a)(2)  of the Code,  on the "net  income  from
foreclosure property" of any REMIC as defined in Section 860G(c) of the Code, on
any  contribution to any REMIC after the Startup Day pursuant to Section 860G(d)
of the Code, or any other tax is imposed,  if not paid as otherwise provided for
herein,  such tax shall be paid by (i) the Trustee, if any such other tax arises
out of or results from a breach by the Trustee of any of its  obligations  under
this Agreement which breach was caused by its negligence or willful  misconduct,
(ii) the Master  Servicer,  in the case of any such  minimum tax, or if such tax
arises out of or results  from a breach by the Master  Servicer  of any of their
obligations  under this Agreement,  (iii) the Seller, if any such tax arises out
of or results  from the  Seller's  obligation  to  repurchase  a  Mortgage  Loan
pursuant to Section 2.2 or 2.3 or (iv) in all other cases,  or in the event that
the Trustee,  the Master  Servicer or the Seller fails to honor its  obligations
under the preceding  clauses (i), (ii) or (iii),  any such tax will be paid with
amounts  otherwise to be distributed to the  Certificateholders,  as provided in
Section 3.8(b).


                                       95
<PAGE>

            SECTION 8.12 Periodic Filings.

      The Depositor hereby directs the Trustee to prepare,  execute (pursuant to
a limited power of attorney  given to the Trustee by the  Depositor) and file on
behalf of the  Depositor  all periodic  reports  required  under the  Securities
Exchange  Act of 1934 in  conformity  with the terms of the  "no-action"  relief
granted  by  the  SEC  to  issuers  of  asset-backed   securities  such  as  the
Certificates  and the Trustee  hereby agrees to do so. The Master  Servicer will
also  prepare and execute any  certifications  to be filed with the Form 10-K as
required  under  the   Sarbanes-Oxley  Act  of  2002.  In  connection  with  the
preparation  and filing of such periodic  reports,  the Depositor and the Master
Servicer shall timely provide to the Trustee all material information  available
to them which is required  to be included in such  reports and not known to them
to be in the possession of the Trustee and such other information as the Trustee
reasonably  may  request  from  either of them and  otherwise  reasonably  shall
cooperate with the Trustee.  The Trustee shall have no liability with respect to
any failure to properly prepare or file such periodic reports  resulting from or
relating to the  Trustee's  inability or failure to obtain any  information  not
resulting from its own negligence or willful misconduct.

                                   ARTICLE IX
                                   TERMINATION

            SECTION 9.1 Termination upon Liquidation or Purchase of all Mortgage
            Loans.

      Subject  to Section  9.3,  the  obligations  and  responsibilities  of the
Depositor,  the Master  Servicer and the Trustee  created hereby with respect to
the Trust Fund shall  terminate  upon the  earlier  of (a) the  purchase  by the
Master  Servicer of all  Mortgage  Loans (and REO  Properties)  remaining in the
Trust  Fund at the price  equal to the sum of (i) 100% of the  Stated  Principal
Balance  of each  Mortgage  Loan  (other  than a  Mortgage  Loan  that  has been
foreclosed and subject to clause (ii)) plus one month's accrued interest thereon
at the applicable  Adjusted  Mortgage Rate, (ii) the lesser of (x) the appraised
value  of any  REO  Property  as  determined  by the  higher  of two  appraisals
completed by two independent  appraisers  selected by the Master Servicer at the
expense of the Master  Servicer  and (y) the  Stated  Principal  Balance of each
Mortgage  Loan related to any REO  Property,  plus  accrued and unpaid  interest
thereon  at the  applicable  Adjusted  Mortgage  Rate,  and  (iii) any costs and
damages  incurred  by the Trust in  connection  with the  noncompliance  of such
Mortgage Loan with any specifically applicable predatory or abusive lending law,
and (b) the later of (i) the maturity or other  liquidation (or any Advance with
respect  thereto) of the last Mortgage Loan  remaining in the Trust Fund and the
disposition of all REO Property and (ii) the distribution to  Certificateholders
of all amounts required to be distributed to them pursuant to this Agreement. In
no event shall the trusts created hereby  continue beyond the earlier of (i) the
expiration  of 21 years from the death of the  survivor  of the  descendants  of
Joseph P. Kennedy,  the late Ambassador of the United States to the Court of St.
James's,  living on the date hereof, and (ii) the Latest Possible Maturity Date.
The right to purchase all Mortgage Loans and REO  Properties  pursuant to clause
(a) above shall be conditioned upon the Pool Principal Balance for both Mortgage
Pools,  at the time of any such  repurchase,  aggregating  less than ten percent
(10%) of the aggregate Cut-off Date Principal Balance of the Mortgage Loans.


                                       96
<PAGE>

            SECTION 9.2 Final Distribution on the Certificates.

      If on any  Determination  Date, the Master Servicer  determines that there
are no Outstanding Mortgage Loans and no other funds or assets in the Trust Fund
other  than the funds in the  Certificate  Account,  the Master  Servicer  shall
direct  the  Trustee  promptly  to  send a  final  distribution  notice  to each
Certificateholder.  If the Master  Servicer  elects to terminate  the Trust Fund
pursuant to clause (a) of Section 9.1, at least 20 days prior to the date notice
is to be mailed to the affected  Certificateholders,  the Master  Servicer shall
notify the Depositor and the Trustee of the date the Master Servicer  intends to
terminate the Trust Fund and of the applicable  repurchase price of the Mortgage
Loans and REO Properties.

      Notice of any termination of the Trust Fund,  specifying the  Distribution
Date on which Certificateholders may surrender their Certificates for payment of
the final distribution and cancellation,  shall be given promptly by the Trustee
by letter to  Certificateholders  mailed  not  earlier  than the 10th day and no
later  than the 15th day of the month  next  preceding  the month of such  final
distribution. Any such notice shall specify (a) the Distribution Date upon which
final  distribution  on the  Certificates  will be made  upon  presentation  and
surrender of  Certificates at the office therein  designated,  (b) the amount of
such final distribution,  (c) the location of the office or agency at which such
presentation  and surrender must be made, and (d) that the Record Date otherwise
applicable to such Distribution Date is not applicable, distributions being made
only upon  presentation  and surrender of the Certificates at the office therein
specified.  The Master  Servicer  will give such notice to each Rating Agency at
the time such notice is given to Certificateholders.

      In the event such  notice is given,  the Master  Servicer  shall cause all
funds in the  Certificate  Account to be  remitted to the Trustee for deposit in
the applicable subaccounts of the Distribution Account on the Business Day prior
to the applicable Distribution Date in an amount equal to the final distribution
in respect of the  Certificates.  Upon such final  deposit  with  respect to the
Trust Fund and the receipt by the Trustee of a Request for Release therefor, the
Trustee shall promptly release to the Master Servicer the Mortgage Files for the
Mortgage Loans.

      Upon  presentation  and surrender of the  Certificates,  the Trustee shall
cause to be distributed to the  Certificateholders  of each Class,  in the order
set forth in Section 4.2 hereof, on the final  Distribution Date, in the case of
the Certificateholders,  in proportion to their respective Percentage Interests,
with respect to  Certificateholders of the same Class, an amount equal to (i) as
to each Class of Regular  Certificates,  the Class  Certificate  Balance thereof
plus accrued interest  thereon (or on their Notional  Amount,  if applicable) in
the  case of an  interest  bearing  Certificate,  and  (ii)  as to the  Residual
Certificates,  the amount,  if any, which remains on deposit in the Distribution
Account  (other than the  amounts  retained to meet  claims)  after  application
pursuant to clause (i) above.

      In the event  that any  affected  Certificateholders  shall not  surrender
Certificates for cancellation  within six months after the date specified in the
above mentioned  written notice,  the Trustee shall give a second written notice
to  the  remaining   Certificateholders  to  surrender  their  Certificates  for
cancellation and receive the final distribution with respect thereto.  If within
six months after the second  notice all the  applicable  Certificates  shall not
have been surrendered for cancellation,  the Trustee may take appropriate steps,
or may appoint an agent to take  appropriate  steps,  to contact  the  remaining
Certificateholders  concerning  surrender  of their  Certificates,  and the cost
thereof  shall be paid out of the funds and other  assets which remain a part of
the Trust  Fund.  If within one year after the  second  notice all  Certificates
shall not have been  surrendered  for  cancellation,  the Holders of each of the
Class II-A-R  Certificates  shall be entitled to all  unclaimed  funds and other
assets of the Trust  Fund,  held for  distribution  to such  Certificateholders,
which remain subject hereto.


                                       97
<PAGE>

            SECTION 9.3 Additional Termination Requirements.

            (a)   In the event the Master Servicer exercises its purchase option
                  as  provided  in  Section  9.1,  the Trust Fund and each REMIC
                  created  hereunder  shall be terminated in accordance with the
                  following additional requirements, unless the Trustee has been
                  supplied  with an Opinion of  Counsel,  at the  expense of the
                  Master Servicer, to the effect that the failure to comply with
                  the  requirements  of this  Section 9.3 will not (i) result in
                  the  imposition of taxes on "prohibited  transactions"  on any
                  REMIC as defined in  Section  860F of the Code,  or (ii) cause
                  any REMIC to fail to  qualify  as a REMIC at any time that any
                  Certificates are outstanding:

                        (1) Within 90 days prior to the final  Distribution Date
                  set forth in the  notice  given by the Master  Servicer  under
                  Section  9.2,  the  Master  Servicer  shall  prepare  and  the
                  Trustee,  at the expense of the "tax  matters  person,"  shall
                  adopt a plan of  complete  liquidation  within the  meaning of
                  Section   860F(a)(4)  of  the  Code  for  each  REMIC  created
                  hereunder  which,  as  evidenced  by  an  Opinion  of  Counsel
                  addressed  to  the  Trustee  (which  opinion  shall  not be an
                  expense of the Trustee or the Tax Matters  Person),  meets the
                  requirements of a qualified liquidation; and

                        (2)  Within 90 days after the time of  adoption  of such
                  plans of complete  liquidation,  the Trustee shall sell all of
                  the assets of the Trust Fund to the Master  Servicer  for cash
                  in accordance with Section 9.1.

            (b)   The  Trustee  as agent  for any  REMIC  established  hereunder
                  hereby  agrees  to  adopt  and  sign  such a plan of  complete
                  liquidation  upon the written request of the Master  Servicer,
                  and the  receipt  of the  Opinion of  Counsel  referred  to in
                  Section  9.3(a)(1) and to take such other action in connection
                  therewith  as  may  be  reasonably  requested  by  the  Master
                  Servicer.

            (c)   By their acceptance of the  Certificates,  the Holders thereof
                  hereby  authorize  the  Master  Servicer  to  prepare  and the
                  Trustee to adopt and sign plans of complete liquidation.


                                       98
<PAGE>

                                   ARTICLE X
                                   [RESERVED]

                                   ARTICLE XI
                            MISCELLANEOUS PROVISIONS

            SECTION 11.1 Amendment.

      This  Agreement  may be amended  from time to time by the  Depositor,  the
Master   Servicer   and  the   Trustee   without  the  consent  of  any  of  the
Certificateholders  (i) to cure any  ambiguity  or mistake,  (ii) to correct any
defective  provision  herein or to supplement any provision  herein which may be
inconsistent with any other provision herein,  (iii) to add to the duties of the
Depositor,  the Seller or the Master Servicer,  (iv) to add any other provisions
with respect to matters or questions arising hereunder or (v) to modify,  alter,
amend,  add to or  rescind  any of the  terms or  provisions  contained  in this
Agreement;  provided that any action pursuant to clauses (iv) or (v) above shall
not, as  evidenced  by an Opinion of Counsel  delivered  to the  Trustee  (which
Opinion of Counsel  shall not be an expense of the  Trustee or the Trust  Fund),
adversely affect in any material respect the interests of any Certificateholder;
provided, however, that the amendment shall not be deemed to adversely affect in
any  material  respect the  interests  of the  Certificateholders  if the Person
requesting  the amendment  obtains a letter from each Rating Agency stating that
the  amendment  would  not  result  in  the  downgrading  or  withdrawal  of the
respective  ratings then assigned to the  Certificates;  it being understood and
agreed that any such letter in and of itself will not represent a  determination
as to the  materiality of any such amendment and will represent a  determination
only as to the  credit  issues  affecting  any such  rating.  The  Trustee,  the
Depositor  and the  Master  Servicer  also may at any time and from time to time
amend this Agreement  without the consent of the  Certificateholders  to modify,
eliminate or add to any of its  provisions  to such extent as shall be necessary
or helpful to (i) maintain the qualification of any REMIC established  hereunder
as a REMIC under the Code,  (ii) avoid or minimize the risk of the imposition of
any tax on any REMIC established  hereunder pursuant to the Code that would be a
claim at any time prior to the final  redemption  of the  Certificates  or (iii)
comply with any other  requirements  of the Code,  provided that the Trustee has
been  provided an Opinion of Counsel,  which  opinion shall be an expense of the
party  requesting  such  opinion  but in any case shall not be an expense of the
Trustee  or the Trust  Fund,  to the effect  that such  action is  necessary  or
helpful  to, as  applicable,  (i)  maintain  such  qualification,  (ii) avoid or
minimize the risk of the  imposition of such a tax or (iii) comply with any such
requirements of the Code.

      This Agreement may also be amended from time to time by the Depositor, the
Master Servicer and the Trustee with the consent of the Holders of a Majority in
Interest  of each Class of  Certificates  affected  thereby  for the  purpose of
adding any  provisions  to or changing in any manner or  eliminating  any of the
provisions  of this  Agreement  or of  modifying in any manner the rights of the
Holders of  Certificates;  provided,  however,  that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, payments required to
be  distributed  on any  Certificate  without  the consent of the Holder of such
Certificate,  (ii) adversely affect in any material respect the interests of the
Holders of any Class of Certificates in a manner other than as described in (i),
without the consent of the Holders of Certificates of such Class evidencing,  as
to such  Class,  Percentage  Interests  aggregating  66%,  or (iii)  reduce  the
aforesaid  percentages  of  Certificates  the  Holders of which are  required to
consent to any such  amendment,  without  the consent of the Holders of all such
Certificates then outstanding.


                                       99
<PAGE>

      Notwithstanding  any  contrary  provision of this  Agreement,  the Trustee
shall not consent to any amendment to this Agreement  unless it shall have first
received an Opinion of  Counsel,  which  opinion  shall not be an expense of the
Trustee or the Trust Fund, to the effect that such  amendment will not cause the
imposition   of  any   tax   on  any   REMIC   established   hereunder   or  the
Certificateholders  or cause any REMIC established  hereunder to fail to qualify
as a REMIC at any time that any Certificates are outstanding.

      Promptly after the execution of any amendment to this Agreement  requiring
the  consent  of   Certificateholders,   the  Trustee  shall   furnish   written
notification   of  the   substance   or  a  copy  of  such   amendment  to  each
Certificateholder and each Rating Agency.

      It shall not be necessary for the consent of Certificateholders under this
Section to approve the particular form of any proposed  amendment,  but it shall
be sufficient if such consent shall approve the substance thereof. The manner of
obtaining  such consents and of evidencing  the  authorization  of the execution
thereof by Certificateholders shall be subject to such reasonable regulations as
the Trustee may prescribe.

      Nothing  in this  Agreement  shall  require  the  Trustee to enter into an
amendment without receiving an Opinion of Counsel (which Opinion shall not be an
expense of the Trustee or the Trust Fund),  satisfactory to the Trustee that (i)
such amendment is permitted and is not prohibited by this Agreement and that all
requirements  for amending  this  Agreement  have been complied  with;  and (ii)
either (A) the amendment does not adversely  affect in any material  respect the
interests  of any  Certificateholder  or (B) the  conclusion  set  forth  in the
immediately  preceding clause (A) is not required to be reached pursuant to this
Section 11.1.

            SECTION 11.2 Recordation of Agreement; Counterparts.

      This Agreement is subject to recordation in all appropriate public offices
for real property records in all the counties or other comparable  jurisdictions
in which any or all of the properties subject to the Mortgages are situated, and
in any other appropriate public recording office or elsewhere,  such recordation
to be effected by the Master Servicer at its expense,  but only upon direction a
majority  of  the   Certificateholders  to  the  effect  that  such  recordation
materially and beneficially affects the interests of the Certificateholders.

      For the purpose of  facilitating  the  recordation  of this  Agreement  as
herein  provided  and for other  purposes,  this  Agreement  may be executed (by
facsimile or otherwise)  simultaneously  in any number of counterparts,  each of
which  counterparts  shall be deemed to be an  original,  and such  counterparts
shall constitute but one and the same instrument.

            SECTION 11.3 Governing Law.

      THIS  AGREEMENT  (OTHER THAN  SECTION 2.1 HEREOF)  SHALL BE  CONSTRUED  IN
ACCORDANCE  WITH AND GOVERNED BY THE  SUBSTANTIVE  LAWS OF THE STATE OF NEW YORK
APPLICABLE TO  AGREEMENTS  MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK AND
THE   OBLIGATIONS,   RIGHTS  AND   REMEDIES  OF  THE  PARTIES   HERETO  AND  THE
CERTIFICATEHOLDERS SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. SECTION 2.1
OF THIS  AGREEMENT  SHALL BE  CONSTRUED IN  ACCORDANCE  WITH AND GOVERNED BY THE
SUBSTANTIVE  LAWS OF THE STATE OF DELAWARE  APPLICABLE TO AGREEMENTS MADE AND TO
BE PERFORMED IN THE STATE OF DELAWARE AND THE  OBLIGATIONS,  RIGHTS AND REMEDIES
OF THE PARTIES  HERETO AND THE  CERTIFICATEHOLDERS  UNDER SUCH SECTION  SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.


                                      100
<PAGE>

            SECTION 11.4 Intention of Parties.

      It is the express  intent of the parties hereto that the conveyance of the
Trust Fund by the  Depositor  to the Trustee be, and be construed  as,  absolute
sales thereof to the Trustee.  It is, further,  not the intention of the parties
that  such  conveyances  be  deemed a pledge  thereof  by the  Depositor  to the
Trustee. However, in the event that,  notwithstanding the intent of the parties,
such assets are held to be the  property of the  Depositor,  or if for any other
reason this  Agreement  is held or deemed to create a security  interest in such
assets,  then (i) this  Agreement  shall be  deemed to be a  security  agreement
within the meaning of the Uniform  Commercial  Code of the State of New York and
(ii) the  conveyance  provided  for in this  Agreement  shall be deemed to be an
assignment  and a grant by the Depositor to the Trustee,  for the benefit of the
Certificateholders,  of a security interest in all of the assets that constitute
the Trust Fund, whether now owned or hereafter acquired.

      The Depositor,  for the benefit of the  Certificateholders,  shall, to the
extent consistent with this Agreement,  take such actions as may be necessary to
ensure that, if this Agreement were deemed to create a security  interest in the
Trust Fund,  such security  interest would be deemed to be a perfected  security
interest of first priority  under  applicable law and will be maintained as such
throughout the term of the Agreement. The Depositor shall arrange for filing any
Uniform Commercial Code financing and continuation statements in connection with
any security  interest granted or assigned to the Trustee for the benefit of the
Certificateholders.

            SECTION 11.5 Notices.

      (a)   The Trustee shall use its best efforts to promptly provide notice to
            each Rating Agency with respect to each of the following of which it
            has actual knowledge:

            (1)   Any material change or amendment to this Agreement;

            (2)   The  occurrence  of any  Event  of  Default  that has not been
                  cured;

            (3)   The  resignation or termination of the Master  Servicer or the
                  Trustee and the appointment of any successor;

            (4)   The repurchase or  substitution  of Mortgage Loans pursuant to
                  Section 2.3; and

            (5)   The final payment to Certificateholders.


                                      101
<PAGE>

            (6)   Any rating action involving the long-term credit rating of the
                  Master  Servicer,  which notice  shall be made by  first-class
                  mail within two Business  Days after the Trustee  gains actual
                  knowledge thereof.

      In addition,  the Trustee  shall  promptly  furnish to each Rating  Agency
copies of the following:

            (7)   Each report to Certificateholders described in Section 4.6;

            (8)   Each annual  statement as to  compliance  described in Section
                  3.16;

            (9)   Each annual independent public  accountants'  servicing report
                  described in Section 3.17; and

            (10)  Any  notice of a  purchase  of a  Mortgage  Loan  pursuant  to
                  Section 2.2, 2.3 or 3.11.

      (b)   All  directions,   demands,   authorizations,   consents,   waivers,
            communications  and notices  hereunder shall be in writing and shall
            be deemed to have been duly given when  delivered  to by first class
            mail,  facsimile or courier (a) in the case of the Depositor,  First
            Horizon  Asset  Securities  Inc.,  4000 Horizon Way,  Irving,  Texas
            75063,  Attention:  Alfred  Chang;  (b) in the  case  of the  Master
            Servicer,  First  Horizon Home Loan  Corporation,  4000 Horizon Way,
            Irving, Texas 75063, Attention:  Larry P. Cole or such other address
            as may be hereafter  furnished to the  Depositor  and the Trustee by
            the Master Servicer in writing;  (c) in the case of the Trustee, The
            Bank of New York, 101 Barclay Street,  8W, New York, New York 10286,
            Attention:  Diane Pickett,  or such other address as the Trustee may
            hereafter  furnish to the Depositor or Master  Servicer;  and (d) in
            the case of the Rating Agencies,  the address specified  therefor in
            the  definition  corresponding  to the name of such  Rating  Agency.
            Notices to  Certificateholders  shall be deemed  given when  mailed,
            first class postage prepaid, to their respective addresses appearing
            in the Certificate Register.

            SECTION 11.6 Severability of Provisions.

      If any one or more of the  covenants,  agreements,  provisions or terms of
this  Agreement  shall be for any  reason  whatsoever  held  invalid,  then such
covenants,  agreements,  provisions or terms shall be deemed  severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or  enforceability of the other provisions of this
Agreement or of the Certificates or the rights of the Holders thereof.

            SECTION 11.7 Assignment.

      Notwithstanding  anything  to the  contrary  contained  herein,  except as
provided  in Section  6.2,  this  Agreement  may not be  assigned  by the Master
Servicer without the prior written consent of the Trustee and Depositor.


                                      102
<PAGE>

            SECTION 11.8 Limitation on Rights of Certificateholders.

      The death or  incapacity  of any  Certificateholder  shall not  operate to
terminate  this  Agreement  or  the  trust  created  hereby,  nor  entitle  such
Certificateholder's  legal  representative or heirs to claim an accounting or to
take any  action or  commence  any  proceeding  in any court for a  petition  or
winding  up of the  trust  created  hereby,  or  otherwise  affect  the  rights,
obligations and liabilities of the parties hereto or any of them.

      No  Certificateholder  shall have any right to vote  (except  as  provided
herein) or in any manner  otherwise  control the operation and management of the
Trust Fund, or the obligations of the parties hereto,  nor shall anything herein
set forth or  contained in the terms of the  Certificates  be construed so as to
constitute the Certificateholders from time to time as partners or members of an
association; nor shall any Certificateholder be under any liability to any third
party by reason of any action taken by the parties to this Agreement pursuant to
any provision hereof.

      No Certificateholder  shall have any right by virtue or by availing itself
of any provisions of this Agreement to institute any suit,  action or proceeding
in equity or at law upon or under or with respect to this Agreement, unless such
Holder  previously  shall have given to the Trustee a written notice of an Event
of Default and of the continuance  thereof,  as herein provided,  and unless the
Holders  of  Certificates  evidencing  not less  than 25% of the  Voting  Rights
evidenced  by the  Certificates  shall  also have made  written  request  to the
Trustee to institute such action,  suit or proceeding in its own name as Trustee
hereunder and shall have offered to the Trustee such reasonable  indemnity as it
may require against the costs,  expenses, and liabilities to be incurred therein
or  thereby,  and the  Trustee,  for 60 days after its  receipt of such  notice,
request and offer of indemnity  shall have neglected or refused to institute any
such action,  suit or proceeding;  it being  understood and intended,  and being
expressly    covenanted   by   each    Certificateholder    with   every   other
Certificateholder  and the Trustee,  that no one or more Holders of Certificates
shall have any right in any manner  whatever by virtue or by availing  itself or
themselves of any provisions of this  Agreement to affect,  disturb or prejudice
the rights of the Holders of any other of the Certificates, or to obtain or seek
to obtain priority over or preference to any other such Holder or to enforce any
right under this  Agreement,  except in the manner  herein  provided and for the
common benefit of all Certificateholders.  For the protection and enforcement of
the provisions of this Section 11.8,  each and every  Certificateholder  and the
Trustee  shall be entitled  to such  relief as can be given  either at law or in
equity.

            SECTION 11.9 Inspection and Audit Rights.

      The Master  Servicer  agrees that,  on reasonable  prior  notice,  it will
permit and will  cause each  Subservicer  to permit  any  representative  of the
Depositor or the Trustee during the Master  Servicer's normal business hours, to
examine  all the books of  account,  records,  reports  and other  papers of the
Master  Servicer  relating to the  Mortgage  Loans,  to make copies and extracts
therefrom,  to cause such books to be audited by  independent  certified  public
accountants selected by the Depositor or the Trustee and to discuss its affairs,
finances  and  accounts  relating  to the  Mortgage  Loans  with  its  officers,
employees and independent  public  accountants (and by this provision the Master
Servicer hereby authorizes said accountants to discuss with such  representative
such affairs,  finances and accounts), all at such reasonable times and as often
as may be  reasonably  requested.  Any  out-of-pocket  expense  incident  to the
exercise by the  Depositor  or the Trustee of any right under this  Section 11.9
shall be borne by the party requesting such inspection;  all other such expenses
shall be borne by the Master Servicer or the related Subservicer.


                                      103
<PAGE>

            SECTION 11.10 Certificates Nonassessable and Fully Paid.

      It is the intention of the Depositor that Certificateholders  shall not be
personally  liable for  obligations of the Trust Fund, that the interests in the
Trust Fund represented by the Certificates shall be nonassessable for any reason
whatsoever,  and that the Certificates,  upon due authentication  thereof by the
Trustee pursuant to this Agreement, are and shall be deemed fully paid.

            SECTION 11.11 Limitations on Actions; No Proceedings.

      (a)   Other than  pursuant to this  Agreement,  or in  connection  with or
            incidental  to the  provisions  or purposes of this  Agreement,  the
            trust created hereunder shall not (i) issue debt or otherwise borrow
            money,  (ii) merge or consolidate with any other entity  reorganize,
            liquidate or transfer all or substantially  all of its assets to any
            other entity,  or (iii) otherwise engage in any activity or exercise
            any power not provided for in this Agreement.

      (b)   Notwithstanding  any  prior  termination  of  this  Agreement,   the
            Trustee,  the Master  Servicer and the Depositor shall not, prior to
            the date which is one year and one day after the termination of this
            Agreement,  acquiesce,  petition  or  otherwise  invoke or cause any
            Person to invoke the  process of any court or  government  authority
            for the  purpose of  commencing  or  sustaining  a case  against the
            Depositor  or the Trust Fund under any federal or state  bankruptcy,
            insolvency   or  other   similar  law  or   appointing  a  receiver,
            liquidator,  assignee,  trustee,  custodian,  sequestrator  or other
            similar  official  of  the  Depositor  or  the  Trust  Fund  or  any
            substantial  part of their  respective  property,  or  ordering  the
            winding up or  liquidation  of the affairs of the  Depositor  or the
            Trust Fund.

            SECTION 11.12 Acknowledgment of Seller.

      Seller hereby acknowledges the provisions of this Agreement, including the
obligations  under Sections  2.1(a),  2.2, 2.3(b) and 8.11 of this Agreement and
further  acknowledges the Depositor's  assignment of its rights and remedies for
the breach of the  representations  and warranties made by the Seller under MLPA
I.

                                   * * * * * *


                                      104
<PAGE>

      IN WITNESS  WHEREOF,  the Depositor,  the Trustee and the Master  Servicer
have  caused  their  names to be  signed  hereto  by their  respective  officers
thereunto duly authorized as of the day and year first above written.

                                       FIRST HORIZON ASSET SECURITIES INC.,
                                       as Depositor


                                       By:
                                           -------------------------------------
                                           Alfred Chang
                                           Vice President


                                       THE BANK OF NEW YORK,
                                       not in its individual capacity, but
                                       solely as Trustee


                                       By:
                                           -------------------------------------
                                           Diane Pickett
                                           Vice President


                                       FIRST HORIZON HOME LOAN CORPORATION, in
                                       its capacity as Master Servicer


                                       By:
                                           -------------------------------------
                                           Terry McCoy
                                           Senior Vice President

The foregoing agreement is hereby acknowledged and accepted as of the date first
above written:__

FIRST HORIZON HOME LOAN CORPORATION,
in its capacity as Seller

By:
    -------------------------------------
    Terry McCoy
    Senior Vice President


<PAGE>

                                   SCHEDULE I

                       First Horizon Asset Securities Inc.
               Mortgage Pass-Through Certificates Series 2005-AA1

                             Mortgage Loan Schedule

                      [Available Upon Request from Trustee]


                                      I-1
<PAGE>

                                   SCHEDULE II

                       First Horizon Asset Securities Inc.
               Mortgage Pass-Through Certificates Series 2005-AA1

              Representations and Warranties of the Master Servicer

      First Horizon Home Loan  Corporation  ("First  Horizon")  hereby makes the
representations  and  warranties  set forth in this Schedule II to the Depositor
and the Trustee,  as of the Closing Date, or if so specified  herein,  as of the
Cut-off Date.  Capitalized terms used but not otherwise defined in this Schedule
II shall  have the  meanings  ascribed  thereto  in the  Pooling  and  Servicing
Agreement   (the   "Pooling   and   Servicing   Agreement")   relating   to  the
above-referenced  Series, among First Horizon, as master servicer, First Horizon
Asset Securities Inc., as depositor, and The Bank of New York, as trustee.

            (1) First Horizon is duly organized as a Kansas  corporation  and is
      validly  existing  and in good  standing  under  the laws of the  State of
      Kansas  and is duly  authorized  and  qualified  to  transact  any and all
      business  contemplated  by  the  Pooling  and  Servicing  Agreement  to be
      conducted by First  Horizon in any state in which a Mortgaged  Property is
      located or is otherwise not required  under  applicable law to effect such
      qualification  and, in any event, is in compliance with the doing business
      laws of any such state,  to the extent  necessary to ensure its ability to
      enforce each Mortgage  Loan,  to service the Mortgage  Loans in accordance
      with the terms of the Pooling and  Servicing  Agreement and to perform any
      of its other  obligations  under the Pooling and  Servicing  Agreement  in
      accordance with the terms thereof.

            (2) First  Horizon has the full  corporate  power and  authority  to
      service each Mortgage  Loan, and to execute,  deliver and perform,  and to
      enter into and consummate the transactions contemplated by the Pooling and
      Servicing  Agreement and has duly  authorized  by all necessary  corporate
      action  on  the  part  of  First  Horizon  the  execution,   delivery  and
      performance  of the Pooling and Servicing  Agreement;  and the Pooling and
      Servicing  Agreement,  assuming  the  due  authorization,   execution  and
      delivery thereof by the other parties thereto,  constitutes a legal, valid
      and binding obligation of First Horizon, enforceable against First Horizon
      in accordance with its terms,  except that (a) the enforceability  thereof
      may be limited by bankruptcy,  insolvency,  moratorium,  receivership  and
      other  similar laws relating to  creditors'  rights  generally and (b) the
      remedy of specific performance and injunctive and other forms of equitable
      relief may be subject to equitable  defenses and to the  discretion of the
      court before which any proceeding therefor may be brought.

            (3)  The  execution  and  delivery  of  the  Pooling  and  Servicing
      Agreement by First  Horizon,  the servicing of the Mortgage Loans by First
      Horizon under the Pooling and Servicing Agreement, the consummation of any
      other  of the  transactions  contemplated  by the  Pooling  and  Servicing
      Agreement, and the fulfillment of or compliance with the terms thereof are
      in the  ordinary  course of  business  of First  Horizon  and will not (A)
      result in a material  breach of any term or  provision  of the  charter or
      by-laws of First  Horizon or (B)  materially  conflict  with,  result in a
      material  breach,  violation or  acceleration  of, or result in a material
      default under, the terms of any other material  agreement or instrument to
      which  First  Horizon  is a party  or by  which  it may be  bound,  or (C)
      constitute  a  material  violation  of any  statute,  order or  regulation
      applicable to First Horizon of any court, regulatory body,  administrative
      agency or governmental body having  jurisdiction  over First Horizon;  and
      First  Horizon is not in breach or violation of any material  indenture or
      other material  agreement or  instrument,  or in violation of any statute,
      order or regulation of any court,  regulatory body,  administrative agency
      or governmental body having jurisdiction over it which breach or violation
      may materially  impair First  Horizon's  ability to perform or meet any of
      its obligations under the Pooling and Servicing Agreement.


                                      II-1
<PAGE>

            (4) No  litigation  is  pending  or, to the best of First  Horizon's
      knowledge,  threatened  against  First  Horizon  that would  prohibit  the
      execution or delivery of, or performance  under, the Pooling and Servicing
      Agreement by First Horizon.

            (5) First  Horizon  is a member of MERS in good  standing,  and will
      comply in all material  respects with the rules and  procedures of MERS in
      connection  with the servicing of the MERS Mortgage  Loans for as along as
      such Mortgage Loans are registered with MERS.


                                      II-2
<PAGE>

                                  SCHEDULE III

                       First Horizon Asset Securities Inc.
               Mortgage Pass-Through Certificates Series 2005-AA1

                     Form of Monthly Master Servicer Report

                              [Begins on Next Page]


                                     III-1
<PAGE>

                                    EXHIBIT A

                          [FORM OF SENIOR CERTIFICATE]

UNLESS THIS  CERTIFICATE  IS PRESENTED BY AN  AUTHORIZED  REPRESENTATIVE  OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION  ("DTC"),  TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER,  EXCHANGE,  OR PAYMENT,  AND ANY CERTIFICATE
ISSUED  IS  REGISTERED  IN THE NAME OF CEDE & CO.  OR IN SUCH  OTHER  NAME AS IS
REQUESTED  BY AN  AUTHORIZED  REPRESENTATIVE  OF DTC (AND ANY PAYMENT IS MADE TO
CEDE  &  CO.  OR  TO  SUCH  OTHER  ENTITY  AS  IS  REQUESTED  BY  AN  AUTHORIZED
REPRESENTATIVE  OF DTC), ANY TRANSFER,  PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE  BY OR TO ANY PERSON IS  WRONGFUL  INASMUCH  AS THE  REGISTERED  OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

SOLELY FOR U.S.  FEDERAL  INCOME TAX PURPOSES,  THIS  CERTIFICATE  IS A "REGULAR
INTEREST" IN A "REAL  ESTATE  MORTGAGE  INVESTMENT  CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE").

[THIS CLASS [ ] CERTIFICATE  SHALL NOT BE ENTITLED TO ANY PAYMENTS IN RESPECT OF
PRINCIPAL. INTEREST IS CALCULATED ON THIS CERTIFICATE BASED ON A NOTIONAL AMOUNT
DETERMINED  AS  DESCRIBED  IN  THE  AGREEMENT.   THE  NOTIONAL  AMOUNT  OF  THIS
CERTIFICATE AT ANY TIME MAY BE LESS THAN THE INITIAL AMOUNT OF THIS  CERTIFICATE
AS SET FORTH HEREIN.]


                                      A-1
<PAGE>

Certificate No.                         :
Cut-off Date                            :
First Distribution Date                 :
Initial Certificate Balance of
this Certificate ("Denominations")      : $
Initial Certificate
Balances of all
Certificate of this
Class                                   : $
CUSIP                                   :


          First Horizon Alternative Mortgage Securities Trust 2005-AA1
               Mortgage Pass-Through Certificates, Series 2005-AA1
                                Class [________]

      evidencing a  percentage  interest in the  distributions  allocable to the
      Certificates  of the  above-referenced  Class with respect to a Trust Fund
      consisting  primarily of one or more pools of conventional  mortgage loans
      (the  "Mortgage  Loans")  secured  by first  liens on one- to  four-family
      residential properties.

                First Horizon Asset Securities Inc., as Depositor

      [Principal in respect of this Certificate is distributable  monthly as set
forth herein. Accordingly,  the Certificate Balance at any time may be less than
the Certificate Balance as set forth herein.] This Certificate does not evidence
an obligation of, or an interest in, and is not guaranteed by the Depositor, the
Master  Servicer  or the Trustee  referred  to below or any of their  respective
affiliates.  Neither this  Certificate  nor the Mortgage Loans are guaranteed or
insured by any governmental agency or instrumentality.

      This certifies  that  __________________  is the  registered  owner of the
Percentage  Interest  evidenced  by this  Certificate  (obtained by dividing the
denomination of this Certificate by the aggregate Initial  Certificate  Balances
of all Certificates of the Class to which this  Certificate  belongs) in certain
monthly  distributions with respect to a Trust Fund consisting  primarily of the
Mortgage  Loans   deposited  by  First  Horizon  Asset   Securities   Inc.  (the
"Depositor").  The Trust Fund was created  pursuant  to a Pooling and  Servicing
Agreement dated as of the Cut-off Date specified above (the  "Agreement")  among
the  Depositor,  First Horizon Home Loan  Corporation,  as master  servicer (the
"Master Servicer"), and The Bank of New York, as trustee (the "Trustee"). To the
extent not defined herein,  the capitalized  terms used herein have the meanings
assigned in the  Agreement.  This  Certificate is issued under and is subject to
the terms,  provisions and conditions of the Agreement,  to which  Agreement the
Holder of this  Certificate  by virtue of the  acceptance  hereof assents and by
which such Holder is bound.

      Reference is hereby made to the further provisions of this Certificate set
forth on the reverse  hereof,  which further  provisions  shall for all purposes
have the same effect as if set forth at this place.


                                      A-2
<PAGE>

      This Certificate  shall not be entitled to any benefit under the Agreement
or be valid for any  purpose  unless  manually  countersigned  by an  authorized
signatory of the Trustee.


                                      A-3
<PAGE>

      IN WITNESS  WHEREOF,  the Trustee has caused this  Certificate  to be duly
executed.

Dated:  January __, 2005

                                       THE BANK OF NEW YORK,
                                       not in its individual capacity, but
                                       solely as Trustee


                                       By:
                                           -------------------------------------
                                           Authorized Signatory of
                                           THE BANK OF NEW YORK
                                           not in its individual capacity,
                                           but solely as Trustee


Countersigned:

By
   --------------------------------
   Authorized Signatory of
   THE BANK OF NEW YORK,
   not in its individual capacity,
   but solely as Trustee


                                      A-4
<PAGE>

                                    EXHIBIT B

                       [FORM OF SUBORDINATED CERTIFICATE]

[UNLESS THIS  CERTIFICATE  IS PRESENTED BY AN AUTHORIZED  REPRESENTATIVE  OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION  ("DTC"),  TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER,  EXCHANGE,  OR PAYMENT,  AND ANY CERTIFICATE
ISSUED  IS  REGISTERED  IN THE NAME OF CEDE & CO.  OR IN SUCH  OTHER  NAME AS IS
REQUESTED  BY AN  AUTHORIZED  REPRESENTATIVE  OF DTC (AND ANY PAYMENT IS MADE TO
CEDE  &  CO.  OR  TO  SUCH  OTHER  ENTITY  AS  IS  REQUESTED  BY  AN  AUTHORIZED
REPRESENTATIVE  OF DTC), ANY TRANSFER,  PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE  BY OR TO ANY PERSON IS  WRONGFUL  INASMUCH  AS THE  REGISTERED  OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]

SOLELY FOR U.S.  FEDERAL  INCOME TAX PURPOSES,  THIS  CERTIFICATE  IS A "REGULAR
INTEREST" IN A "REAL  ESTATE  MORTGAGE  INVESTMENT  CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE").

THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO CERTAIN  CERTIFICATES AS
DESCRIBED IN THE AGREEMENT REFERRED TO HEREIN.

[THIS  CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED  UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE  "SECURITIES  ACT"),  OR THE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES ("BLUE SKY LAWS"),  AND SUCH  CERTIFICATE  MAY NOT BE
OFFERED,  RESOLD,  PLEDGED OR OTHERWISE  TRANSFERRED EXCEPT (A) TO A PERSON WHOM
THE SELLER  REASONABLY  BELIEVES IS A QUALIFIED  INSTITUTIONAL  BUYER WITHIN THE
MEANING OF RULE 144A  UNDER THE  SECURITIES  ACT IN A  TRANSACTION  MEETING  THE
REQUIREMENTS  OF RULE 144A,  (B)  PURSUANT  TO AN  EXEMPTION  FROM  REGISTRATION
PROVIDED  BY RULE 144  UNDER  THE  SECURITIES  ACT (IF  AVAILABLE)  OR (C) TO AN
INSTITUTIONAL ACCREDITED INVESTOR AS DEFINED IN RULE 501(a)(1),  (2), (3) OR (7)
OF  REGULATION  D UNDER THE  SECURITIES  ACT IN A  TRANSACTION  EXEMPT  FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH
ANY APPLICABLE BLUE SKY LAWS. NO  REPRESENTATION  IS MADE AS TO THE AVAILABILITY
OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALES OF THIS CERTIFICATE.]

[NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED  UNLESS THE
TRANSFEREE  REPRESENTS  TO THE TRUSTEE THAT SUCH  TRANSFEREE  IS NOT AN EMPLOYEE
BENEFIT PLAN OR ARRANGEMENT  SUBJECT TO THE EMPLOYEE  RETIREMENT INCOME SECURITY
ACT OF 1974, AS AMENDED ("ERISA"),  OR A PLAN OR ARRANGEMENT  SUBJECT TO SECTION
4975 OF THE  CODE,  OR,  IF  SUCH  PURCHASER  IS AN  INSURANCE  COMPANY  AND THE
CERTIFICATE   HAS  BEEN   SUBJECT  TO  AN   ERISA-QUALIFYING   UNDERWRITING,   A
REPRESENTATION  IN ACCORDANCE  WITH THE PROVISIONS OF THE AGREEMENT  REFERRED TO
HEREIN,  OR DELIVERS TO THE TRUSTEE AN OPINION OF COUNSEL IN ACCORDANCE WITH THE
PROVISIONS OF THE AGREEMENT  REFERRED TO HEREIN.  SUCH  REPRESENTATION  SHALL BE
DEEMED TO HAVE BEEN MADE TO THE  TRUSTEE  BY THE  TRANSFEREE'S  ACCEPTANCE  OF A
CERTIFICATE OF THIS CLASS AND BY A BENEFICIAL OWNER'S ACCEPTANCE OF ITS INTEREST
IN A CERTIFICATE  OF THIS CLASS.  NOTWITHSTANDING  ANYTHING ELSE TO THE CONTRARY
HEREIN,  ANY  PURPORTED  TRANSFER  OF THIS  CERTIFICATE  TO OR ON  BEHALF  OF AN
EMPLOYEE  BENEFIT  PLAN  SUBJECT TO ERISA OR TO THE CODE  WITHOUT THE OPINION OF
COUNSEL  SATISFACTORY  TO THE TRUSTEE AS DESCRIBED ABOVE SHALL BE VOID AND OF NO
EFFECT.]


                                      B-1
<PAGE>

Certificate No.                         :
Cut-off Date                            :
First Distribution Date                 :
Initial Certificate Balance of
this Certificate ("Denominations")      : $
Initial Certificate
Balances of all
Certificate of this
Class                                   : $
CUSIP                                   :


          First Horizon Alternative Mortgage Securities Trust 2005-AA1
               Mortgage Pass-Through Certificates, Series 2005-AA1
                                   Class [___]

      evidencing a  percentage  interest in the  distributions  allocable to the
      Certificates  of the  above-referenced  Class with respect to a Trust Fund
      consisting  primarily of one or more pools of conventional  mortgage loans
      (the  "Mortgage  Loans")  secured  by first  liens on one- to  four-family
      residential properties.

                First Horizon Asset Securities Inc., as Depositor

      Principal in respect of this Certificate is  distributable  monthly as set
forth herein. Accordingly,  the Certificate Balance at any time may be less than
the Certificate  Balance as set forth herein. This Certificate does not evidence
an obligation of, or an interest in, and is not guaranteed by the Depositor, the
Master  Servicer,  or the Trustee  referred to below or any of their  respective
affiliates.  Neither this  Certificate  nor the Mortgage Loans are guaranteed or
insured by any governmental agency or instrumentality.

      This certifies that  ___________ is the registered owner of the Percentage
Interest evidenced by this Certificate (obtained by dividing the denomination of
this  Certificate  by  the  aggregate  Initial   Certificate   Balances  of  the
denominations  of all  Certificates  of the  Class  to  which  this  Certificate
belongs)  in  certain  monthly  distributions  with  respect  to  a  Trust  Fund
consisting  primarily of the Mortgage  Loans  deposited by First  Horizon  Asset
Securities  Inc.  (the  "Depositor").  The Trust Fund was created  pursuant to a
Pooling and Servicing  Agreement  dated as of the Cut-off Date  specified  above
(the "Agreement") among the Depositor,  First Horizon Home Loan Corporation,  as
master  servicer (the "Master  Servicer"),  and The Bank of New York, as trustee
(the "Trustee").  To the extent not defined herein,  the capitalized  terms used
herein have the meanings  assigned in the Agreement.  This Certificate is issued
under and is subject to the terms,  provisions  and conditions of the Agreement,
to which  Agreement the Holder of this  Certificate  by virtue of the acceptance
hereof assents and by which such Holder is bound.


                                      B-2
<PAGE>

      [No  transfer  of a  Certificate  of this Class  shall be made unless such
transfer  is made  pursuant to an  effective  registration  statement  under the
Securities Act and any applicable  state  securities  laws or is exempt from the
registration  requirements  under  said Act and such  laws.  In the event that a
transfer is to be made in reliance upon an exemption from the Securities Act and
such laws, in order to assure  compliance with the Securities Act and such laws,
the   Certificateholder    desiring   to   effect   such   transfer   and   such
Certificateholder's  prospective transferee shall each certify to the Trustee in
writing the facts surrounding the transfer. In the event that such a transfer is
to be  made  within  two  years  from  the  date  of  the  initial  issuance  of
Certificates  pursuant hereto, there shall also be delivered (except in the case
of a transfer  pursuant  to Rule 144A of the  Securities  Act) to the Trustee an
Opinion of Counsel that such transfer may be made pursuant to an exemption  from
the  Securities  Act and such state  securities  laws,  which Opinion of Counsel
shall not be  obtained  at the expense of the  Trustee,  the Seller,  the Master
Servicer or the  Depositor.  The Holder hereof  desiring to effect such transfer
shall, and does hereby agree to, indemnify the Trustee and the Depositor against
any liability that may result if the transfer is not so exempt or is not made in
accordance with such federal and state laws.]

      [No  transfer  of a  Certificate  of this Class  shall be made  unless the
Trustee  shall have  received  either  (i) a  representation  [letter]  from the
transferee  of  such  Certificate,  acceptable  to and  in  form  and  substance
satisfactory  to the  Trustee,  to the  effect  that such  transferee  is not an
employee benefit plan or arrangement  subject to Section 406 of ERISA or Section
4975 of the  Code,  nor a  person  acting  on  behalf  of any such  plan,  which
representation  letter shall not be an expense of the Trustee,  the Depositor or
the Master  Servicer,  (ii) if the  purchaser  is an  insurance  company and the
certificate   has  been   subject  to  an   ERISA-Qualifying   Underwriting,   a
representation  that the  purchaser is an insurance  company which is purchasing
such Certificates with funds contained in an "insurance company general account"
(as such  term is  defined  in  Section  V(e) of  Prohibited  Transaction  Class
Exemption  95-60  ("PTCE  95-60"))  and that the  purchase  and  holding of such
Certificates  are covered under Sections I and III of PTCE 95-60 or (iii) in the
case of any  such  Certificate  presented  for  registration  in the  name of an
employee  benefit  plan  subject  to  ERISA  or  Section  4975 of the  Code  (or
comparable  provisions of any subsequent  enactments),  or a trustee of any such
plan or any  other  person  acting on behalf of any such  plan,  an  Opinion  of
Counsel  satisfactory  to the Trustee to the effect that the purchase or holding
of such Certificate will not result in prohibited transactions under Section 406
of ERISA and  Section  4975 of the Code and will not subject  the  Trustee,  the
Depositor  or the  Master  Servicer  to any  obligation  in  addition  to  those
undertaken in the Agreement, which Opinion of Counsel shall not be an expense of
the Trustee, the Depositor or the Master Servicer. [Such representation shall be
deemed to have been made to the  Trustee  by the  Transferee's  acceptance  of a
Certificate of this Class and by a beneficial owner's acceptance of its interest
in a Certificate of this Class.]  Notwithstanding  anything else to the contrary
herein, any purported transfer of a Certificate of this Class to or on behalf of
an employee  benefit plan subject to ERISA or to the Code without the opinion of
counsel  satisfactory  to the Trustee as described above shall be void and of no
effect.]Reference  is hereby made to the further  provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

      Reference is hereby made to the further provisions of this Certificate set
forth on the reverse  hereof,  which further  provisions  shall for all purposes
have the same effect as if set forth at this place.


                                      B-3
<PAGE>

      This Certificate  shall not be entitled to any benefit under the Agreement
or be valid for any  purpose  unless  manually  countersigned  by an  authorized
signatory of the Trustee.


                                      B-4
<PAGE>

      IN WITNESS  WHEREOF,  the Trustee has caused this  Certificate  to be duly
executed.

Dated:  January __, 2005

                                       THE BANK OF NEW YORK,
                                       not in its individual capacity, but
                                       solely as Trustee


                                       By:
                                           -------------------------------------
                                           Authorized Signatory of
                                           THE BANK OF NEW YORK
                                           not in its individual capacity,
                                           but solely as Trustee


Countersigned:

By
   -------------------------------------
   Authorized Signatory of
   THE BANK OF NEW YORK,
   not in its individual capacity,
   but solely as Trustee


                                      B-5
<PAGE>

                                    EXHIBIT C

                         [FORM OF RESIDUAL CERTIFICATE]

SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES,  THIS CERTIFICATE REPRESENTS ONE OR
MORE "RESIDUAL  INTERESTS" IN A "REAL ESTATE  MORTGAGE  INVESTMENT  CONDUIT," AS
THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE").

NEITHER THIS  CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED  UNLESS THE
PROPOSED  TRANSFEREE  DELIVERS TO THE TRUSTEE A TRANSFER AFFIDAVIT IN ACCORDANCE
WITH THE PROVISIONS OF THE AGREEMENT REFERRED TO HEREIN.

[THIS CERTIFICATE  REPRESENTS THE "TAX MATTERS PERSON RESIDUAL  INTEREST" ISSUED
UNDER THE  POOLING  AND  SERVICING  AGREEMENT  REFERRED  TO BELOW AND MAY NOT BE
TRANSFERRED  TO ANY  PERSON  EXCEPT IN  CONNECTION  WITH THE  ASSUMPTION  BY THE
TRANSFEREE OF THE DUTIES OF THE SERVICER UNDER SUCH AGREEMENT.]

NEITHER THIS  CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED  UNLESS THE
TRANSFEREE  REPRESENTS  TO THE TRUSTEE THAT SUCH  TRANSFEREE  IS NOT AN EMPLOYEE
BENEFIT PLAN OR ARRANGEMENT  SUBJECT TO THE EMPLOYEE  RETIREMENT INCOME SECURITY
ACT OF 1974, AS AMENDED ("ERISA"),  OR A PLAN OR ARRANGEMENT  SUBJECT TO SECTION
4975  OF  THE  CODE,  OR,  IF  SUCH  PURCHASER  IS  AN  INSURANCE   COMPANY,   A
REPRESENTATION  IN ACCORDANCE  WITH THE PROVISIONS OF THE AGREEMENT  REFERRED TO
HEREIN,  OR DELIVERS TO THE TRUSTEE AN OPINION OF COUNSEL IN ACCORDANCE WITH THE
PROVISIONS OF THE AGREEMENT REFERRED TO HEREIN.  [SUCH  REPRESENTATION  SHALL BE
DEEMED TO HAVE BEEN MADE TO THE  TRUSTEE  BY THE  TRANSFEREE'S  ACCEPTANCE  OF A
CERTIFICATE OF THIS CLASS AND BY A BENEFICIAL OWNER'S ACCEPTANCE OF ITS INTEREST
IN A CERTIFICATE OF THIS CLASS.]  NOTWITHSTANDING  ANYTHING ELSE TO THE CONTRARY
HEREIN,  ANY  PURPORTED  TRANSFER  OF THIS  CERTIFICATE  TO OR ON  BEHALF  OF AN
EMPLOYEE  BENEFIT  PLAN  SUBJECT TO ERISA OR TO THE CODE  WITHOUT THE OPINION OF
COUNSEL  SATISFACTORY  TO THE TRUSTEE AS DESCRIBED ABOVE SHALL BE VOID AND OF NO
EFFECT.


                                      C-1
<PAGE>

Certificate No.                          :
Cut-off Date                             :
First Distribution Date                  :
Initial Certificate Balance of
this Certificate ("Denominations")       : $
Initial Certificate
Balances of all
Certificate of this
Class                                    : $
CUSIP                                    :

          First Horizon Alternative Mortgage Securities Trust 2005-AA1
               Mortgage Pass-Through Certificates, Series 2005-AA1

            evidencing   the   distributions   allocable  to  the  Class  II-A-R
      Certificates  with respect to a Trust Fund consisting  primarily of one or
      more pools of conventional  mortgage loans (the "Mortgage  Loans") secured
      by first liens on one- to four-family residential properties.

                First Horizon Asset Securities Inc., as Depositor

      Principal in respect of this Certificate is  distributable  monthly as set
forth herein. Accordingly,  the Certificate Balance at any time may be less than
the Certificate  Balance as set forth herein. This Certificate does not evidence
an obligation of, or an interest in, and is not guaranteed by the Depositor, the
Master  Servicer  or the Trustee  referred  to below or any of their  respective
affiliates.  Neither this  Certificate  nor the Mortgage Loans are guaranteed or
insured by any governmental agency or instrumentality.

      This  certifies  that  _________________  is the  registered  owner of the
Percentage  Interest  (obtained by dividing the denomination of this Certificate
by the  aggregate  Initial  Certificate  Balances  of the  denominations  of all
Certificates of the Class to which this Certificate  belongs) in certain monthly
distributions  with respect to a Trust Fund  consisting  of the  Mortgage  Loans
deposited by First Horizon Asset  Securities Inc. (the  "Depositor").  The Trust
Fund was created  pursuant to a Pooling and Servicing  Agreement dated as of the
Cut-off  Date  specified  above (the  "Agreement")  among the  Depositor,  First
Horizon Home Loan Corporation,  as master servicer (the "Master Servicer"),  and
The Bank of New York,  as trustee  (the  "Trustee").  To the extent not  defined
herein,  the  capitalized  terms used herein have the  meanings  assigned in the
Agreement.  This  Certificate  is issued  under  and is  subject  to the  terms,
provisions  and conditions of the  Agreement,  to which  Agreement the Holder of
this  Certificate by virtue of the  acceptance  hereof assents and by which such
Holder is bound.

      Any distribution of the proceeds of any remaining assets of the Trust Fund
will  be  made  only  upon  presentment  and  surrender  of  this  Class  II-A-R
Certificate at the Corporate Trust Office or the office or agency  maintained by
the Trustee in New York, New York. This Class II-A-R  Certificate  represents an
ownership in the RL Interest and RU Interest, as defined in the Agreement.


                                      C-2
<PAGE>

      No transfer of a Class II-A-R Certificate shall be made unless the Trustee
shall have received either (i) a representation  [letter] from the transferee of
such  Certificate,  acceptable to and in form and substance  satisfactory to the
Trustee,  to the effect that such transferee is not an employee  benefit plan or
arrangement  subject to Section 406 of ERISA or Section 4975 of the Code,  nor a
person acting on behalf of any such plan, which representation  letter shall not
be an expense of the Trustee, the Depositor or the Master Servicer,  (ii) if the
purchaser is an insurance  company,  a  representation  that the purchaser is an
insurance  company which is purchasing such  Certificate with funds contained in
an "insurance  company general account" (as such term is defined in Section V(e)
of Prohibited  Transaction  Class  Exemption  95-60 ("PTCE 95-60")) and that the
purchase and holding of such Certificate are covered under Sections I and III of
PTCE  95-60  or  (iii)  in  the  case  of any  such  Certificate  presented  for
registration in the name of an employee benefit plan subject to ERISA or Section
4975 of the Code (or comparable provisions of any subsequent  enactments),  or a
trustee of any such plan or any other person  acting on behalf of any such plan,
an Opinion  of  Counsel  satisfactory  to the  Trustee  to the  effect  that the
purchase  or  holding  of such  Class  II-A-R  Certificate  will not  result  in
prohibited  transactions under Section 406 of ERISA and Section 4975 of the Code
and will not subject the Trustee,  the Depositor and the Master  Servicer to any
obligation in addition to those  undertaken in the  Agreement,  which Opinion of
Counsel  shall not be an expense of the  Trustee,  the  Depositor  or the Master
Servicer.  [Such representation shall be deemed to have been made to the Trustee
by the  Transferee's  acceptance  of  this  Class  II-A-R  Certificate  and by a
beneficial   owner's   acceptance   of  its   interest  in  such   Certificate.]
Notwithstanding  anything else to the contrary herein, any purported transfer of
a Class II-A-R  Certificate to or on behalf of an employee  benefit plan subject
to ERISA or to the Code  without  the  opinion  of counsel  satisfactory  to the
Trustee as described above shall be void and of no effect.

      Each Holder of this Class II-A-R Certificate will be deemed to have agreed
to be bound by the  restrictions of the Agreement,  including but not limited to
the  restrictions  that (i) each  person  holding  or  acquiring  any  Ownership
Interest in this Class II-A-R Certificate must be a Permitted  Transferee,  (ii)
no  Ownership  Interest  in this Class  II-A-R  Certificate  may be  transferred
without  delivery to the  Trustee of (a) a transfer  affidavit  of the  proposed
transferee  and  (b) a  transfer  certificate  of the  transferor,  each of such
documents  to be in the form  described  in the  Agreement,  (iii)  each  person
holding or acquiring  any  Ownership  Interest in this Class II-A-R  Certificate
must agree to require a transfer affidavit and to deliver a transfer certificate
to the Trustee as required  pursuant to the Agreement,  (iv) each person holding
or acquiring an Ownership  Interest in this Class II-A-R  Certificate must agree
not to transfer an Ownership Interest in this Class II-A-R Certificate if it has
actual knowledge that the proposed transferee is not a Permitted  Transferee and
(v) any attempted or purported  transfer of any Ownership Interest in this Class
II-A-R Certificate in violation of such restrictions will be absolutely null and
void and will vest no rights in the purported transferee.

      Reference is hereby made to the further provisions of this Certificate set
forth on the reverse  hereof,  which further  provisions  shall for all purposes
have the same effect as if set forth at this place.


                                      C-3
<PAGE>

      This Certificate  shall not be entitled to any benefit under the Agreement
or be valid for any  purpose  unless  manually  countersigned  by an  authorized
signatory of the Trustee.


                                      C-4
<PAGE>

      IN WITNESS  WHEREOF,  the Trustee has caused this  Certificate  to be duly
executed.

Dated:  January __, 2005

                                       THE BANK OF NEW YORK,
                                       not in its individual capacity, but
                                       solely as Trustee


                                       By:
                                           -------------------------------------
                                           Authorized Signatory of
                                           THE BANK OF NEW YORK
                                           not in its individual capacity,
                                           but solely as Trustee

Countersigned:

By
   -------------------------------------
   Authorized Signatory of
   THE BANK OF NEW YORK,
   not in its individual capacity,
   but solely as Trustee


                                      C-5
<PAGE>

                                    EXHIBIT D

                        [Form of Reverse of Certificates]

          First Horizon Alternative Mortgage Securities Trust 2005-AA1
                       Mortgage Pass-Through Certificates

      This  Certificate  is one  of a  duly  authorized  issue  of  Certificates
designated as First  Horizon  Alternative  Mortgage  Securities  Trust  2005-AA1
Mortgage Pass-Through  Certificates,  of the Series specified on the face hereof
(herein collectively called the  "Certificates"),  and representing a beneficial
ownership interest in the Trust Fund created by the Agreement.

      The Certificateholder,  by its acceptance of this Certificate, agrees that
it will look  solely to the funds on deposit  in the  Distribution  Account  for
payment  hereunder and that the Trustee is not liable to the  Certificateholders
for any amount  payable  under this  Certificate  or the Agreement or, except as
expressly  provided  in the  Agreement,  subject  to  any  liability  under  the
Agreement.

      This Certificate does not purport to summarize the Agreement and reference
is made to the Agreement for the  interests,  rights and  limitations of rights,
benefits,  obligations and duties evidenced thereby, and the rights,  duties and
immunities of the Trustee.

      Pursuant to the terms of the Agreement, a distribution will be made on the
25th day of each month or, if such 25th day is not a Business  Day, the Business
Day immediately  following (the  "Distribution  Date"),  commencing on the first
Distribution Date specified on the face hereof, to the Person in whose name this
Certificate is registered at the close of business on the applicable Record Date
in an amount equal to the product of the Percentage  Interest  evidenced by this
Certificate and the amount required to be distributed to Holders of Certificates
of the  Class  to which  this  Certificate  belongs  on such  Distribution  Date
pursuant to the Agreement.  The Record Date applicable to each Distribution Date
is the  last  Business  Day of the  month  next  preceding  the  month  of  such
Distribution Date.

      Distributions  on this  Certificate  shall  be made  by wire  transfer  of
immediately  available  funds to the  account of the Holder  hereof at a bank or
other entity having appropriate  facilities therefor, if such  Certificateholder
shall have so notified the Trustee in writing at least five  Business Days prior
to the  related  Record  Date  and  such  Certificateholder  shall  satisfy  the
conditions  to receive such form of payment set forth in the  Agreement,  or, if
not,   by  check   mailed  by  first   class   mail  to  the   address  of  such
Certificateholder  appearing in the Certificate Register. The final distribution
on each Certificate  will be made in like manner,  but only upon presentment and
surrender  of such  Certificate  at the  Corporate  Trust  Office or such  other
location   specified  in  the  notice  to   Certificateholders   of  such  final
distribution.

      The Agreement  permits,  with certain  exceptions  therein  provided,  the
amendment  thereof and the  modification  of the rights and  obligations  of the
Trustee and the rights of the Certificateholders under the Agreement at any time
by the  Depositor,  the Master  Servicer and the Trustee with the consent of the
Holders of  Certificates  affected by such  amendment  evidencing  the requisite
Percentage  Interest,  as provided  in the  Agreement.  Any such  consent by the
Holder of this  Certificate  shall be conclusive  and binding on such Holder and
upon all future Holders of this  Certificate and of any Certificate  issued upon
the  transfer  hereof or in exchange  therefor or in lieu hereof  whether or not
notation  of such  consent is made upon this  Certificate.  The  Agreement  also
permits the amendment  thereof,  in certain limited  circumstances,  without the
consent of the Holders of any of the Certificates.


                                      D-1
<PAGE>

      As provided in the  Agreement and subject to certain  limitations  therein
set forth,  the transfer of this  Certificate is registrable in the  Certificate
Register of the Trustee upon surrender of this  Certificate for  registration of
transfer at the Corporate Trust Office or the office or agency maintained by the
Trustee in New York, New York,  accompanied by a written  instrument of transfer
in form satisfactory to the Trustee and the Certificate  Registrar duly executed
by the holder hereof or such holder's  attorney duly authorized in writing,  and
thereupon  one  or  more  new  Certificates  of the  same  Class  in  authorized
denominations and evidencing the same aggregate Percentage Interest in the Trust
Fund will be issued to the designated transferee or transferees.

      The  Certificates  are issuable  only as registered  Certificates  without
coupons  in  denominations  specified  in  the  Agreement.  As  provided  in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of the same Class in authorized  denominations
and  evidencing  the same  aggregate  Percentage  Interest,  as requested by the
Holder surrendering the same.

      No service  charge will be made for any such  registration  of transfer or
exchange,  but the Trustee may require  payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

      The  Depositor,  the Master  Servicer and the Trustee and any agent of the
Depositor or the Trustee may treat the Person in whose name this  Certificate is
registered as the owner hereof for all purposes, and neither the Depositor,  the
Trustee, nor any such agent shall be affected by any notice to the contrary.

      On any Distribution  Date on which the Pool Principal Balance is less than
10% of the aggregate  Cut-off Date Pool Principal  Balance of Pool I and Pool II
combined, the Master Servicer will have the option to repurchase, in whole, from
the Trust Fund all remaining Mortgage Loans and all property acquired in respect
of the Mortgage Loans in the Mortgage  Pools at a purchase  price  determined as
provided  in the  Agreement.  In the  event  that no such  optional  termination
occurs,  the  obligations  and  responsibilities  created by the Agreement  will
terminate  upon the later of the maturity or other  liquidation  (or any advance
with respect  thereto) of the last Mortgage Loan  remaining in the Trust Fund or
the  disposition  of all  property in respect  thereof and the  distribution  to
Certificateholders  of all amounts  required to be  distributed  pursuant to the
Agreement.  In no  event,  however,  will the  trust  created  by the  Agreement
continue  beyond the  expiration of 21 years from the death of the last survivor
of the descendants living at the date of the Agreement of a certain person named
in the Agreement.

      Any term used  herein  that is  defined  in the  Agreement  shall have the
meaning  assigned  in  the  Agreement,   and  nothing  herein  shall  be  deemed
inconsistent with that meaning.


                                      D-2
<PAGE>

      ASSIGNMENT

      FOR  VALUE  RECEIVED,  the  undersigned  hereby  sell(s),   assign(s)  and
transfer(s) unto

                         ------------------------------
                        (Please insert social security or
                      other identifying number of assignee)

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

    ------------------------------------------------------------------------
                   (Please print or typewrite name and address
                     including postal zip code of assignee)

    ------------------------------------------------------------------------
the  Percentage   Interest  evidenced  by  the  within  Certificate  and  hereby
authorizes the transfer of registration of such Percentage  Interest to assignee
on the Certificate Register of the Trust Fund.

      I (We)  further  direct the Trustee to issue a new  Certificate  of a like
denomination and Class, to the above named assignee and deliver such Certificate
to the following address:

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

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

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

Dated:   __________________

                                       -----------------------------------------
                                       Signature by or on behalf of assignor

                            DISTRIBUTION INSTRUCTIONS

      The assignee should include the following for purposes of distribution:

      Distributions shall be made, by wire transfer or otherwise, in immediately
available  funds to  ______________________________________,  for the account of
_____________________,  account number  ___________,  or, if mailed by check, to
___________________________.   Applicable   statements   should   be  mailed  to
________________________

      This information is provided by  ________________________________________,
the assignee named above, or _________________, as its agent.


                                      D-3
<PAGE>

                                    EXHIBIT E

                   FORM OF INITIAL CERTIFICATION OF CUSTODIAN

                                     [date]

First Horizon Asset Securities Inc.
First Horizon Home Loan Corporation
4000 Horizon Way
Irving, Texas  75063

The Bank of New York_______
101 Barclay Street, 8W_____
New York, New York  10286

      Re:   Custodial  Agreement  dated as of January  28, 2005 by and among the
            Bank of New York, as Trustee,  First Horizon Home Loan  Corporation,
            as  Servicer  and First  Tennessee  Bank  National  Association,  as
            Custodian

Gentlemen:

      In accordance with Section 2 of the  above-captioned  Custodial  Agreement
(the "Custodial  Agreement"),  the undersigned,  as Custodian,  hereby certifies
that, as to each Mortgage Loan listed in the Mortgage Loan Schedule  (other than
any Mortgage Loan listed in the attached schedule), it has received:

      (i) the  original  Mortgage  Note,  endorsed as provided in the  following
form: "Pay to the order of ________, without recourse"; and

      (ii) a duly executed  assignment of the Mortgage (which may be included in
a blanket assignment or assignments); provided, however, that it has received no
assignment with respect to any Mortgage for which the related Mortgaged Property
is located in the Commonwealth of Puerto Rico.

      Based  on  its  review  and  examination  and  only  as to  the  foregoing
documents,  such  documents  appear  regular on their  face and  related to such
Mortgage Loan.

      The  Custodian  has  made  no  independent  examination  of any  documents
contained in each Mortgage File beyond the review  specifically  required in the
Custodial  Agreement.  The  Custodian  makes no  representations  as to: (i) the
validity,  legality,  sufficiency,  enforceability  or genuineness of any of the
documents  contained  in  each  Mortgage  File  of  any of  the  Mortgage  Loans
identified  on  the  Mortgage  Loan  Schedule,   or  (ii)  the   collectability,
insurability, effectiveness or suitability of any such Mortgage Loan.


                                      E-1
<PAGE>

      Capitalized  words and  phrases  used  herein  shall  have the  respective
meanings assigned to them in the Custodial Agreement.

                                      FIRST TENNESSEE BANK NATIONAL ASSOCIATION,
                                      as Custodian


                                      By:
                                          --------------------------------------
                                      Name:
                                            ------------------------------------
                                      Title:
                                             -----------------------------------


                                      E-2
<PAGE>

                                    EXHIBIT F

                      FORM OF DELAY DELIVERY CERTIFICATION

                                     [date]

First Horizon Asset Securities Inc.
First Horizon Home Loan Corporation
4000 Horizon Way
Irving, Texas  75063

The Bank of New York_______
101 Barclay Street, 8W_____
New York, New York  10286

      Re:   Custodial  Agreement  dated as of January  28, 2005 by and among the
            Bank of New York, as Trustee,  First Horizon Home Loan  Corporation,
            as Servicer,  and First  Tennessee  Bank  National  Association,  as
            Custodian

Ladies and Gentlemen:

      In accordance with Section 3 of the  above-captioned  Custodial  Agreement
(the "Custodial  Agreement"),  the undersigned,  as Custodian,  hereby certifies
that,  as to each Delay  Delivery  Mortgage  Loan  listed in the  Mortgage  Loan
Schedule  (other than any Delay  Delivery  Mortgage  Loan listed in the attached
schedule), it has received:

      (i) the  original  Mortgage  Note,  endorsed as provided in the  following
form: "Pay to the order of_______, without recourse";

      (ii) in the case of each Mortgage  Loan that is not a MERS Mortgage  Loan,
the original recorded Mortgage, [and in the case of each Mortgage Loan that is a
MERS Mortgage  Loan, the original  Mortgage,  noting thereon the presence of the
MIN of the Mortgage Loan and language indicating that the Mortgage Loan is a MOM
Loan if the Mortgage Loan is a MOM Loan,  with  evidence of recording  indicated
thereon,  or a copy of the Mortgage  certified by the public recording office in
which such Mortgage has been recorded]; and

      (iii) in the case of each Mortgage Loan that is not a MERS Mortgage  Loan,
a duly executed  assignment of the Mortgage  (which may be included in a blanket
assignment  or  assignments);   provided,  however,  that  it  has  received  no
assignment with respect to any Mortgage for which the related Mortgage  Property
is located in the Commonwealth of Puerto Rico.

      Based  on  its  review  and  examination  and  only  as to  the  foregoing
documents, such documents appear regular on their face and related to such Delay
Delivery Mortgage Loan.

      The  Custodian  has  made  no  independent  examination  of any  documents
contained in each Mortgage File beyond the review  specifically  required in the
Custodial  Agreement.  The  Custodian  makes no  representations  as to: (i) the
validity,  legality,  sufficiency,  enforceability  or genuineness of any of the
documents  contained in each Mortgage File of any of the Delay Delivery Mortgage
Loans  identified on the Mortgage  Loan  Schedule,  or (ii) the  collectability,
insurability,  effectiveness or suitability of any such Delay Delivery  Mortgage
Loan.


                                      F-1
<PAGE>

      Capitalized  words and  phrases  used  herein  shall  have the  respective
meanings assigned to them in the above-captioned Custodial Agreement.


                                      FIRST TENNESSEE BANK NATIONAL ASSOCIATION,
                                      as Custodian


                                      By:
                                          --------------------------------------
                                      Name:
                                            ------------------------------------
                                      Title:



                                      F-2
<PAGE>

                                    EXHIBIT G

                    FORM OF FINAL CERTIFICATION OF CUSTODIAN

                                     [date]

First Horizon Asset Securities Inc.
First Horizon Home Loan Corporation
4000 Horizon Way
Irving, Texas  75063

The Bank of New York_______
101 Barclay Street, 8W_____
New York, New York  10286

      Re:   Custodial  Agreement  dated as of January  28, 2005 by and among the
            Bank of New York, as Trustee,  First Horizon Home Loan  Corporation,
            as Servicer,  and First  Tennessee  Bank  National  Association,  as
            Custodian

Ladies and Gentlemen:

      In accordance with Section 2 of the  above-captioned  Custodial  Agreement
(the "Custodial Agreement"), the undersigned, as Custodian hereby certifies that
as to each Mortgage  Loan listed in the Mortgage  Loan Schedule  (other than any
Mortgage Loan paid in full or listed on the attached Document  Exception Report)
it has received:

      (i)   (A) The  original  Mortgage  Note  endorsed  by manual or  facsimile
            signature  in  blank in the  following  form:  "Pay to the  order of
            ____________  without  recourse," with all intervening  endorsements
            showing a complete chain of endorsements  from the originator to the
            Person  endorsing  the Mortgage  Note (each such  endorsement  being
            sufficient to transfer all right, title and interest of the party so
            endorsing,  as  noteholder  or  assignee  thereof,  in and  to  that
            Mortgage Note); or

            (B) with respect to any Lost  Mortgage  Note, a lost note  affidavit
            from the Seller stating that the original  Mortgage Note was lost or
            destroyed, together with a copy of such Mortgage Note;

      (ii)  except as provided  below and for each  Mortgage  Loan that is not a
            MERS Mortgage Loan, the original recorded Mortgage or a copy of such
            Mortgage  certified by the Seller as being a true and complete  copy
            of the  Mortgage  and in the case of each MERS  Mortgage  Loan,  the
            original  Mortgage,  noting the  presence of the MIN of the Mortgage
            Loans and either language indicating that the Mortgage Loan is a MOM
            Loan if the Mortgage  Loan is a MOM Loan or if the Mortgage Loan was
            not a MOM  Loan  at  origination,  the  original  Mortgage  and  the
            assignment  thereof to MERS,  with  evidence of recording  indicated
            thereon, or a copy of the Mortgage certified by the public recording
            office in which such Mortgage has been recorded;


                                      G-1
<PAGE>

      (iii) in the case of each Mortgage Loan that is not a MERS Mortgage  Loan,
            a duly  executed  assignment  of the Mortgage in blank (which may be
            included in a blanket  assignment or  assignments),  together  with,
            except as provided below, all interim  recorded  assignments of such
            mortgage each such assignment,  when duly and validly completed,  to
            be in recordable form and sufficient to effect the assignment of and
            transfer to the  assignee  thereof,  under the Mortgage to which the
            assignment related);  provided that, if the related Mortgage has not
            been returned from the  applicable  public  recording  office,  such
            assignment  of  the  Mortgage  may  exclude  the  information  to be
            provided by the recording office;

      (iv)  the  original or copies of each  assumption,  modification,  written
            assurance or substitution agreement, if any;

      (v)   either the original or duplicate  original  title policy  (including
            all riders thereto) with respect to the related Mortgaged  Property,
            if available,  provided that the title policy  (including all riders
            thereto) will be delivered as soon as it becomes  available,  and if
            the  title  policy  is not  available,  and to the  extent  required
            pursuant to the second  paragraph  below or otherwise in  connection
            with the rating of the Certificates, a written commitment or interim
            binder  or  preliminary  report  of the  title  issued  by the title
            insurance or escrow company with respect to the Mortgaged  Property,
            and

      (vi)  in the case of a  Cooperative  Loan,  the originals of the following
            documents or instruments:

            (a)   The Coop Shares, together with a stock power in blank;

            (b)   The executed Security Agreement;

            (c)   The executed Proprietary Lease;

            (d)   The  executed  UCC-1  financing  statement  with  evidence  of
                  recording thereon which have been filed in all places required
                  to perfect  the  Seller's  interest in the Coop Shares and the
                  Proprietary Lease; and

            (e)   Executed UCC-3 financing  statements or their  appropriate UCC
                  financing  statements  required  by state  law,  evidencing  a
                  complete and unbroken  line from the  mortgagee to the Trustee
                  with evidence of recording  thereon (or in a form suitable for
                  recordation).

                  Based  on  its  review  and  examination  and  only  as to the
            foregoing documents, (a) such documents appear regular on their face
            and related to such Mortgage Loan, and (b) the information set forth
            in items (i), (ii), (iii),  (iv), (vi) and (xi) of the definition of
            the  "Mortgage  Loan  Schedule"  in  Article  I of the  Pooling  and
            Servicing Agreement accurately reflects information set forth in the
            Mortgage File.


                                      G-2
<PAGE>

      The  Custodian  has  made  no  independent  examination  of any  documents
contained in each Mortgage File beyond the review  specifically  required in the
Custodial  Agreement.  The  Custodian  makes no  representations  as to: (i) the
validity,  legality,  sufficiency,  enforceability  or genuineness of any of the
documents  contained  in  each  Mortgage  File  of  any of  the  Mortgage  Loans
identified  on  the  Mortgage  Loan  Schedule,   or  (ii)  the   collectability,
insurability,   effectiveness   or   suitability  of  any  such  Mortgage  Loan.
Notwithstanding  anything  herein to the  contrary,  the  Custodian  has made no
determination and makes no  representations as to whether (i) any endorsement is
sufficient to transfer all right, title, and interest of the party so endorsing,
as  noteholder  or assignee  thereof,  in and to that  Mortgage Note or (ii) any
assignment is in recordable  form or sufficient to effect the  assignment of and
transfer to the assignee  thereof,  under the  Mortgage to which the  assignment
relates.

      Capitalized  words and  phrases  used  herein  shall  have the  respective
meanings assigned to them in the Custodial Agreement.


                                      FIRST TENNESSEE BANK NATIONAL ASSOCIATION,
                                      as Custodian


                                      By:
                                          --------------------------------------
                                      Name:
                                            ------------------------------------
                                      Title:
                                             -----------------------------------


                                      G-3
<PAGE>

                                    EXHIBIT H

                               TRANSFER AFFIDAVIT

          First Horizon Alternative Mortgage Securities Trust 2005-AA1
                       Mortgage Pass-Through Certificates
                                 Series 2005-AA1

STATE OF          _________)
                  _________) ss.:
COUNTY OF         _________)

      The undersigned, being first duly sworn, deposes and says as follows:

      1. The undersigned is an officer of __________, the proposed Transferee of
an Ownership Interest in a Class II-A-R Certificate (the  "Certificate")  issued
pursuant to the Pooling and Servicing Agreement, (the "Agreement"),  relating to
the  above-referenced  Series, by and among First Horizon Asset Securities Inc.,
as depositor (the "Depositor"),  First Horizon Home Loan Corporation,  as master
servicer, and The Bank of New York, as trustee.  Capitalized terms used, but not
defined herein or in Exhibit 1 hereto,  shall have the meanings ascribed to such
terms in the Agreement.  The  Transferee has authorized the  undersigned to make
this affidavit on behalf of the Transferee.

      2. The Transferee  is, as of the date hereof,  and will be, as of the date
of the  Transfer,  a Permitted  Transferee.  The  Transferee  is  acquiring  its
Ownership  Interest in the Certificate either (i) for its own account or (ii) as
nominee,  trustee  or agent  for  another  Person  and has  attached  hereto  an
affidavit from such Person in substantially the same form as this affidavit. The
Transferee has no knowledge that any such affidavit is false.

      3. The Transferee has been advised of, and understands  that (i) a tax may
be imposed on Transfers  of the  Certificate  to Persons that are not  Permitted
Transferees;  (ii)  such tax will be  imposed  on the  transferor,  or,  if such
Transfer is through an agent (which includes a broker, nominee or middleman) for
a Person that is not a Permitted Transferee,  on the agent; and (iii) the Person
otherwise  liable for the tax shall be relieved of liability  for the tax if the
subsequent transferee furnished to such Person an affidavit that such subsequent
transferee is a Permitted  Transferee and, at the time of Transfer,  such Person
does not have actual knowledge that the affidavit is false.

      4. The Transferee has been advised of, and  understands  that a tax may be
imposed on a "pass-through entity" holding the Certificate if at any time during
the  taxable  year of the  pass-through  entity a Person that is not a Permitted
Transferee  is the record holder of an interest in such entity.  The  Transferee
understands  that such tax will not be imposed  for any period  with  respect to
which the record holder furnishes to the  pass-through  entity an affidavit that
such record holder is a Permitted  Transferee and the  pass-through  entity does
not have actual  knowledge  that such affidavit is false.  (For this purpose,  a
"pass-through  entity" includes a regulated  investment  company,  a real estate
investment  trust or common  trust fund,  a  partnership,  trust or estate,  and
certain  cooperatives  and,  except as may be provided in Treasury  Regulations,
persons  holding  interests  in  pass-through  entities as a nominee for another
Person.)


                                      H-1
<PAGE>

      5. The  Transferee  has reviewed the  provisions of Section  5.2(c) of the
Agreement  (attached hereto as Exhibit 2 and  incorporated  herein by reference)
and  understands  the legal  consequences  of the  acquisition  of an  Ownership
Interest in the Certificate including,  without limitation,  the restrictions on
subsequent  Transfers  and the  provisions  regarding  voiding the  Transfer and
mandatory sales. The Transferee  expressly agrees to be bound by and to abide by
the provisions of Section 5.2(c) of the Agreement and the restrictions  noted on
the face of the  Certificate.  The  Transferee  understands  and agrees that any
breach of any of the  representations  included herein shall render the Transfer
to the Transferee contemplated hereby null and void.

      6. The Transferee  agrees to require a Transfer  Affidavit from any Person
to whom the  Transferee  attempts  to  Transfer  its  Ownership  Interest in the
Certificate,  and in  connection  with any  Transfer  by a  Person  for whom the
Transferee is acting as nominee,  trustee or agent,  and the Transferee will not
Transfer  its  Ownership   Interest  or  cause  any  Ownership  Interest  to  be
Transferred  to  any  Person  that  the  Transferee  knows  is  not a  Permitted
Transferee.  In  connection  with  any  such  Transfer  by the  Transferee,  the
Transferee  agrees to deliver to the Trustee a certificate  substantially in the
form set forth as Exhibit I to the Agreement (a "Transferor Certificate") to the
effect that such Transferee has no actual knowledge that the Person to which the
Transfer is to be made is not a Permitted Transferee.

      7. The Transferee  does not have the intention to impede the assessment or
collection  of  any  tax  legally  required  to be  paid  with  respect  to  the
Certificate.

      8. The Transferee's taxpayer identification number is ______.

      9. The  Transferee  is either a U.S.  Person as  defined  in Code  Section
7701(a)(30) or the Transferee has furnished the Transferor a properly  completed
Internal Revenue Service Form W-8ECI.

      10. The  Transferee is aware that the  Certificate  may be a  "noneconomic
residual  interest"  within the  meaning  of  Treasury  regulations  promulgated
pursuant to the Code and that the transferor of a noneconomic  residual interest
will remain liable for any taxes due with respect to the income on such residual
interest,  unless no  significant  purpose  of the  transfer  was to impede  the
assessment or collection of tax.

      11. The Transferee is not an employee benefit plan or arrangement  subject
to Section 406 of ERISA or a plan or arrangement  subject to Section 4975 of the
Code, nor a person acting on behalf of any such plan or  arrangement,  nor using
the assets of any such plan or arrangement to effect such transfer.

      12. The  Transferee has  historically  paid its debts as they came due and
the  Transferee  will  continue to pay its debts as they come due in the future;
the  Transferee  understands  that,  as  the  holder  of  the  Certificate,  the
Transferee may incur tax  liabilities  in excess of any cash flows  generated by
the Certificate and the Transferee  intends to pay taxes associated with holding
the Certificate as they become due.

      13.  The  Transferee  is a  domestic  corporation  taxable  as  a  regular
corporation  for U.S.  federal  income  tax  purposes  (a  "taxable  domestic  C
corporation") and is not a real estate investment  trust,  regulated  investment
company or REMIC.  The Transferee  will not cause income from the Certificate to
be attributable,  for U.S. federal income tax purposes, to a non-U.S.  permanent
establishment  or fixed base  (within  the meaning of an  applicable  income tax
treaty) of the Transferee or another U.S. taxpayer. At the time of the Transfer,
and at the close of each of the Transferee's two fiscal years preceding the year
of the Transfer,  the Transferee's gross assets for financial reporting purposes
exceeded $10 million (together,  the "Asset  Requirements"),  and the Transferee
hereby covenants that any subsequent  Transfer of its Ownership  Interest in the
Certificate  will be to another taxable,  domestic C corporation  satisfying the
Asset Requirements


                                      H-2
<PAGE>

      IN WITNESS  WHEREOF,  the  Transferee  has caused  this  instrument  to be
executed on its behalf,  pursuant to authority of its Board of Directors, by its
duly  authorized  officer and its corporate  seal to be hereunto  affixed,  duly
attested, this ___ day of _________, 20__.


                                       -----------------------------------------
                                       Print Name of Transferee

                                       By:
                                          --------------------------------------
                                       Name:
                                            ------------------------------------
                                       Title:
                                             -----------------------------------

      Personally appeared before me the above-named  ________________,  known or
proved to me to be the same person who executed the foregoing  instrument and to
be the  _________________  of the Transferee,  and acknowledged that he executed
the same as his free act and deed and the free act and deed of the Transferee.

      Subscribed and sworn before me this _____ day of ___________, 20____.


                                       -----------------------------------------
                                       NOTARY PUBLIC

                                       My Commission expires the ___ day of
                                       ________________, 20___.


                                      H-3
<PAGE>

                                                          EXHIBIT 1 to EXHIBIT H

                               Certain Definitions

      "Ownership  Interest":  As to any Certificate,  any ownership  interest in
such  Certificate,  including  any  interest in such  Certificate  as the Holder
thereof and any other interest  therein,  whether  direct or indirect,  legal or
beneficial.

      "Permitted  Transferee":  Any Person other than (i) the United States, any
State or political  subdivision thereof, or any agency or instrumentality of any
of the foregoing, (ii) a foreign government,  International  Organization or any
agency or  instrumentality  of either of the  foregoing,  (iii) an  organization
(except  certain  farmers'  cooperatives  described  in section 521 of the Code)
which is exempt  from tax  imposed by Chapter 1 of the Code  (including  the tax
imposed by section 511 of the Code on unrelated  business taxable income) on any
excess inclusions (as defined in section 860E(c)(l) of the Code) with respect to
any  Certificate,  (iv) rural electric and telephone  cooperatives  described in
section  1381(a)(2)(C)  of the Code,  (v) an  "electing  large  partnership"  as
defined in section  775 of the Code,  (vi) a Person that is not (a) a citizen or
resident of the United States, (b) a corporation,  partnership,  or other entity
created  or  organized  in or under  the laws of the  United  States,  any state
thereof or the  District of  Columbia,  (c) an estate  whose income from sources
without  the United  States is  includible  in gross  income  for United  States
federal income tax purposes  regardless of its connection  with the conduct of a
trade or business  within the United States or (d) a trust if a court within the
United States is able to exercise primary supervision over the administration of
the trust and one or more United  States  persons have the  authority to control
all  substantial  decisions of the trust,  unless such Person has  furnished the
transferor and the Trustee with a duly completed  Internal  Revenue Service Form
W-8ECI  or any  applicable  successor  form,  and  (vii)  any  other  Person  so
designated by the  Depositor  based upon an Opinion of Counsel that the Transfer
of an  Ownership  Interest in a  Certificate  to such Person may cause any REMIC
created pursuant to the Agreement to fail to qualify as a REMIC at any time that
the  Certificates  (as  defined in the  Agreement)  are  outstanding;  provided,
however, that if a person is classified as a partnership or a disregarded entity
under the Code,  such person shall only be a Permitted  Transferee if all of its
beneficial  owners are  described in  subclauses  (a), (b), (c) or (d) of clause
(vi) and the  governing  documents  of such  person  prohibits a transfer of any
interest  in such  person to any  person  described  in clause  (vi).  The terms
"United  States,"  "State"  and  "International  Organization"  shall  have  the
meanings  set  forth in  section  7701 of the Code or  successor  provisions.  A
corporation will not be treated as an instrumentality of the United States or of
any State or  political  subdivision  thereof  for these  purposes if all of its
activities  are subject to tax and,  with the exception of the Federal Home Loan
Mortgage  Corporation,  a majority of its board of  directors is not selected by
such government unit.

      "Person":  Any  individual,   corporation,   partnership,  joint  venture,
association,   bank,  joint-stock  company,  trust  (including  any  beneficiary
thereof),  unincorporated  organization or government or any agency or political
subdivision thereof.

      "Transfer":  Any  direct or  indirect  transfer  or sale of any  Ownership
Interest in a  Certificate,  including the  acquisition  of a Certificate by the
Depositor.


                                      H-4
<PAGE>

      "Transferee":  Any Person  who is  acquiring  by  Transfer  any  Ownership
Interest in a Certificate.


                                      H-5
<PAGE>

                                                          EXHIBIT 2 to EXHIBIT H

                         Section 5.2(c) of the Agreement

      (c) Each  Person  who has or who  acquires  any  Ownership  Interest  in a
Residual  Certificate  shall be deemed by the  acceptance or acquisition of such
Ownership Interest to have agreed to be bound by the following  provisions,  and
the  rights of each  Person  acquiring  any  Ownership  Interest  in a  Residual
Certificate are expressly subject to the following provisions:

            (i) Each Person  holding or acquiring  any  Ownership  Interest in a
      Residual  Certificate  shall be a Permitted  Transferee and shall promptly
      notify the  Trustee of any change or  impending  change in its status as a
      Permitted Transferee.

            (ii)  No  Ownership  Interest  in  a  Residual  Certificate  may  be
      registered on the Closing Date or thereafter transferred,  and the Trustee
      shall not register the Transfer of any  Residual  Certificate  unless,  in
      addition to the certificates required to be delivered to the Trustee under
      subparagraph  (b) above,  the Trustee  shall have been  furnished  with an
      affidavit (a "Transfer  Affidavit")  of the initial  owner or the proposed
      transferee in the form attached hereto as Exhibit H.

            (iii) Each Person  holding or acquiring any Ownership  Interest in a
      Residual  Certificate shall agree (A) to obtain a Transfer  Affidavit from
      any other Person to whom such Person  attempts to Transfer  its  Ownership
      Interest  in a Residual  Certificate,  (B) to obtain a Transfer  Affidavit
      from any  Person  for whom such  Person is acting as  nominee,  trustee or
      agent in connection  with any Transfer of a Residual  Certificate  and (C)
      not to Transfer its  Ownership  Interest in a Residual  Certificate  or to
      cause the Transfer of an Ownership  Interest in a Residual  Certificate to
      any other  Person if it has  actual  knowledge  that such  Person is not a
      Permitted Transferee.

            (iv) Any attempted or purported  Transfer of any Ownership  Interest
      in a Residual  Certificate  in violation of the provisions of this Section
      5.2(c) shall be  absolutely  null and void and shall vest no rights in the
      purported Transferee. If any purported transferee shall become a Holder of
      a Residual  Certificate  in  violation of the  provisions  of this Section
      5.2(c), then the last preceding Permitted  Transferee shall be restored to
      all rights as Holder thereof  retroactive to the date of  registration  of
      Transfer  of such  Residual  Certificate.  The  Trustee  shall be under no
      liability  to any Person for any  registration  of  Transfer of a Residual
      Certificate  that is in fact not  permitted  by  Section  5.2(b)  and this
      Section  5.2(c) or for making any payments due on such  Certificate to the
      Holder  thereof or taking any other  action  with  respect to such  Holder
      under  the  provisions  of this  Agreement  so long  as the  Transfer  was
      registered  after receipt of the related  Transfer  Affidavit,  Transferor
      Certificate,  and in the case of a  Residual  Certificate  which is also a
      Private Certificate, either the Rule 144A Letter or the Investment Letter.
      The Trustee shall be entitled but not obligated to recover from any Holder
      of a Residual  Certificate that was in fact not a Permitted  Transferee at
      the time it became a Holder or, at such subsequent time as it became other
      than  a  Permitted   Transferee,   all  payments  made  on  such  Residual
      Certificate  at and after either such time. Any such payments so recovered
      by the  Trustee  shall be paid and  delivered  by the  Trustee to the last
      preceding Permitted Transferee of such Certificate.


                                      H-6
<PAGE>

            (v) The Depositor shall use its best efforts to make available, upon
      receipt of written request from the Trustee, all information  necessary to
      compute any tax imposed under Section 860E(e) of the Code as a result of a
      Transfer of an Ownership Interest in a Residual  Certificate to any Holder
      who is not a Permitted Transferee.

      The restrictions on Transfers of a Residual  Certificate set forth in this
Section 5.2(c) shall cease to apply (and the  applicable  portions of the legend
on a Residual  Certificate  may be deleted) with respect to Transfers  occurring
after delivery to the Trustee of an Opinion of Counsel, which Opinion of Counsel
shall not be an expense of the Trust Fund,  the Trustee or the Master  Servicer,
to the effect that the elimination of such restrictions will not cause any REMIC
created  hereunder  to  fail  to  qualify  as a  REMIC  at  any  time  that  the
Certificates are outstanding or result in the imposition of any tax on the Trust
Fund, a  Certificateholder  or another Person.  Each Person holding or acquiring
any  Ownership  Interest  in a  Residual  Certificate  hereby  consents  to  any
amendment of this Agreement which,  based on an Opinion of Counsel  furnished to
the Trustee, is reasonably necessary (a) to ensure that the record ownership of,
or any  beneficial  interest  in, a  Residual  Certificate  is not  transferred,
directly or indirectly,  to a Person that is not a Permitted  Transferee and (b)
to provide for a means to compel the Transfer of a Residual Certificate which is
held by a  Person  that is not a  Permitted  Transferee  to a  Holder  that is a
Permitted Transferee.


                                      H-7
<PAGE>

                                    EXHIBIT I

                         FORM OF TRANSFEROR CERTIFICATE

                                                          _______________, 20___

First Horizon Asset Securities Inc.
First Horizon Home Loan Corporation
4000 Horizon Way
Irving, Texas  75063

The Bank of New York_______
101 Barclay Street, 8W_____
New York, New York  10286

      Re:   First  Horizon   Alternative   Mortgage  Securities  Trust  2005-AA1
            Mortgage Pass-Through Certificates, Series 2005-AA1, Class ___

Ladies and Gentlemen:

      In connection  with our  disposition of the above  Certificates we certify
that (a) to the extent we are disposing of a Private Certificate,  we understand
that the Private Certificate has not been registered under the Securities Act of
1933,  as amended (the "Act"),  and is being  disposed of by us in a transaction
that is exempt from the  registration  requirements  of the Act, (b) we have not
offered or sold any Certificates to, or solicited offers to buy any Certificates
from,  any person,  or otherwise  approached or negotiated  with any person with
respect  thereto,  in a manner that would be deemed,  or taken any other  action
which  would  result in, a  violation  of  Section 5 of the Act,  and (c) to the
extent we are  disposing of a Residual  Certificate,  we have no  knowledge  the
transferee is not a Permitted Transferee.

      Capitalized  terms used  herein  shall have the  meaning  ascribed to such
terms in the Pooling and  Servicing  Agreement,  dated as of January 1, 2005, by
and among First Horizon Asset Securities Inc., as depositor,  First Horizon Home
Loan  Corporation,  as master  servicer,  and The Bank of New York,  as trustee,
pursuant to which the Residual Certificates were issued.

                                       Very truly yours,


                                       -----------------------------------------
                                       Print Name of Transferor



                                       By:
                                          --------------------------------------
                                          Authorized Officer


                                      I-1
<PAGE>

                                    EXHIBIT J

                    FORM OF INVESTMENT LETTER (NON-RULE 144A)

_____________, 20___

First Horizon Asset Securities Inc.
4000 Horizon Way
Irving, Texas  75063

The Bank of New York_______
101 Barclay Street, 8W_____
New York, New York  10286__
Attention:  Mortgage-Backed Securities Group


      Re:   First  Horizon   Alternative   Mortgage  Securities  Trust  2005-AA1
            Mortgage Pass-Through Certificates, Series 2005-AA1, Class ___

Ladies and Gentlemen:

      In connection  with our  acquisition of the above  Certificates we certify
that (a) we understand that the  Certificates are not being registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws and
are  being  transferred  to  us  in  a  transaction  that  is  exempt  from  the
registration  requirements  of  the  Act  and  any  such  laws,  (b)  we  are an
"accredited  investor,"  as defined in Regulation D under the Act, and have such
knowledge and  experience in financial and business  matters that we are capable
of evaluating the merits and risks of investments  in the  Certificates,  (c) we
have had the  opportunity  to ask  questions  of and  receive  answers  from the
Depositor  concerning the purchase of the  Certificates and all matters relating
thereto or any  additional  information  deemed  necessary  to our  decision  to
purchase the Certificates, (d) either (i) we are not an employee benefit plan or
arrangement  that is subject to the Employee  Retirement  Income Security Act of
1974, as amended,  or a plan or  arrangement  that is subject to Section 4975 of
the Internal  Revenue Code of 1986,  as amended,  nor are we acting on behalf of
any such plan or  arrangement  nor are we using  the  assets of any such plan or
arrangement   to  effect   such   acquisition   or  (ii)  if,  in  the  case  of
ERISA-Restricted  Certificates that have been the subject of an ERISA-Qualifying
Underwriting,  we are an  insurance  company,  a  representation  that we are an
insurance  company which is purchasing such Certificates with funds contained in
an "insurance  company general account" (as such term is defined in Section V(e)
of Prohibited  Transaction  Class  Exemption  95-60 ("PTCE 95-60")) and that the
purchase and holding of such  Certificates  are covered under Sections I and III
of PTCE 95-60,  (e) we are acquiring the Certificates for investment for our own
account  and not  with a view to any  distribution  of  such  Certificates  (but
without  prejudice to our right at all times to sell or otherwise dispose of the
Certificates  in accordance  with clause (g) below),  (f) we have not offered or
sold any Certificates to, or solicited offers to buy any Certificates  from, any
person,  or  otherwise  approached  or  negotiated  with any person with respect
thereto,  or taken any other action which would result in a violation of Section
5 of the Act,  and (g) we will not sell,  transfer or  otherwise  dispose of any
Certificates  unless  (1)  such  sale,  transfer  or other  disposition  is made
pursuant to an effective  registration statement under the Act or is exempt from
such registration requirements, and if requested, we will at our expense provide
an opinion of counsel  satisfactory to the addressees of this  Certificate  that
such sale,  transfer or other  disposition  may be made pursuant to an exemption
from the Act, (2) the purchaser or transferee of such  Certificate  has executed
and  delivered to you a  certificate  to  substantially  the same effect as this
certificate, and (3) the purchaser or transferee has otherwise complied with any
conditions for transfer set forth in the Pooling and Servicing Agreement.


                                      J-1
<PAGE>

                                       Very truly yours,


                                       -----------------------------------------
                                       Print Name of Transferee



                                       By:
                                           -------------------------------------
                                            uthorized Officer


                                      J-2
<PAGE>

                                    EXHIBIT K

                            FORM OF RULE 144A LETTER

                                                               ___________, 20__

First Horizon Asset Securities Inc.
4000 Horizon Way
Irving, Texas  75063

The Bank of New York_______
101 Barclay Street, 8W_____
New York, New York  10286__
Attention:  Mortgage-Backed Securities Group

      Re:   First  Horizon   Alternative   Mortgage  Securities  Trust  2005-AA1
            Mortgage Pass-Through Certificates, Series 2005-AA1, Class ___

Ladies and Gentlemen:

      In connection  with our  acquisition of the above  Certificates we certify
that (a) we understand that the  Certificates are not being registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws and
are  being  transferred  to  us  in  a  transaction  that  is  exempt  from  the
registration  requirements  of the Act  and  any  such  laws,  (b) we have  such
knowledge and  experience in financial and business  matters that we are capable
of evaluating the merits and risks of investments  in the  Certificates,  (c) we
have had the  opportunity  to ask  questions  of and  receive  answers  from the
Depositor  concerning the purchase of the  Certificates and all matters relating
thereto or any  additional  information  deemed  necessary  to our  decision  to
purchase  the  Certificates,  (d)  we  are  not  an  employee  benefit  plan  or
arrangement  that is subject to the Employee  Retirement  Income Security Act of
1974, as amended,  or a plan or  arrangement  that is subject to Section 4975 of
the Internal  Revenue Code of 1986,  as amended,  nor are we acting on behalf of
any  such  plan  or  arrangement  nor  using  the  assets  of any  such  plan or
arrangement to effect such acquisition, (e) if an insurance company, in the case
of   ERISA-restricted   Certificates   that   have  been  the   subject   of  an
ERISA-Qualifying  Underwriting,  we are purchasing the  Certificates  with funds
contained in an "insurance  company general account" (as defined in Section V(e)
of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")) and our purchase
and holding of the  Certificates  are covered  under  Sections I and III of PTCE
95-60,  (f)  we  have  not,  nor  has  anyone  acting  on  our  behalf  offered,
transferred,  pledged,  sold or  otherwise  disposed  of the  Certificates,  any
interest in the  Certificates or any other similar security to, or solicited any
offer  to  buy  or  accept  a  transfer,  pledge  or  other  disposition  of the
Certificates,  any interest in the  Certificates  or any other similar  security
from, or otherwise  approached or negotiated  with respect to the  Certificates,
any interest in the  Certificates or any other similar security with, any person
in any manner, or made any general  solicitation by means of general advertising
or in any other  manner,  or taken any other  action,  that would  constitute  a
distribution  of the  Certificates  under  the  Act or  that  would  render  the
disposition  of the  Certificates a violation of Section 5 of the Act or require
registration  pursuant  thereto,  nor  will  act,  nor  has  authorized  or will
authorize  any person to act, in such manner with  respect to the  Certificates,
(g) we are a  "qualified  institutional  buyer" as that term is  defined in Rule
144A  under the Act  ("Rule  144A")  and have  completed  either of the forms of
certification  to that effect  attached hereto as Annex 1 or Annex 2, (h) we are
aware that the sale to us is being made in reliance on Rule 144A, and (i) we are
acquiring the  Certificates  for our own account or for resale  pursuant to Rule
144A and further,  understand that such  Certificates may be resold,  pledged or
transferred  only  (A)  to a  person  reasonably  believed  to  be  a  qualified
institutional  buyer that  purchases for its own account or for the account of a
qualified institutional buyer to whom notice is given that the resale, pledge or
transfer  is being made in  reliance  on Rule 144A,  or (B)  pursuant to another
exemption from registration under the Act.


                                      K-1
<PAGE>

                                       Very truly yours,


                                       -----------------------------------------
                                       Print Name of Transferee



                                       By:
                                           -------------------------------------
                                           Authorized Officer


                                      K-2
<PAGE>

                                                            ANNEX 1 TO EXHIBIT K

            QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A

          [For Transferees Other Than Registered Investment Companies]

      The undersigned  (the "Buyer") hereby  certifies as follows to the parties
listed in the Rule  144A  Transferee  Certificate  to which  this  certification
relates with respect to the Certificates described therein:

      1. As indicated below,  the undersigned is the President,  Chief Financial
Officer, Senior Vice President or other executive officer of the Buyer.

      2. In connection  with  purchases by the Buyer,  the Buyer is a "qualified
institutional  buyer" as that term is defined in Rule 144A under the  Securities
Act of 1933,  as  amended  ("Rule  144A")  because  (i) the Buyer  owned  and/or
invested  on a  discretionary  basis $ ______1  in  securities  (except  for the
excluded  securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being  calculated in accordance with Rule 144A and (ii)
the Buyer satisfies the criteria in the category marked below.

            ___ Corporation, etc. The Buyer is a corporation (other than a bank,
      savings and loan  association or similar  institution),  Massachusetts  or
      similar business trust, partnership,  or charitable organization described
      in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended.

            ___ Bank.  The Buyer (a) is a national  bank or banking  institution
      organized  under  the laws of any  State,  territory  or the  District  of
      Columbia,  the business of which is substantially  confined to banking and
      is supervised by the State or  territorial  banking  commission or similar
      official or is a foreign bank or  equivalent  institution,  and (b) has an
      audited net worth of at least  $25,000,000 as  demonstrated  in its latest
      annual financial statements, a copy of which is attached hereto.

            ___  Savings  and  Loan.  The  Buyer  (a)  is  a  savings  and  loan
      association,  building and loan association,  cooperative bank,  homestead
      association or similar institution,  which is supervised and examined by a
      State or Federal  authority having  supervision over any such institutions
      or is a foreign savings and loan association or equivalent institution and
      (b) has an audited net worth of at least  $25,000,000 as  demonstrated  in
      its  latest  annual  financial  statements,  a copy of which  is  attached
      hereto.

            ___  Broker-dealer.  The Buyer is a dealer  registered  pursuant  to
      Section 15 of the Securities Exchange Act of 1934.

--------
1 Buyer must own and/or invest on a discretionary basis at least $100,000,000 in
securities unless Buyer is a dealer, and, in that case, Buyer must own and/or
invest on a discretionary basis at least $10,000,000 in securities.


                                      K-3
<PAGE>

            ___  Insurance  Company.  The Buyer is an  insurance  company  whose
      primary and predominant  business  activity is the writing of insurance or
      the reinsuring of risks  underwritten by insurance  companies and which is
      subject to supervision by the insurance commissioner or a similar official
      or agency of a State, territory or the District of Columbia.

            ___  State or  Local  Plan.  The  Buyer  is a plan  established  and
      maintained  by a State,  its  political  subdivisions,  or any  agency  or
      instrumentality  of the  State  or its  political  subdivisions,  for  the
      benefit of its employees.

            ___ ERISA  Plan.  The Buyer is an employee  benefit  plan within the
      meaning of Title I of the Employee Retirement Income Security Act of 1974.

            ___  Investment   Advisor.   The  Buyer  is  an  investment  advisor
      registered under the Investment Advisors Act of 1940.

            ___ Small  Business  Investment  Company.  Buyer is a small business
      investment  company  licensed by the U.S.  Small  Business  Administration
      under Section 301(c) or (d) of the Small Business Investment Act of 1958.

            ___ Business  Development  Company.  Buyer is a business development
      company as defined in Section 202(a)(22) of the Investment Advisors Act of
      1940.

      3. The term "securities" as used herein does not include (i) securities of
issuers that are affiliated with the Buyer,  (ii) securities that are part of an
unsold  allotment  to or  subscription  by the Buyer,  if the Buyer is a dealer,
(iii)  securities  issued  or  guaranteed  by the  U.S.  or any  instrumentality
thereof,  (iv)  bank  deposit  notes  and  certificates  of  deposit,  (v)  loan
participations,  (vi) repurchase agreements,  (vii) securities owned but subject
to a repurchase  agreement  and (viii)  currency,  interest  rate and  commodity
swaps.

      4. For purposes of determining  the aggregate  amount of securities  owned
and/or invested on a discretionary  basis by the Buyer,  the Buyer used the cost
of such  securities  to the  Buyer  and did not  include  any of the  securities
referred to in the preceding  paragraph,  except (i) where the Buyer reports its
securities  holdings in its  financial  statements  on the basis of their market
value,  and  (ii) no  current  information  with  respect  to the  cost of those
securities has been published. If clause (ii) in the preceding sentence applies,
the securities may be valued at market.  Further,  in determining such aggregate
amount,  the Buyer may have included  securities  owned by  subsidiaries  of the
Buyer,  but only if such  subsidiaries  are  consolidated  with the Buyer in its
financial  statements  prepared in accordance with generally accepted accounting
principles  and if the  investments of such  subsidiaries  are managed under the
Buyer's direction.  However, such securities were not included if the Buyer is a
majority-owned,  consolidated  subsidiary of another enterprise and the Buyer is
not itself a reporting  company  under the  Securities  Exchange Act of 1934, as
amended.

      5.  The  Buyer  acknowledges  that  it is  familiar  with  Rule  144A  and
understands  that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements  made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.

      6. Until the date of purchase of the Rule 144A Securities,  the Buyer will
notify each of the parties to which this certification is made of any changes in
the information and conclusions herein.  Until such notice is given, the Buyer's
purchase  of  the   Certificates   will  constitute  a  reaffirmation   of  this
certification  as of the date of such purchase.  In addition,  if the Buyer is a
bank or  savings  and loan is  provided  above,  the Buyer  agrees  that it will
furnish to such parties updated annual financial  statements promptly after they
become available.


                                      K-4
<PAGE>

                                       -----------------------------------------
                                       Print Name of Transferee



                                       By:
                                          --------------------------------------

                                       Name:
                                             -----------------------------------

                                       Title:
                                              ----------------------------------

                                       Date:
                                             -----------------------------------


                                      K-5
<PAGE>

                                                            ANNEX 2 TO EXHIBIT K

            QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A

           [For Transferees That are Registered Investment Companies]

      The undersigned  (the "Buyer") hereby  certifies as follows to the parties
listed in the Rule  144A  Transferee  Certificate  to which  this  certification
relates with respect to the Certificates described therein:

      1. As indicated below,  the undersigned is the President,  Chief Financial
Officer or Senior Vice  President  of the Buyer or, if the Buyer is a "qualified
institutional  buyer" as that term is defined in Rule 144A under the  Securities
Act of 1933,  as  amended  ("Rule  144A")  because  Buyer is part of a Family of
Investment Companies (as defined below), is such an officer of the Adviser.

      2. In  connection  with  purchases  by Buyer,  the  Buyer is a  "qualified
institutional  buyer" as  defined in SEC Rule 144A  because  (i) the Buyer is an
investment  company  registered  under the  Investment  Company Act of 1940,  as
amended and (ii) as marked  below,  the Buyer  alone,  or the Buyer's  Family of
Investment Companies,  owned at least $100,000,000 in securities (other than the
excluded  securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining  the amount of securities  owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was  used,  except  (i)  where the  Buyer or the  Buyer's  Family of  Investment
Companies  reports its  securities  holdings in its financial  statements on the
basis of their market value, and (ii) no current information with respect to the
cost of those  securities  has been  published.  If clause (ii) in the preceding
sentence applies, the securities may be valued at market.

            ___ The  Buyer  owned  $ in  securities  (other  than  the  excluded
      securities  referred  to below) as of the end of the  Buyer's  most recent
      fiscal year (such amount being calculated in accordance with Rule 144A).

            ___ The  Buyer is part of a Family  of  Investment  Companies  which
      owned in the aggregate $ in securities (other than the excluded securities
      referred  to below) as of the end of the Buyer's  most recent  fiscal year
      (such amount being calculated in accordance with Rule 144A).

      3. The term "Family of  Investment  Companies" as used herein means two or
more  registered  investment  companies  (or series  thereof) that have the same
investment  adviser or  investment  advisers that are  affiliated  (by virtue of
being majority owned  subsidiaries  of the same parent or because one investment
adviser is a majority owned subsidiary of the other).

      4. The term "securities" as used herein does not include (i) securities of
issuers that are affiliated  with the Buyer or are part of the Buyer's Family of
Investment  Companies,  (ii) securities  issued or guaranteed by the U.S. or any
instrumentality  thereof,  (iii) bank deposit notes and certificates of deposit,
(iv) loan participations,  (v) repurchase agreements,  (vi) securities owned but
subject  to a  repurchase  agreement  and  (vii)  currency,  interest  rate  and
commodity swaps.


                                      K-6
<PAGE>

      5. The Buyer is familiar with Rule 144A and  understands  that the parties
listed in the Rule  144A  Transferee  Certificate  to which  this  certification
relates  are relying and will  continue  to rely on the  statements  made herein
because  one or more sales to the Buyer  will be in  reliance  on Rule 144A.  In
addition, the Buyer will only purchase for the Buyer's own account.

      6. Until the date of purchase of the  Certificates,  the undersigned  will
notify the parties listed in the Rule 144A Transferee  Certificate to which this
certification  relates of any changes in the information and conclusions herein.
Until such  notice is given,  the  Buyer's  purchase  of the  Certificates  will
constitute a reaffirmation  of this  certification  by the undersigned as of the
date of such purchase.

                                       -----------------------------------------
                                       Print Name of Transferee


                                       By:
                                           -------------------------------------

                                       Name:
                                             -----------------------------------

                                       Title:
                                              ----------------------------------

                                       IF AN ADVISER:

                                       -----------------------------------------
                                       Print Name of Buyer


                                       Date:
                                             -----------------------------------


                                      K-7
<PAGE>

                                    EXHIBIT L

                               REQUEST FOR RELEASE

                     [Substitution of Deleted Mortgage Loans
                                       or
                          Mortgage Loans Paid in Full]

            ____________________________________ Mortgage Loan Files

      _____________________  hereby  certifies  that  he/she  is an  officer  of
_____________________,  holding the office set forth beneath his/her  signature,
and hereby further certifies as follows:

(Check One)

|_|   With respect to the  mortgage  loans  described in the attached  schedule,
      each such mortgage loan  constitutes a "Substitute  Mortgage Loan" (as the
      term is defined in the Pooling and Servicing Agreement).

|_|   With  respect  to the  "Mortgage  Loans"  (as the term is  defined  in the
      custodial agreement) described in the attached schedule:

      All payments of principal,  premium (if any),  and interest have been made
      with respect to the following:

      Loan Number:_______________________________________

      Borrower's Name: ______________________________

      County: ______________________________________

      We hereby certify that all amounts to be received in connection  with such
      payments have been received.

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

Dated: ______________________

|_|  Vice President

|_|  Assistant Vice President


                                      L-1
<PAGE>

                                    EXHIBIT M

                         REQUEST FOR RELEASE AND RECEIPT
                         [For Servicing and Foreclosure]

            _____________________________________ Mortgage Loan Files

LOAN INFORMATION

      Name of Mortgagor: __________________________________

      Loan No.: ___________________________________________

      The  undersigned  hereby  acknowledges  that it has  received  from  FIRST
TENNESSEE  BANK  NATIONAL  ASSOCIATION,  as Custodian  for  ____________________
Mortgage Loan Files,  the  documents  referred to below (the  "Documents").  All
capitalized  terms not otherwise defined in this Request for Release and Receipt
shall have the meanings ascribed to them in the Custodial  Agreement dated as of
__________________  among  ___________________ and FIRST TENNESSEE BANK NATIONAL
ASSOCIATION, as Custodian (the "Custodial Agreement").

                             [COMPLETE AS NECESSARY]

      The undersigned hereby acknowledges an agrees as follows:

      (1) The undersigned  shall hold and retain  possession of the Documents in
trust for the benefit of __________________, solely for the purposes provided in
the Custodial Agreement.

      (2) The  undersigned  shall not cause or permit  the  Documents  to become
subject to, or encumbered  by, any claim,  liens,  security  interest,  charges,
writs of attachment or other  impositions  nor shall the  undersigned  assert or
seek to assert any claims or rights of setoff to or against the Documents or any
proceeds thereof.

      (3) The  undersigned  shall  return  each and  every  Document  previously
requested  from the Mortgage  File to the  Custodian  when the need  therefor no
longer  exists,  unless the Mortgage  Loan  relating to the  Documents  has been
liquidated.

Date:    _____________________

                                       NAME

                                       By:
                                           -------------------------------------

                                       Name:
                                             -----------------------------------

                                       Title:
                                              ----------------------------------

                                      M-1