<PAGE>   1
                                                                   EXHIBIT 10.8




                              SERVICING AGREEMENT


                                  by and among



             SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION,
                     as Trustee and as Supervisory Servicer


                        PMC CAPITAL LIMITED PARTNERSHIP,
                                   as Issuer

                                      and

                               PMC CAPITAL, INC.,
                                  as Servicer


                 _____________________________________________

                          Dated as of November 1, 1996
                 _____________________________________________


                                  $40,746,221
                        PMC CAPITAL LIMITED PARTNERSHIP
                         LOAN-BACKED FIXED RATE NOTES,
                                 SERIES 1996-A
<PAGE>   2
                               TABLE OF CONTENTS

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ARTICLE I - DEFINITIONS

ARTICLE II - REPRESENTATIONS, WARRANTIES AND COVENANTS
         Section 2.1      Representations and Warranties of Servicer  . . . . . . . . . . . . . . . . . . . . . . . .   1
         Section 2.2      Covenants of Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   4
         Section 2.3      Closing Certificate and Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   6
         Section 2.4      Fidelity Bond and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   6
         Section 2.5      Access to Certain Documentation and Information Regarding the Loans . . . . . . . . . . . .   6
         Section 2.6      Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   7
         Section 2.7      Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   7

ARTICLE III - GENERAL ADMINISTRATION AND SERVICING OF LOANS
         Section 3.1      General Duties of Servicer  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   8
         Section 3.2      No Assignment or Delegation of Duties by Servicer . . . . . . . . . . . . . . . . . . . . .   8
         Section 3.3      Establishment of Lockbox Account; Notices to Obligors; Deposits in Lockbox Account  . . . .   9
         Section 3.4      Permitted Withdrawals From the Lockbox Account  . . . . . . . . . . . . . . . . . . . . . .  10
         Section 3.5      Payment of Taxes and Other Charges  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
         Section 3.6      Collection of Certain Loan Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
         Section 3.7      Limitation of Liability of Servicer's Officers and Others . . . . . . . . . . . . . . . . .  11
         Section 3.8      Servicing Compensation; Advances and Expenses . . . . . . . . . . . . . . . . . . . . . . .  11
         Section 3.9      The Trustee's, the Noteholders' and Supervisory Servicer's Right To Examine Servicer
                          Records and Audit Operations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11
         Section 3.10     Maintenance and Release of Loan Documentation; Satisfaction of Mortgages  . . . . . . . . .  12
         Section 3.11     Notice of Liens and Other Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
         Section 3.12     Waivers, Releases, Condemnations, Easements and Alterations . . . . . . . . . . . . . . . .  14
         Section 3.13     Limitation on Liability of Servicer and Others  . . . . . . . . . . . . . . . . . . . . . .  15
         Section 3.14     Property Address Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15

ARTICLE IV - SPECIFIC SERVICING PROCEDURES
         Section 4.1      Assumption Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
         Section 4.2      Servicing Delinquent Accounts; Liquidation of Loans . . . . . . . . . . . . . . . . . . . .  16
         Section 4.3      Foreclosure Expenses  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
         Section 4.4      Title, Management and Disposition of REO Property . . . . . . . . . . . . . . . . . . . . .  19

ARTICLE V - REPORTS TO BE PROVIDED BY SERVICER
         Section 5.1      Determination Date Reports  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
</TABLE>





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                               TABLE OF CONTENTS
                                  (CONTINUED)

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         Section 5.2      Reports of Foreclosure and Abandonment of Mortgaged Property . . . . . .  . . . . . . . . .  24
         Section 5.3      Quarterly Statement as to Compliance  . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
         Section 5.4      Annual Independent Public Accountants' Servicing Report . . . . . . . . . . . . . . . . . .  24
         Section 5.5      Servicer's Financial Statements; Annual Certification . . . . . . . . . . . . . . . . . . .  24

ARTICLE VI - DEFAULTS
         Section 6.1      Servicer Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  25
         Section 6.2      Notice of Servicer Default  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26
         Section 6.3      Remedies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
         Section 6.4      Additional Remedies of Trustee Upon Servicer Defaults . . . . . . . . . . . . . . . . . . .  27
         Section 6.5      Supervisory Servicer To Act; Appointment of Successor . . . . . . . . . . . . . . . . . . .  28
         Section 6.6      Waiver of Defaults  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  28

ARTICLE VII - TERMINATION
         Section 7.1      Servicer Not To Resign  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
         Section 7.2      Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29

ARTICLE VIII - MISCELLANEOUS PROVISIONS
         Section 8.1      Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
         Section 8.2      GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
         Section 8.3      Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
         Section 8.4      Severability of Provisions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
         Section 8.5      No Partnership  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
         Section 8.6      Counterparts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
         Section 8.7      Successors and Assigns  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
         Section 8.8      Notification to Rating Agency and Noteholders . . . . . . . . . . . . . . . . . . . . . . .  30
         Section 8.9      Indulgences; No Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
         Section 8.10     Titles Not To Affect Interpretation  . . . . . . . . . . . . . . . . . . . . . .  . . . . .  31
         Section 8.11     Entire Agreement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  31
         Section 8.12     Recordation of Agreement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  31
         Section 8.13     Further Assurances  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  31
</TABLE>





                                      -ii-
<PAGE>   4
EXHIBIT A          -   Form of Trust Receipt
EXHIBIT B          -   Form of Lockbox Letter Agreement
EXHIBIT C          -   Form of Lockbox Notice Letter
EXHIBIT D          -   Form of Determination Date Report
EXHIBIT E          -   Form of Annual Statement
EXHIBIT F          -   Quarterly Officer's Certificate
EXHIBIT G          -   Officer's Certificate
EXHIBIT H          -   Form of Obligor Letter

SCHEDULE I         -   Definitions





                                     -iii-
<PAGE>   5




SERVICING AGREEMENT


         This Servicing Agreement (this "Agreement"), dated as of November 1,
1996, is made and entered into by and among SunTrust Bank, Central Florida,
National Association, as trustee (the "Trustee"), and as Supervisory Servicer
(the "Supervisory Servicer"), PMC Capital Limited Partnership, a Delaware
limited partnership, as issuer (the "Issuer"), and PMC Capital, Inc., a Florida
corporation, as servicer (the "Servicer").

                             PRELIMINARY STATEMENT

         The Issuer is the owner of the Loans and the other property being
pledged, assigned and conveyed by it to the Trustee for inclusion in the Trust
Estate pledged to secure the Notes issued pursuant to the Indenture.  The
Servicer is in the business, among other things, of servicing mortgage loans.
The Issuer hereby appoints the Servicer to service the Loans which are included
in the Trust Estate, and the Servicer hereby accepts that appointment.

         All covenants and agreements made by the Issuer, the Servicer and the
Trustee herein are for the benefit of the Holders from time to time of the
Notes and the Supervisory Servicer.  The Issuer, the Trustee and the Servicer
are entering into this Agreement for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged.

         In consideration of the mutual agreements herein contained, the
Issuer, the Servicer, the Supervisory Servicer and the Trustee hereby agree as
follows:


                                   ARTICLE I

                                  DEFINITIONS

         All capitalized terms used herein and not otherwise defined herein
shall have the meanings set forth in Schedule 1 attached hereto.  Unless
otherwise provided, all calculations of interest pursuant to this Agreement are
based on a 360-day year of twelve 30-day months.



SERVICING AGREEMENT - PAGE 1

<PAGE>   6
                                   ARTICLE II

                   REPRESENTATIONS, WARRANTIES AND COVENANTS

          SECTION 1        REPRESENTATIONS AND WARRANTIES OF SERVICER.  The
Servicer hereby represents and warrants to the Trustee, the Noteholders, the
Supervisory Servicer and the Issuer as of the Closing Date, and at all times
during the term of this Agreement shall be deemed to represent and warrant,
that:

                 (a)       The Servicer has been duly formed and is validly
         existing under the laws of the jurisdiction of its formation and is
         duly qualified to do business and is in good standing under the laws
         of each jurisdiction in which the failure to be so qualified would
         have a material adverse effect on the enforceability of, or its
         ability to service, a Loan and no demand for such qualification has
         been made upon the Servicer by any state, and, in any event the
         Servicer is or will be in compliance with the laws of any such state
         to the extent necessary to insure the enforceability of each Loan and
         the servicing of the Loans in accordance with the terms of this
         Agreement;

                 (b)       The Servicer holds all material licenses,
         certificates and permits from all governmental authorities necessary
         for the conduct of its business (except where the failure to obtain
         same would not materially and adversely affect the Servicer's ability
         to perform its obligations hereunder in accordance with the terms of
         this Agreement) and has received no notice of proceedings relating to
         the revocation of any such license, certificate or permit which singly
         or in the aggregate, if the subject of an unfavorable decision, ruling
         or finding, would materially and adversely affect the conduct of the
         business, results of operations, net worth or condition (financial or
         otherwise) of the Servicer;

                 (c)       The Servicer has the full power and authority to
         execute, deliver and perform, and to enter into and consummate all
         transactions contemplated by this Agreement, has duly authorized the
         execution, delivery and performance of this Agreement, has duly
         executed and delivered this Agreement and this Agreement constitutes a
         legal, valid and binding obligation of the Servicer, enforceable
         against it in accordance with its terms, except as such enforcement
         may be limited by (i) bankruptcy, insolvency, reorganization,
         moratorium or other similar laws affecting the enforcement of
         creditors' rights in general and (ii) by general equity principles
         (regardless of whether such enforcement is considered in a proceeding
         in equity or at law);

                 (d)       Neither the execution and delivery by the Servicer
         of this Agreement, the consummation by the Servicer of the
         transactions contemplated hereby, nor the fulfillment of or compliance
         by the Servicer with the terms and conditions of this





SERVICING AGREEMENT - PAGE 2
<PAGE>   7
         Agreement will conflict with or result in a breach of any of the
         terms, conditions or provisions of the Servicer's organizational
         documents or bylaws or any legal restriction or any material agreement
         or instrument to which the Servicer is now a party or by which it is
         bound, or constitute a default or result in an acceleration under any
         of the foregoing, or result in the violation of any law, rule,
         regulation, order, judgment or decree to which the Servicer or its
         property is subject;

                 (e)       At the date hereof, the Servicer does not believe,
         nor does it have any reason or cause to believe, that it cannot
         perform each of its covenants contained in this Agreement;

                 (f)       There is no litigation pending or, to the Servicer's
         knowledge, threatened, which, if determined adversely to the Servicer,
         would materially and adversely affect the execution, delivery or
         enforceability of this Agreement, or the ability of the Servicer to
         service the Loans hereunder in accordance with the terms hereof or
         which would have a material adverse effect on the financial condition
         of the Servicer;

                 (g)       No consent, approval, authorization or order of any
         court or governmental agency or body is required for the execution,
         delivery and performance by the Servicer of or compliance by the
         Servicer with this Agreement or the consummation by the Servicer of
         the transactions contemplated by this Agreement or if any such
         consent, approval, authorization or order is required, the Servicer
         has obtained or will obtain it prior to the time necessary for the
         Servicer to perform its obligations hereunder;

                 (h)       Neither this Agreement nor any statement, report or
         other document furnished or to be furnished pursuant to this Agreement
         or in connection with the transactions contemplated hereby contains
         any untrue statement of material fact or omits to state a material
         fact necessary to make the statements relating to the Servicer
         contained therein not misleading; and

                 (i)       The Servicer is not in default with respect to any
         order or decree of any court or any order, regulation or demand of any
         federal, state, municipal or governmental agency, which default might
         have consequences that would materially and adversely affect the
         condition (financial or other) or operations of the Servicer or its
         properties or might have consequences that would materially and
         adversely affect its performance hereunder.

         Upon discovery by either the Issuer, the Servicer, the Supervisory
Servicer or the Trustee of a material breach of any of the foregoing
representations and warranties, the party discovering such breach shall give
prompt written notice to the other parties, with a copy to the Noteholders and
the Rating Agency.  Within 30 days of its discovery or its





SERVICING AGREEMENT - PAGE 3
<PAGE>   8
receipt of notice of any such breach of a representation or warranty, the
Servicer shall cure such breach in all material respects; provided that, if
such failure shall be of a nature that it cannot be cured within 30 days, the
Servicer shall give written notice to the Supervisory Servicer and the Trustee,
with a copy to the Noteholders and the Rating Agency, within such 30 day period
of the corrective action it proposes to take and shall thereafter pursue such
corrective action diligently until such default is cured but in no event longer
than 90 days from the date of such notice.

          SECTION 2        COVENANTS OF SERVICER.  The Servicer hereby agrees
that during the term of this Agreement, unless the Trustee shall otherwise
expressly consent in writing:

                 (a)       Compliance With Agreements and Applicable Laws.  The
         Servicer shall perform each of its obligations under this Agreement
         and comply with all material requirements of any law, rule or
         regulation applicable to it and the terms of the Loans and any related
         agreements.

                 (b)       Existence.  The Servicer shall maintain its
         existence and shall at all times continue to be duly organized under
         the laws of the state of its organization and duly qualified and duly
         authorized (as described in Sections 2.1(a), (b) and (c) hereof) and
         shall conduct its business in accordance with the terms of its
         organizational documents and bylaws.

                 (c)       Financial Statements; Accountants' Reports; Other
         Information.  The Servicer shall keep or cause to be kept in
         reasonable detail books and records of account of the Servicer's
         assets and business, including, but not limited to, books and records
         relating to the transaction, which books and records relating to the
         transaction shall be furnished to the Trustee upon reasonable request.

                 (d)       Access to Records; Discussions With Officers and
         Accountants.  The Servicer shall, upon the reasonable request of the
         Supervisory Servicer, the Trustee or any Noteholder, permit the
         Supervisory Servicer, the Trustee or any such Noteholder or any of
         their authorized designees:

                           (i)    to inspect the books and records of the
                 Servicer as they may relate to the Loans and the obligations
                 of the Servicer under this Agreement; and

                           (ii)   to discuss the affairs, finances and accounts
                 of the Servicer relating to this transaction with any
                 Authorized Officer of the Servicer.

         Such inspections and discussions shall be conducted during normal
         business hours and shall not unreasonably disrupt the business of the
         Servicer.  Such inspections shall be at the expense of the party
         performing such inspection unless a Servicer





SERVICING AGREEMENT - PAGE 4
<PAGE>   9
         Default shall have occurred and be continuing, in which case any such
         inspection shall be at the expense of the Servicer.  The books and
         records of the Servicer will be maintained at the address of the
         Servicer designated herein for receipt of notices, unless the Servicer
         shall otherwise advise the Supervisory Servicer, the Trustee and the
         Noteholders in writing.

                 (e)       Notice of Material Events.  The Servicer shall
         promptly and in any event, within five Business Days of the occurrence
         thereof, inform the Supervisory Servicer, the Trustee, the Noteholders
         and the Rating Agency in writing of the occurrence of any of the
         following:

                           (i)    the submission of any claim or the initiation
                 of any legal process, litigation or administrative or judicial
                 investigation against the Servicer involving potential damages
                 or penalties in an uninsured amount in excess of $1,000,000 in
                 any one instance or $5,000,000 in the aggregate;

                           (ii)   any change in the location of the Servicer's
                 principal office or any change in the location of the
                 Servicer's books and records;

                           (iii)  the occurrence of any Servicer Default;

                           (iv)   the commencement of any proceedings
                 instituted by or against the Servicer in any federal, state or
                 local court or before any governmental body or agency, or
                 before any arbitration board, or the promulgation of any
                 proceeding or any proposed or final rule which, if adversely
                 determined, would result in a material adverse change in the
                 financial condition or operations of the Servicer;

                           (v)    the commencement of any proceedings by or
                 against the Servicer under any applicable bankruptcy,
                 reorganization, liquidation, rehabilitation, insolvency or
                 other similar law now or hereafter in effect or of any
                 proceeding in which a receiver, liquidator, conservator,
                 trustee or similar official shall have been, or may be,
                 appointed or requested for the Servicer or any of its assets;

                           (vi)   the receipt of notice that (A) any license,
                 permit, charter, registration or approval necessary for the
                 performance by the Servicer of its obligations under this
                 Agreement is to be, or may be, suspended or revoked, or (B)
                 the Servicer is to cease and desist any practice, procedure or
                 policy employed by the Servicer in the conduct of its
                 business, and such cessation may result in a material adverse
                 change in the financial condition or operations of the
                 Servicer;





SERVICING AGREEMENT - PAGE 5
<PAGE>   10
                           (vii)  any merger, consolidation or sale of
                 substantially all of the assets of the Servicer; or

                           (viii) the final payment in full of the Notes.

                 (f)       Maintenance of Licenses.  The Servicer shall
         maintain all licenses, permits, charters and registrations which are
         material to the performance by the Servicer of its obligations under
         this Agreement.

                 (g)       Notices.  The Servicer shall promptly notify the
         Trustee, the Noteholders, the Rating Agency and the Supervisory
         Servicer in writing of any event, circumstance or occurrence which may
         materially and adversely affect the ability of the Servicer to service
         any Loan or to otherwise perform and carry out its duties,
         responsibilities and obligations under and in accordance with this
         Agreement.

          SECTION 3        CLOSING CERTIFICATE AND OPINION.  On the Closing
Date, the Servicer will deliver to the Issuer, the Placement Agent, the
Supervisory Servicer, the Noteholders and the Trustee an Opinion of Counsel,
dated the Closing Date, in form and substance satisfactory to the Noteholders,
as to the due authorization, execution and delivery of this Agreement by the
Servicer and the enforceability thereof and such other matters as reasonably
requested by the Noteholders.  On the Closing Date, the Servicer shall also
deliver an Officers' Certificate, dated the Closing Date, signed by two
Authorized Officers, to the effect that:

                 (a)       the representations and warranties contained in
         Section 2.1 hereof are true and correct in all material respects as of
         the Closing Date;

                 (b)       no Servicer Default exists hereunder; and

                 (c)       the Servicer maintains such errors and omissions
         insurance and fidelity bond coverage as is required by this Agreement.

          SECTION 4        FIDELITY BOND AND INSURANCE.  The Servicer shall
maintain with a responsible company, at its own expense, a blanket fidelity
bond in a minimum amount of $1,000,000 and an errors and omissions insurance
policy with coverage in an amount deemed reasonable by the Servicer, with
coverage on all officers, employees or other persons acting in any capacity
requiring such persons to handle funds, money, documents or papers relating to
the Loans ("Servicer Employees").  Any such fidelity bond and errors and
omissions insurance shall protect and insure the Trust Estate and the Trustee,
as Trustee for the Noteholders, its officers, employees and agents against
losses, including losses resulting from forgery, theft, embezzlement, fraud,
errors and omissions and negligent acts of such Servicer Employees.  No
provision of this Section 2.4 requiring such





SERVICING AGREEMENT - PAGE 6
<PAGE>   11
fidelity bond and errors and omissions insurance shall diminish or relieve the
Servicer from its duties and obligations as set forth in this Agreement.  Upon
the request of the Trustee, the Servicer shall cause to be delivered to the
Trustee a certified true copy of such fidelity bond and insurance policy.
Coverage of the Servicer under a policy or bond obtained by an Affiliate of the
Servicer and providing the coverage required by this Section shall satisfy the
requirements of this Section.

          SECTION 5        ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION
REGARDING THE LOANS.  The Servicer shall provide to the Trustee, the Issuer,
the Supervisory Servicer, the Noteholders and their representatives or
designees access to the documentation regarding the Loans, such access being
afforded without charge but only upon reasonable request and during normal
business hours at the offices of the Servicer provided that such access shall
not be requested more frequently than is reasonable or justifiable.

         The Servicer shall at all times maintain accurate records and books of
account and an adequate system of audit and internal controls.  All accounting
and loan servicing records pertaining to each Loan shall be maintained in such
manner as will permit the Trustee, the Noteholders and the Supervisory Servicer
or their duly authorized representatives and designees to examine and audit and
make legible reproductions of records during reasonable business hours.  All
such records shall be maintained until no Notes remain Outstanding or such
longer period as is required by Law, including but not limited to, all
transaction registers and loan ledger histories.

          SECTION 6        MERGER OR CONSOLIDATION.  The Servicer will keep in
full effect its existence, rights and franchises, and will obtain and preserve
its qualification to do business 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 Loans and to perform its duties
under this Agreement.

         Any Person into which the Servicer  may be merged or consolidated, or
any Person resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an established mortgage loan servicing institution that has
a net worth of at least $50,000,000 (unless otherwise consented to in writing
by the Trustee and the Noteholders) and shall be the successor of the Servicer
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto except for notice thereof to the Rating
Agency, anything herein to the contrary notwithstanding, provided such
successor accepts the terms and conditions of this Agreement.  The Servicer
shall, upon making a determination that it will enter into any such merger or
consolidation, send written notice thereof to the Trustee, the Noteholders, the
Supervisory Servicer and the Rating Agency which shall in no event be less than
30 days prior written notice.





SERVICING AGREEMENT - PAGE 7
<PAGE>   12
          SECTION 7        INDEMNIFICATION.  The Servicer agrees to indemnify
and hold the Issuer, the Trust Estate, the Placement Agent, the Supervisory
Servicer, the Trustee and the Noteholders each harmless against any and all
claims, losses, damages, penalties, fines, forfeitures, reasonable legal fees
and related costs, judgments, and other costs and expenses resulting from any
claim, demand, defense or assertion based on or grounded upon, or resulting
from, a material breach of any of the Servicer's representations and warranties
contained in this Agreement or the negligence, bad faith or willful misconduct
of the Servicer relating to the performance of its duties hereunder and
servicing the Loans in compliance with the terms of this Agreement.  The
Issuer, the Placement Agent, the Supervisory Servicer or the Trustee, as the
case may be, shall immediately notify the Servicer if a claim is made by a
third party with respect to this Agreement or the Loans.  Notwithstanding
anything to the contrary contained herein, no Person acting as Servicer
hereunder shall have any liability under this Section 2.7 for the
indemnification of any claim based upon or arising from the action or omission
of any predecessor Servicer.


                                  ARTICLE III

                 GENERAL ADMINISTRATION AND SERVICING OF LOANS

          SECTION 1        GENERAL DUTIES OF SERVICER.   For and on behalf of
the Issuer, the Trustee and the Holders, the Servicer shall service and
administer the Loans in accordance with the provisions of this Agreement and
the instructions of the Trustee hereunder.  Unless otherwise specified herein
with respect to specific obligations of the Servicer, the Servicer shall
service and administer the Loans in the best interests of, and for the benefit
of, the Holders, in accordance with the Servicing Standard.

         (a)     Consistent with the terms of this Agreement, the Servicer may
waive, modify or vary any term of any Loan or consent to the postponement of
strict compliance with any such term or in any manner grant indulgence to any
Obligor if, in the Servicer's reasonable determination, such waiver,
modification, postponement or indulgence is not materially adverse to the
interests of the Trustee on behalf of the Noteholders and the Servicer would
make the same determination if it serviced the Loan for its own account;
provided, however, that the Servicer may not permit any modification with
respect to any Loan that would change the Loan Rate, forgive the payment of any
principal or interest (unless in connection with the liquidation of the related
Loan) or defer or extend the final maturity date of such Loan beyond the term
of the Notes without the written consent of all of the Noteholders.  Without
limiting the generality of the foregoing, and subject to the consent of the
Trustee and in accordance with the Servicing Standard, the Servicer shall
continue, and is hereby authorized and empowered, to execute and deliver on
behalf of the Trustee, all instruments of satisfaction or cancellation, or of
partial or full release, discharge and all other comparable instruments, with
respect to the Loans and with respect to the Mortgaged Properties.  If
reasonably required by the Servicer, the Trustee shall furnish the Servicer





SERVICING AGREEMENT - PAGE 8
<PAGE>   13
with any powers of attorney and other documents necessary or appropriate to
enable the Servicer to carry out its servicing and administrative duties under
this Agreement.

          SECTION 2        NO ASSIGNMENT OR DELEGATION OF DUTIES BY SERVICER.
The Servicer, as an independent contractor, shall service and administer the
Loans and shall have full power and authority, acting alone, to do any and all
things in connection with such servicing and administration which the Servicer
may deem necessary or desirable and consistent with the terms of this
Agreement.  The Servicer may not enter into subservicing agreements for any
servicing and administration of Loans without the prior written consent of the
Trustee and the Required Noteholders (which consent shall not be unreasonably
withheld) and without notice thereof to the Rating Agency.  Except as expressly
provided herein, the Servicer shall not assign or transfer any of its rights,
benefits or privileges hereunder to any other Person, or delegate to or
subcontract with, or authorize or appoint any other Person to perform any of
the duties, covenants or obligations to be performed by the Servicer hereunder,
without notice to the Rating Agency and without the prior written consent of
the Trustee and the Required Noteholders (which consent shall not be
unreasonably withheld), and absent such written consent any agreement,
instrument or act purporting to effect any such assignment, transfer,
delegation or appointment shall be void.  The Servicer shall be liable for all
acts and omissions of  any delegate, subcontractor or other agent appointed
pursuant to this Agreement.  Nothing contained in this Section 3.2 shall
prohibit or be deemed to prohibit the Servicer from contracting with third
parties to perform duties that are not duties of the Servicer hereunder that
the Servicer deems reasonably necessary in connection with the servicing of the
Loans including, without limitation, title work, surveying, environmental
consulting, property management and maintenance, construction, engineering and
architectural consulting.

          SECTION 3        ESTABLISHMENT OF LOCKBOX ACCOUNT; NOTICES TO
OBLIGORS; DEPOSITS IN LOCKBOX ACCOUNT.   On or prior to the Closing Date, the
Servicer shall cause to be established and maintained, at its expense if the
Servicer is PMC, if not, then at the expense of the Trust Estate, the Lockbox
Account with Bank One, Texas, National Association or another Financial
Institution having a long-term unsecured debt rating of at least A-2 or its
equivalent by the Rating Agency, at all times that it holds the Lockbox Account
(the "Required Rating").  The creation of the Lockbox Account shall be
evidenced by a letter agreement in the form of Exhibit B hereto.  A copy of
such executed letter agreement shall be furnished to the Trustee, the Placement
Agent, the Supervisory Servicer, the Noteholders and the Rating Agency.

         (a)     Within two days after the Closing Date, the Servicer will
prepare and deliver to the Trustee, with a copy of such correspondence to the
Noteholders, notices in the form attached hereto as Exhibit C, to each of the
Obligors directing each such Obligor to send all future Monthly Payments or
Principal Prepayments directly to the Lockbox Account.  The Trustee shall mail
the notices at the expense of the Servicer.





SERVICING AGREEMENT - PAGE 9
<PAGE>   14
         (b)     Notwithstanding the foregoing notices, if the Servicer
receives any Collections, including, without limitation, any Monthly Payments,
Principal Prepayments, late payment charges or other payments relating to a
Loan, the Servicer will receive such funds in trust for the Trustee and, if the
Servicer is not a financial institution having a rating of at least "P-1" or
its equivalent by the Rating Agency, will forward such funds to the Lockbox
Account no later than the Business Day immediately following the date the
Servicer obtains knowledge of such receipt.  In addition, any Liquidation
Proceeds received by the Servicer will be deposited into the Lockbox Account no
later than the Business Day immediately following the day the Servicer obtains
knowledge of such receipt.

         (c)     Upon receipt of notice that the institution holding the
Lockbox Account no longer has the Required Rating or that Bank One, Texas,
National Association no longer wishes to hold the Lockbox Account, the Servicer
will, within five Business Days, establish and maintain, at its expense if the
Servicer is PMC, or if not, at the expense of the Trust Estate, a new Lockbox
Account at a Financial Institution having the Required Rating and approved by
the Trustee.  Such Lockbox Account shall be evidenced by a letter agreement in
the form of Exhibit B hereto.  A copy of the executed letter agreement shall be
furnished to the Trustee, the Noteholders, the Supervisory Servicer and the
Rating Agency within five Business Days after the new Lockbox Account is
established.  Within five Business Days of establishing the new Lockbox
Account, the Servicer  will prepare and deliver to the Trustee, with a copy of
such correspondence to the Noteholders, notices, in the form of Exhibit C
attached hereto, to each of the Obligors directing each such Obligor to send
all future Monthly Payments or Principal Prepayments directly to the Lockbox
Account.  The Trustee shall mail the notices at the expense of the Servicer if
the Servicer is PMC, or if not, at the expense of the Trust Estate.

          SECTION 4        PERMITTED WITHDRAWALS FROM THE LOCKBOX ACCOUNT.  The
Trustee shall have the sole right to withdraw funds from the Lockbox Account
and shall, on a daily basis, withdraw all deposits to the Lockbox Account and
transfer such funds to the Collection Account established under the Indenture.

          SECTION 5        PAYMENT OF TAXES AND OTHER CHARGES.  If the Servicer
receives notice that any taxes, assessments or other charges which are or may
become a lien upon the Mortgaged Property are overdue, the Servicer will give a
written demand to the Obligor to pay such amounts and will verify whether such
payment has been made within 60 days after mailing such notice (but in any
event prior to the time that any taxing authority commences to exercise its
available remedies), subject to any right, pursuant to the Mortgage, of an
Obligor who is contesting the validity of such charges and has paid to the
Servicer a deposit or security in the amount of the contested charge plus
possible costs, interest and penalties or who has otherwise established
adequate reserves against such liability in accordance with generally accepted
accounting principles; provided, further, however, that this provision shall
not have the effect of permitting the Servicer to take, or fail to take, any
action in respect of the payments described herein that would adversely





SERVICING AGREEMENT - PAGE 10
<PAGE>   15
affect the interest of the Trustee in any Mortgaged Property.  If such amounts
have not been paid by the Obligor or the Obligor has not deposited or reserved
funds therefor as described in the immediately preceding sentence, the Servicer
will promptly make such payment as a Servicing Expense and request
reimbursement from the Obligor, and from the Trustee in accordance with Section
3.8 hereof.

          SECTION 6        COLLECTION OF CERTAIN LOAN PAYMENTS.  The Servicer
shall make reasonable efforts to collect all payments called for under the
terms and provisions of the Loans.  Consistent with the foregoing, the Servicer
shall not, unless the charging or collection of any such late payment charge,
prepayment charge, assumption fee or any penalty or interest would result in
the violation or contravention of applicable Law, waive or permit to be waived
any late payment charge, prepayment charge, assumption fee or any penalty or
interest in connection with the prepayment of a Loan.  Notwithstanding any
other provisions hereof, the Servicer shall not charge or impose on any
Obligor, nor seek to charge or impose on any Obligor, nor assert a right to
receive, any fee, charge, premium or penalty that if charged or collected would
violate or contravene any Law, including usury laws or the terms of the related
Loan.

          SECTION 7        LIMITATION OF LIABILITY OF SERVICER'S OFFICERS AND
OTHERS.  No director, officer, employee or agent of the Servicer shall be under
any liability to the Trustee, the Issuer, the Supervisory Servicer, the Holders
or any other persons for any action taken by them or for their refraining to
take any action in good faith pursuant to this Agreement or for errors in
judgment; except that such provision shall not protect any of them from
liability which would be imposed by reason of willful misfeasance, willful
misconduct, bad faith or negligence.

          SECTION 8        SERVICING COMPENSATION; ADVANCES AND EXPENSES.   As
compensation for its services hereunder, the Servicer shall be paid the
Servicing Fee.  The Servicer shall be required to pay all expenses incurred by
it in connection with its servicing activities hereunder and shall be entitled
to reimbursement therefore as described below.  The Servicing Fee shall be paid
to the Servicer and Servicing Expenses reimbursed to the Servicer pursuant to
Section 6.3 of the Indenture.

         (a)     All reasonable and customary "out-of-pocket" costs and
expenses incurred in the performance by the Servicer of its servicing
obligations hereunder ("Servicing Expenses") shall constitute routine servicing
responsibilities of the Servicer, which shall include, but are not limited to,
expenditures for the following, subject to the provisions of this Agreement,
(a) attorneys' fees, trustee fees under any deed of trust, recording, filing
and publication fees, title report and title search costs, costs associated
with environmental audits, court costs, witness fees and all other costs
incurred in respect of any enforcement of a Loan, any judicial foreclosure, or
any foreclosure sale, trustee's sale or acquisition in lieu of foreclosure, or
in respect of the insurance, sale or other disposition of any Mortgaged
Property or REO Property; (b) repair, restoration, maintenance or other





SERVICING AGREEMENT - PAGE 11
<PAGE>   16
protection of any Mortgaged Property (whether incurred before or after such
property became an REO Property) in accordance with and subject to the
provisions of this Agreement, as applicable; and (c) compliance with the
Servicer's obligations under Section 3.5 hereof.  Servicing Expenses shall not
include any portion of the Servicer's overhead or normal salary and operating
expenses.

          SECTION 9        THE TRUSTEE'S, THE NOTEHOLDERS' AND SUPERVISORY
SERVICER'S RIGHT TO EXAMINE SERVICER RECORDS AND AUDIT OPERATIONS.  The
Trustee, the Noteholders and the Supervisory Servicer and their designees shall
have the right upon reasonable prior notice, during normal business hours and
as often as reasonably required, to examine and audit (at no cost to the
Servicer unless a Servicer Default has occurred and is then continuing) any and
all of the books, records or other information of the Servicer directly
relating to the Loans, whether held by the Servicer or by another on behalf of
the Servicer, which may be relevant to the performance or observance by the
Servicer of the terms, covenants or conditions of this Agreement.  The Trustee,
the Noteholders and the Supervisory Servicer shall have the right upon
reasonable prior notice, during normal business hours and as often as
reasonably required to perform ongoing diligence of the Servicer's operations
through loan reviews, re-appraisals (at no cost to the Servicer) or other
reasonable review of Servicer operations. No amounts payable in respect of the
foregoing (other than costs associated with re-appraisals) shall be paid from
the Trust Estate.

          SECTION 10       MAINTENANCE AND RELEASE OF LOAN DOCUMENTATION;
SATISFACTION OF MORTGAGES.   The Servicer shall retain, with respect to each
Loan, the originals (or copies if originals are not available) of all of the
instruments and documents relating to the Loan that would be maintained by a
prudent lender servicing such Loan for its own account (the "Servicer Loan
File"), except for those original instruments and documents constituting a part
of the Trustee Loan File that are required to be held by the Trustee.

         Each Servicer Loan File shall remain the property of the Issuer
pledged to the Trustee for the benefit of the Holders and shall be held by the
Servicer in trust for the benefit of the Trustee on behalf of the Holders.
Upon written request of the Trustee, the Servicer shall immediately deliver all
or any of such instruments, records and documents in its possession or custody
to the Trustee, together with a list identifying each Loan to which such
records pertain.  The Servicer, at its option, may microfilm, microfiche or
otherwise condense any records or documents constituting a part of, or relating
to, any Loan or any Servicer Loan File, provided that the Servicer, upon
written request by the Trustee, promptly reproduces in their entirety any or
all such records or documents at no cost to the Trustee.

         (a)     The Servicer shall maintain each Servicer Loan File for a
period of four years after the related Loan has been paid in full, is
foreclosed upon or is otherwise liquidated, or such longer period as may be
required by Law.  The Servicer shall maintain an





SERVICING AGREEMENT - PAGE 12
<PAGE>   17
appropriate account record for each Loan which shall include the permanent loan
number for each Loan serviced by the Servicer as shown on the Loan Schedule.
Any system utilized for the Loan account records shall be capable of producing,
for any Loan, an account transcript itemizing in chronological order the date,
amount and application of each Monthly Payment by due date and other
information affecting the amounts paid by the Obligor, including the latest
outstanding Loan Principal Balance.

         (b)     The Servicer shall not grant a satisfaction or release of a
Mortgage without having obtained payment in full of the indebtedness secured by
the Mortgage or otherwise prejudice any right the Trustee may have under the
mortgage instruments, subject to Section 4.1 hereof.  Upon the prepayment in
full or other liquidation of a Loan, the Servicer shall immediately deposit the
prepayment or Liquidation Proceeds in the Lockbox Account and prepare and
deliver to the Trustee and Supervisory Servicer a request for the appropriate
instrument releasing the Mortgaged Property from the lien of the Mortgage,
together with an Officer's Certificate (i) certifying that (A) all amounts that
the Obligor is obligated to pay under the Underlying Note, the Mortgage and any
other document pertaining to the Loan, including, but not limited to, all
required payments of principal and interest, have been paid in full and
deposited in the Lockbox Account; or (B) all Liquidation Proceeds which the
Servicer reasonably believes will be collected with respect to a Liquidated
Loan have been collected and deposited in the Lockbox Account; and (ii)
requesting that (X) the Trustee Loan File for such Loan be released by the
Trustee to the Servicer and (Y) the Trustee execute and deliver to the Servicer
the appropriate instrument necessary to release the lien of the Mortgage,
together with the Underlying Note bearing written evidence of cancellation or
assignment thereof, as appropriate.

         The Trustee shall, upon receipt of a written request from a Servicing
Officer and approval of the Supervisory Servicer, execute any document provided
to the Trustee by the Servicer or take any other action requested in such
request, that is, in the opinion of the Servicer as evidenced by such request,
required by any state or other jurisdiction to discharge the lien of a Mortgage
upon the satisfaction thereof and the Trustee will sign and post, but will not
guarantee receipt of, any such documents to the Servicer, or such other party
as the Servicer may direct, within five Business Days of the Trustee's receipt
of such certificate or documents.  Such certificate or documents shall
establish to the Trustee's satisfaction that the related Loan has been paid in
full by or on behalf of the Obligor and that such payment has been deposited in
the Lockbox Account.

         Upon receipt of the Trustee Loan File, the Servicer shall record the
mortgage release or satisfaction in the proper recording office, deliver the
Underlying Note and/or the recorded original of such instrument of release or
satisfaction to the Obligor, deposit any remaining documents into the Servicer
Loan File, and retain the Servicer Loan File as provided in section (a) and (b)
above.  Any costs and expenses associated with the release of any Loan shall be
the expense of the Trust Estate to the extent not paid by the applicable
Obligor.





SERVICING AGREEMENT - PAGE 13
<PAGE>   18
         No applications for partial release of any part of a Mortgaged
Property may be approved without the consent of the Trustee.

         (c)     From time to time as is appropriate, the Servicer may request
the Trustee to deliver or cause to be delivered to the Servicer all or part of
the documents constituting a part of the Trustee Loan File to facilitate the
servicing or foreclosure of any Loan, the acquisition of any Mortgaged Property
in lieu of foreclosure, the partial release of any Mortgaged Property from the
lien of the Mortgage or the making of any corrections to the Underlying Note or
the Mortgage or other documents constituting the Trustee Loan File.  To make
such request, the Servicer shall deliver to the Trustee an Officer's
Certificate requesting that possession of all, or any document constituting
part of, the Trustee Loan File be released to the Servicer; such certificate
shall certify the reason for such release.  The Servicer also shall deliver to
the Trustee together with such certificate a Trust Receipt signed by a
Servicing Officer, in substantially the form attached as Exhibit A hereto.

         If the Servicer at any time seeks to initiate a foreclosure proceeding
with respect to any Mortgaged Property, then the Servicer shall deliver to the
Trustee, for signature by the Trustee, as appropriate, any court pleadings,
requests for Trustee's sale or other documents necessary to the foreclosure or
to any legal action brought to obtain judgment against the Obligor on the
Underlying Note or the Mortgage, or to obtain a deficiency judgment, or to
enforce any other remedies or rights provided by the Underlying Note or the
Mortgage or otherwise available at law or in equity.  The Servicer shall also
deliver to the Trustee an Officer's Certificate requesting that such pleadings
or documents be executed by the Trustee and certifying as to the reason such
documents or pleadings are required and that the execution and delivery thereof
by the Trustee will not invalidate the Mortgage except for the termination of
such lien upon completion of the proposed foreclosure.  Notwithstanding the
foregoing, the Servicer shall cause possession of any Trustee Loan File or
documents therein that have been released by the Trustee to be returned to the
Trustee when the need for such file or documents no longer exists, but in any
event within 30 calendar days after release by the Trustee unless (i) the Loan
has been liquidated and the Liquidation Proceeds relating to the Loan have been
deposited in the Lockbox Account or (ii) the Trustee Loan File or documents so
released have been delivered to an attorney, a public trustee or other public
official, as required by Law, to initiate or pursue legal action or other
proceedings to foreclose the applicable Mortgage, and the Servicer has
delivered to the Trustee an Officer's Certificate certifying as to the name and
address of the Person to which the Trustee Loan File, or documents therefrom,
have been delivered and the purpose or purposes of such delivery.

         (d)     The Servicer shall, at its expense if the Servicer is PMC, if
not, at the expense of the Trust Estate, prepare and deliver to the Trustee any
instruments required in connection with substitution of a Loan pursuant to
Section 3.3(f) of the Indenture and will pay any recording or filing costs
associated therewith.





SERVICING AGREEMENT - PAGE 14
<PAGE>   19
          SECTION 11       NOTICE OF LIENS AND OTHER ACTIONS.  The Servicer
shall, at all times, exercise reasonable efforts to prevent any lien or
judicial levy upon or writ of attachment against a Mortgaged Property of which
the Servicer is notified or otherwise has knowledge, which is, or may be,
superior to the lien of the Mortgage.

          SECTION 12       WAIVERS, RELEASES, CONDEMNATIONS, EASEMENTS AND
ALTERATIONS.  Any applications for partial releases of real property and
releases of personal property which are part of a Mortgaged Property, the
creation or release of easements, waivers of rights under any Mortgage, consent
to alteration, removal or demolition of improvements and other matters
affecting the Mortgage or the Mortgaged Property shall be subject to the prior
written approval of the Trustee which consent shall not be unreasonably
withheld.

          SECTION 13       LIMITATION ON LIABILITY OF SERVICER AND OTHERS.  The
Servicer and any director, officer, employee or agent of the Servicer may rely
on any document of any kind which it in good faith reasonably believes to be
genuine and to have been adopted or signed by the proper authorities respecting
any matters arising hereunder.  Subject to the terms of Section 2.7 herein, the
Servicer shall have no obligation to appear with respect to, prosecute or
defend any legal action which is not incidental to the Servicer's duty to
service the Loans in accordance with this Agreement.  The Issuer agrees to
indemnify and hold the Servicer harmless from any loss, claim, demand,
liability or expense (including, without limitation, past acts of predecessor
Servicers and fees and expenses of legal counsel) arising from or relating to
the performance of its duties under this Agreement which do not result from the
Servicer's negligence, bad faith or willful misconduct.

          SECTION 14       PROPERTY ADDRESS CHANGE.  The Servicer shall note in
its records and notify the Trustee of all changes of address of an Obligor or
of a Mortgaged Property of which the Servicer is notified or of which the
Servicer has knowledge.


                                   ARTICLE IV

                         SPECIFIC SERVICING PROCEDURES

          SECTION 1        ASSUMPTION AGREEMENTS.  When a Mortgaged Property
has been or is about to be conveyed by the Obligor, the Servicer shall, to the
extent it has knowledge of such conveyance or prospective conveyance, exercise
its rights to accelerate the maturity of the related Loan under any
"due-on-sale" clause contained in the related Mortgage or Underlying Note;
provided, however, that the Servicer shall not exercise any such right if the
"due-on-sale" clause, in the reasonable belief of the Servicer, is not
enforceable under applicable law or if such enforcement would materially
increase the risk of default or delinquency on, or materially decrease the
security for, such Loan.  In such event, the Servicer shall enter into an
assumption and modification agreement with the





SERVICING AGREEMENT - PAGE 15
<PAGE>   20
person to whom such property has been or is about to be conveyed, pursuant to
which such person becomes liable under the Underlying Note and, unless
prohibited by applicable law or the Mortgage, the Obligor remains liable
thereon, provided that the Servicer may enter into an assumption agreement with
the transferee and release the transferor-Obligor from liability only if (a)
the transferee qualifies for credit under the customary credit policies of the
Servicer, (b) any applicable Law requires that the transferor-Obligor be
released from liability on the Loan, (c) an officer of the Servicer has
examined and approved all instruments as are necessary to carry out the
assumption transaction and approved such instruments as to form and substance,
(d) the execution and delivery of such instruments by all necessary parties
will not cause the unpaid principal balance and any accrued interest thereon
for the Loan to be uncollectible in whole or in part, and (e) upon closing the
assumption transaction (i) the Mortgage will continue to be a first lien upon
the Mortgaged Property, and (ii) the Loan Rate and Monthly Payment for the Loan
will not be changed nor will the term of the Note be extended.  For each
proposed assumption transaction, the Servicer shall deliver an Officer's
Certificate to the Trustee certifying that each of the applicable requirements
specified in the immediately preceding sentence have been satisfied together
with the assumption instruments requiring execution by the Trustee.  Such
certificate shall also indicate whether the seller/transferor of the Mortgaged
Property will be released from liability on the Loan and that the Servicer has
made a good faith determination that any such release will not adversely affect
the collectibility of the Loan.

         The Servicer is also authorized with the prior approval of the Trustee
to enter into a substitution of liability agreement with such transferee,
pursuant to which the original Obligor is released from liability and such
person is substituted as Obligor and becomes liable under the Underlying Note.
The 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 original shall be added by the
Trustee to the related Trustee's Loan File and shall, for all purposes, be
considered a part of such Trustee's Loan File to the same extent as all other
documents and instruments constituting a part thereof.  Any fee collected by
the Servicer for consenting to any such conveyance or entering into an
assumption or substitution agreement shall be retained by or paid to the
Servicer as additional servicing compensation.

         Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Loan by operation of law or any assumption which the Servicer may be restricted
by law from preventing, for any reason whatsoever.

          SECTION 2        SERVICING DELINQUENT ACCOUNTS; LIQUIDATION OF LOANS.
The Servicer shall exercise diligence in obtaining payment of Monthly Payments
when due





SERVICING AGREEMENT - PAGE 16
<PAGE>   21
under the terms of each Loan and shall use reasonable efforts to contact any
delinquent Obligor.

         If any delinquent Obligor shall be or become a bankrupt or otherwise
become the subject of any insolvency or similar proceeding, the Servicer shall
notify the Trustee of such event and, thereafter, shall carry out all
reasonable actions necessary for the benefit and protection of the interests of
the Trustee and the Holders, including, but not limited to, with the consent of
the Trustee, retention of counsel to represent the Trustee in any bankruptcy or
other court proceedings relating to such Obligor or the Mortgaged Property.

         If any Loan previously reported on a Determination Date Report as more
than 90 days delinquent is subsequently reported as being brought current, the
Trustee, through the Servicer, will verify with the relevant Obligor that the
Obligor paid the delinquent payments, by requesting that the Servicer send the
Obligor the letter in the form attached hereto as Exhibit H.

         (a)     In the event that any payment due under any Loan and not
postponed pursuant to Section 3.1 is not paid when the same becomes due and
payable, or in the event the Obligor fails to perform any other covenant or
obligation under such Loan and such failure continues beyond any applicable
grace period, the Servicer shall take such other action as it shall deem to be
in the best interests of the Trustee and the Holders.  The Servicer shall
foreclose upon or otherwise  effect the ownership in the name of the Trustee of
Mortgaged Properties relating to defaulted Loans as to which no satisfactory
arrangements can be made for collection of delinquent payments in accordance
with the customary collection policies of Servicer and the provisions of
Section 3.1.  In connection with such foreclosure or other conversion, the
Servicer shall exercise collection and foreclosure procedures with the same
degree of care and skill in its exercise or use as it would exercise or use
under the circumstances in the conduct of its own affairs and shall in any
event, comply with the Servicing Standard.  The Servicer shall use its
reasonable efforts to realize upon such defaulted Loans in accordance with the
Servicing Standard.  The Servicer shall be responsible for all other costs and
expenses incurred by it in any foreclosure proceedings; provided, however, that
it shall be entitled to reimbursement thereof as contemplated in Sections 3.8
and 4.3 hereof.

         No modification, recast or extension of a Loan other than as provided
above and in Section 3.1 is permitted without the prior written consent of the
Trustee.

         Notwithstanding the foregoing provisions of this Section 4.2, the
Servicer shall not, on behalf of the Trustee, obtain title to a Mortgaged
Property by deed in lieu of foreclosure or otherwise, or take any other action
with respect to any Mortgaged Property, if, as a result of any such action, the
Trustee, on behalf of the Noteholders, could, in the reasonable judgment of the
Servicer, made in accordance with the Servicing Standard, be considered to hold
title to, to be a "mortgagee-in possession" of, or to be an "owner" or





SERVICING AGREEMENT - PAGE 17
<PAGE>   22
"operator" of such Mortgaged Property within the meaning of CERCLA or any
comparable law, unless the Servicer has previously determined in accordance
with the Servicing Standard, based on a Phase I Environmental Assessment (and
any additional environmental testing that the Servicer deems necessary and
prudent) of such Mortgaged Property conducted by an Independent Person who
regularly conducts Phase I Environmental Assessments and performed during the
twelve-month period preceding any such acquisition of title or other action;
that the Mortgaged Property is in material compliance with applicable
environmental laws and regulations or, if not, that it would maximize the
recovery to the Noteholders on a present value basis to acquire title to or
possession of the Mortgaged Property and to effect such compliance.

         (b)     If the environmental testing contemplated by Section 4.2(b)
above establishes that any of the conditions set forth therein have not been
satisfied with respect to any Mortgaged Property securing a defaulted Loan, the
Servicer shall, in accordance with the Servicing Standard, prepare a written
report to the Trustee and the Noteholders summarizing the environmental
condition of the Mortgaged Property and proposing a course of action to pursue
with respect to such Mortgaged Property.  In the event that the Servicer has
not received from the Trustee the written objection to such proposed course of
action of the Holders of more than 50% of the Outstanding Note Amount within 30
days of the Trustee's distributing such notice, the Servicer shall be deemed to
have been directed by the Noteholders to take such proposed action.

         (c)     The Servicer shall report to the Trustee monthly in writing as
to any actions taken by the Servicer with respect to any Mortgaged Property as
to which the environmental testing contemplated in Section 4.2(b) above has
revealed that any of the conditions set forth have not been satisfied, in each
case until the earliest to occur of satisfaction of all such conditions and the
release of the Lien of the related Mortgage on such Mortgaged Property.

         (d)     If foreclosure has been approved as provided above, the
Servicer shall initiate or cause to be initiated the foreclosure action
according to such procedures as are authorized by Law and the practices in the
locality where the Mortgaged Property is located.  In the event that title to
the Mortgaged Property is acquired in foreclosure or by deed in lieu of
foreclosure, the deed or certificate of sale shall be taken in the name of the
Trustee for the benefit of the Holders.

         (e)     The Servicer shall have the right to determine, in accordance
with the Servicing Standard, the advisability of seeking to obtain a deficiency
judgment if the state in which the Mortgaged Property is located and the terms
of the Loan permit such an action and shall, in accordance with the Servicing
Standard, seek such deficiency judgment if it deems advisable.





SERVICING AGREEMENT - PAGE 18
<PAGE>   23
         (f)     After a Loan has become a Liquidated Loan, the Servicer shall
promptly prepare and forward to the Trustee a liquidation report detailing the
Liquidation Proceeds received from the Liquidated Loan, expenses incurred with
respect thereto and any Realized Loss incurred in connection therewith.

         (g)     The Servicer may accept a deed in lieu of foreclosure,
provided that (i) marketable title as evidenced by a policy of title insurance
can be conveyed to and acquired by the Trustee or its designee; (ii) no cash
consideration is to be paid to the Obligor by the Trustee; and (iii) the
Servicer has obtained from the Obligor a written acknowledgement that the deed
is being accepted as an accommodation to the Obligor and on the condition that
the Mortgaged Property will be transferred to the Trustee or its designee free
and clear of all claims, liens, encumbrances, attachments, reservations or
restrictions except for those to which the Mortgaged Property was subject at
the time the Mortgaged Property became subject to the Mortgage.  Title shall be
conveyed directly from the Obligor to the Trustee for the benefit of the
Holders.

          SECTION 3        FORECLOSURE EXPENSES.  The Servicer shall prepare a
written estimate of the amount of attorneys' fees, trustee's fees and other
costs in respect of any foreclosure or acquisition in lieu of foreclosure.
Estimated fees and other costs in respect of any foreclosure or acquisition in
lieu of foreclosure in excess of the amount customary for routine cases or fees
for extraordinary legal services must be approved in writing in advance by the
Trustee.  The Servicer shall arrange payment of attorneys' fees, trustees' fees
and other foreclosure costs at the commencement of foreclosure proceedings.

         The Servicer may reimburse itself for any Servicing Expenses paid by
the Servicer, made in connection with such Loan or such foreclosure or other
action, out of amounts received by the Servicer in connection with liquidation
of the Loan, prior to remittance of any such amounts to the Lockbox Account.

          SECTION 4        TITLE, MANAGEMENT AND DISPOSITION OF REO PROPERTY.
Upon the acquisition of REO Property by the Servicer by foreclosure or
conveyance in lieu of foreclosure, the Servicer shall notify the Trustee
promptly that the REO Property has been acquired and shall thereafter: (i)
deliver the deed or certificate of sale to the Trustee, or its nominee; (ii)
manage, conserve and protect the REO Property in the same manner and to such
extent as is customary in the locality where such REO Property is located
including the rental of the same, or any part thereof, as the Servicer deems to
be in the best interest of the Trustee for the benefit of the Holders; (iii)
pay all costs such as taxes and assessments relating to the REO Property; (iv)
process any claims for redemption and otherwise comply with any redemption
procedures required by Law; (v) sell or otherwise dispose of the REO Property
and remit the proceeds to the Trustee; and (vi) timely file any and all
federal, state and local tax or information returns or reports as are required
as a result of the acquisition or disposition of REO Property and perform any
withholding required in connection therewith.  The Servicer shall not acquire
any REO Property relating





SERVICING AGREEMENT - PAGE 19
<PAGE>   24
to a Charged-Off Loan that is required to be released from the lien of the
Indenture and disposed of by the Issuer on the next Payment Date.  If any REO
Property is expected to be acquired, the Servicer shall inform the Issuer, the
Noteholders and the Trustee and the Issuer shall comply with Section 5.14 of
the Indenture.

         The Servicer shall manage, conserve, protect and operate each REO
Property for the Trustee solely for the purpose of its prudent and prompt
disposition and sale.  The Servicer shall, either itself or through an agent
selected by the Servicer, manage, conserve, protect and operate the REO
Property in the same manner that it manages, conserves, protects and operates
other foreclosed property for its own account and in the same manner that
similar property in the same locality as the REO Property is managed.  The
Servicer shall attempt to sell the same (and may temporarily rent the same) on
such terms and conditions as the Servicer deems to be in the best interest of
the Trustee and the Holders.

         (a)     Until the REO Property is disposed of, the Servicer shall (i)
take appropriate action to secure the REO Property and maintain proper
surveillance over it; (ii) advance all costs such as taxes and assessments;
(iii) maintain the REO Property so as to preserve its value and prevent any
additional deferred maintenance; and (iv) submit monthly statements for
services to the Trustee, together with additional documentation including
statements of income and expenses (accompanied by copies of paid invoices for
every expense item).

         (b)     Until the REO Property is disposed of, the Servicer shall
maintain for such REO Property, a standard hazard insurance policy providing
fire and extended coverage in an amount equal to the full replacement cost of
all improvements on the Mortgaged Property, which requirement may be satisfied
by a master force placed or blanket insurance policy insuring against hazard
losses.  If the Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards (and such flood insurance has been made available) Servicer shall
maintain a flood hazard insurance policy meeting the requirements of the
current guidelines of the Federal Insurance Administration with an insurance
carrier generally acceptable to commercial mortgage lending institutions for
properties, similar to the REO Property in an amount representing coverage not
less than the lesser of (i) the full insurable value of such REO Property, or
(ii) the maximum amount of insurance which is available under the Flood
Disaster Protection Act of 1973, as amended from time to time.  The Servicer
will also maintain comprehensive general liability insurance and business
interruption insurance (to the extent applicable) in such amounts as are then
customary for similarly situated properties and businesses.

         (c)     The Servicer shall advance all funds necessary for the proper
operation, management, insurance and maintenance of the REO Property.  On each
Determination





SERVICING AGREEMENT - PAGE 20
<PAGE>   25
Date Report, the Servicer shall schedule its reasonable expenses with respect
to any REO Property for the related Collection Period.

         (d)     The Servicer shall deposit all funds collected and received in
connection with the operation or disposition of any REO Property in the Lockbox
Account no later than the Business Day immediately following notice of receipt
of such funds, net of funds necessary for the proper operation, management,
insurance and maintenance of the REO Property.

         (e)     If as of the date of disposition of any REO Property there
remain unpaid Servicing Fees with respect to the related Loan, the Servicer,
shall be entitled to payment for the unpaid Servicing Fees and reimbursement
for the unreimbursed related Servicing Expenses from proceeds received in
connection with the disposition prior to remittance of any proceeds to the
Trustee.

         Disposition of REO Property shall be carried out by the Servicer at
such price and upon such terms and conditions as the Servicer, in its judgment,
believes to be in the best interests of the Holders, subject to and in
accordance with Section 4.2.  Upon the sale of any Mortgaged Property, the
Servicer shall remit the net cash proceeds remaining after payment of expenses
of the sale to the Lockbox Account.

         (f)     If any Charged-Off Loan is expected to be released from the
lien of the Indenture on the next Payment Date, the Servicer shall not commence
a foreclosure proceeding or accept a deed in lieu of foreclosure.  Any
determination by the Servicer that a Loan is a Charged-Off Loan shall be made
in good faith.


                                   ARTICLE V

                       REPORTS TO BE PROVIDED BY SERVICER

          SECTION 1        DETERMINATION DATE REPORTS.

                 (a)       Monthly Reports.  Each month, not later than 12:00
         noon Dallas time on the fifth Business Day preceding each Payment
         Date, the Servicer shall deliver to the Trustee, by telecopy, the
         receipt and legibility of which shall be confirmed telephonically,
         with hard copy thereof to be delivered on the next Business Day, with
         copies to the Supervisory Servicer (if other than the Trustee), the
         Noteholders and the Rating Agency, a Determination Date Report in the
         form attached hereto as Exhibit D signed by a Servicing Officer
         stating the date (day, month and year), referring to this Agreement by
         name and date and stating, as of the close of business on the
         immediately preceding Determination Date:





SERVICING AGREEMENT - PAGE 21
<PAGE>   26
                          (i)     the aggregate amount of all funds received in
                 respect of scheduled principal payments on the Loans during
                 the related Collection Period;

                          (ii)    the aggregate amount of interest received on
                 the Loans during the related Collection Period;

                          (iii)   the number and Loan Principal Balances of all
                 Loans which were the subject of Principal Prepayments during
                 the related Collection Period and the aggregate amount of
                 Principal Prepayments received with respect to the Loans
                 during such Collection Period;

                          (iv)    the aggregate Loan Principal Balance of the
                 Loans as of the related Determination Date, stating any REO
                 Properties separately;

                          (v)     the loan number and Loan Principal Balance of
                 each Delinquent Loan for the related Collection Period;

                          (vi)    the loan number and the aggregate number and
                 aggregate Loan Principal Balance of Loans delinquent 31 days,
                 91 days and 181 or more days as of the Determination Date;

                          (vii)   the loan number and the aggregate number and
                 aggregate Loan Principal Balance of Loans which were
                 Charged-Off Loans as of the Determination Date and the related
                 recovery thereon;

                          (viii)  the 30-Day Delinquent Percentage, the 180-Day
                 Delinquent Percentage, the Charge-Off Percentage and the
                 Cumulative Net Charge-Off Percentage as of the related
                 Determination Date;

                          (ix)    the number and aggregate Loan Principal
                 Balance of Loans (i) which will be released from the lien of
                 the Indenture during the related Collection Period or on the
                 related Payment Date, (ii) which have been repurchased
                 including the Takeout Price therefor and (iii) which have been
                 substituted for a Substitute Loan including any Asset
                 Substitution Shortfall therefor;

                          (x)     the number and aggregate Loan Principal
                 Balance of Loans which were in foreclosure as of the related
                 Determination Date;

                          (xi)    with respect to any Loan that became an REO
                 Property during the related Collection Period, (a) the Loan
                 Principal Balance of such Loan as of the date title to such
                 REO Property was acquired, (b) the book value and





SERVICING AGREEMENT - PAGE 22
<PAGE>   27
                 length of time held of each REO Property as of the related
                 Determination Date, and (c) the income and expenses incurred
                 by the Servicer in connection with any REO Property during the
                 related Collection Period;

                          (xii)   the amount of any Realized Losses incurred 
                 during the related Collection Period;

                          (xiii)  the cumulative Realized Losses since the
                 Closing Date;

                          (xiv)   the Required Principal Payment (as defined in
                 the Indenture) for the related Payment Date and information as
                 to the calculation of such amount;

                          (xv)    the amount of the interest accrued on the
                 Notes  and information as to the calculation of such amount;

                          (xvi)   the Outstanding Note Amount;

                          (xvii)  the Servicing Fee, Supervisory Servicer's
                 Fee, if any, Trustee's Fee and Rating Agency fee due on the
                 related Payment Date;

                          (xviii) the amount of all Servicing Expenses paid by
                 Servicer during such Collection Period and any and all other
                 amounts deducted by the Servicer in accordance with the terms
                 hereof from Collections received by the Servicer prior to
                 remittance thereof to the Lockbox Account and a detailed
                 report describing the type and amount of all such Servicing
                 Expenses and other deductions;

                          (xix)   information as to any Funds Retention Event;

                          (xx)    the Required Reserve Amount, including the
                 beginning balance thereof, additions thereto and transfers
                 therefrom during the related Collection Period; and

                          (xxi)   such other information as the Trustee, the
                 Noteholders or the Rating Agency may reasonably require.

                 To the extent that there are inconsistencies between the
         telecopy of the Servicer's Certificate and the hard copy thereof, the
         Trustee shall be entitled to rely upon the telecopy.

                 (b)      Annual Statement.  Within 90 days after the end of
         each calendar year, the Servicer shall furnish to the Trustee and the
         Noteholders such information





SERVICING AGREEMENT - PAGE 23
<PAGE>   28
         in the form attached hereto as Exhibit E as is reasonably necessary to
         provide to the Holders a statement containing the aggregate amount of
         principal of and interest on the Notes paid during the prior calendar
         year, aggregated for such calendar year or applicable portion thereof
         during which such Person was a Holder.  Such obligation of the
         Servicer shall be deemed to have been satisfied to the extent that
         substantially comparable information shall be provided by the Servicer
         pursuant to any requirements of the Code as from time to time are in
         force.

                 (c)      Computer Data.  Prior to the Closing Date the
         Servicer shall provide the Supervisory Servicer with all data on the
         Servicer's computer relating to the Loans in an electronically
         readable form specified by the Supervisory Servicer and shall update
         such data at least monthly.

                 (d)      Other Reports.  The Servicer shall furnish to the
         Trustee, the Noteholders, the Rating Agency and the Supervisory
         Servicer, during the term of this Agreement, such periodic, special or
         other reports, Officer's Certificates, data relating to the Loans or
         information, whether or not provided for herein, as shall be
         reasonably requested, all such reports or information to be provided
         by and in accordance with such applicable instructions and directions
         as the Trustee, the Noteholders or the Supervisory Servicer may
         reasonably require; provided, however, the Servicer shall be
         reimbursed for the reasonable cost of providing such additional
         reports.

          SECTION 2       REPORTS OF FORECLOSURE AND ABANDONMENT OF MORTGAGED
PROPERTY.  Each year the Servicer shall make any reports of foreclosures and
abandonments of any Mortgaged Property required by the Code.

          SECTION 3       QUARTERLY STATEMENT AS TO COMPLIANCE.  The Servicer
will deliver to the Trustee, the Noteholders, the Rating Agency and the
Supervisory Servicer, quarterly, no later than each April 15, July 15, October
15 and January 15, for each quarterly period ending on each March 31, June 30,
September 30 and December 31, commencing on January 15, 1997, an Officer's
Certificate in the form attached hereto as Exhibit F stating that (a) the
Servicer has fully complied with the provisions of this Agreement, (b) a review
of the activities of the Servicer during the preceding quarter and of the
Servicer's performance under this Agreement has been made under such officer's
supervision and (c) to the best of such officer's knowledge, based on such
review, the Servicer has fulfilled all its obligations, duties and
responsibilities under this Agreement throughout such quarterly period (or,
with respect to the first such report, since the Closing Date) and no Servicer
Default exists, or, if there has been a default or failure in the fulfillment
of any such obligation, specifying each such default or failure known to such
officer and the nature and status thereof and the action being taken by the
Servicer to cure such default.





SERVICING AGREEMENT - PAGE 24
<PAGE>   29
          SECTION 4       ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING
REPORT.  The Servicer at its expense shall cause a nationally recognized firm
of independent certified public accountants to furnish a statement to the
Trustee, the Supervisory Servicer, the Noteholders, and each Rating Agency on
or before May 1 of each year, commencing on May 1, 1997, to the effect that,
with respect to the most recently ended fiscal year, such firm has examined
certain records and documents relating to the Servicer's performance of its
servicing obligations under this Agreement and that, on the basis of such
examination, conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers, such firm is of the opinion that such
servicing has been conducted substantially in compliance in all material
respects with the requirements of the standard servicing procedures outlined in
the Uniform Single Attestation Program for Mortgage Bankers, except for such
exceptions noted therein.

          SECTION 5       SERVICER'S FINANCIAL STATEMENTS; ANNUAL
CERTIFICATION.  Within 120 days after the end of each fiscal year beginning
with the fiscal year ending December 31, 1996, the Servicer shall submit to the
Trustee, the Noteholders and the Rating Agency a copy of its annual audited
financial statements or in the event the Servicer is not PMC, a copy of the
annual audited consolidated financial statement of its parent.  Within 45 days
after the end of each of the first three fiscal quarters of each fiscal year
beginning with the quarter ending September 30, 1996, the Servicer shall submit
to the Trustee, the Noteholders and the Rating Agency a copy of its quarterly
financial statements.  Such financial statements shall, to the extent required
by the Securities Exchange Act of 1934, as amended, whether or not the Servicer
is subject to such Act, include a balance sheet, income statement, statement of
retained earnings, beneficiaries' (or shareholders') equity, statement of cash
flows and all related notes and schedules and shall be in comparative form.

         Contemporaneously with the submission of the financial statements
required by the preceding paragraph, the Servicer shall deliver to the Trustee,
the Noteholders and the Rating Agency an Officer's Certificate in the form
attached hereto as Exhibit G to the effect that:

                 (a)      such officer has confirmed that the Fidelity Bond,
         the Errors and Omissions Insurance Policy and any other bonds or
         insurance required by Section 2.4 hereof are in full force and effect;
         and

                 (b)      the representations and warranties of the Servicer
         set forth in Section 2.1 are true and correct in all material respects
         as if made on the date of such certification.

         The Servicer shall also furnish and certify such other information as
to its organization, activities and personnel as the Trustee, the Noteholders
the Rating Agency or the Supervisory Servicer may reasonably request from time
to time.





SERVICING AGREEMENT - PAGE 25
<PAGE>   30
                                   ARTICLE VI

                                    DEFAULTS

          SECTION 1       SERVICER DEFAULTS.  The happening of any one or more
of the following events shall constitute a Servicer Default hereunder:

                 (a)      Any failure by the Servicer to make any payment,
         deposit, advance or transfer of funds required to be paid, deposited,
         advanced or transferred under the terms of this Agreement, and such
         failure continues unremedied for five Business Days after discovery by
         Servicer of such failure or receipt by Servicer of notice of such 
         failure;

                 (b)      Failure on the part of the Servicer duly to observe
         or perform in any material respect any of the covenants or agreements
         contained in this Agreement which continues unremedied for 30 days
         after the giving of written notice of such failure or breach as the
         case may be, to the Servicer; provided, however, if such failure shall
         be of a nature that it cannot be cured within 30 days, such failure
         shall not constitute a Servicer Default hereunder if within such
         30-day period the Servicer gives notice to the Trustee and the
         Supervisory Servicer of the corrective action it proposes to take,
         which corrective action is agreed in writing by the Trustee to be
         satisfactory and the Servicer shall thereafter pursue such corrective
         action diligently until such default is cured;

                 (c)      A decree or order of a court or agency or supervisory
         authority having jurisdiction in the premises for the appointment of a
         conservator or 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 Servicer, and such decree or order shall have
         remained in force undischarged or unstayed for a period of 90 days;

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

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

                 (f)      The Servicer shall cease to be an Eligible Servicer;





SERVICING AGREEMENT - PAGE 26
<PAGE>   31
                 (g)      A material adverse change occurs in the financial
         condition of the Servicer, which change materially impairs the ability
         of the Servicer to perform its obligations under this Agreement; or

                 (h)      Any representation or warranty made by the Servicer
         in any Transaction Document proves to have been incorrect in any
         material respect when made, which has a material adverse effect on the
         Noteholders and which continues to have a material adverse effect or
         be incorrect in any material respect for a period of 30 days after
         written notice of such inaccuracy, requiring it to be remedied, has
         been given to the Servicer by the Trustee, the Supervisory Servicer or
         any Noteholder; provided, however, if such inaccuracy is of a nature
         that it cannot be remedied within such 30-day period the Servicer
         gives notices to the Trustee and the Supervisory Servicer of the
         corrective action it proposes to take, which corrective action is
         agreed in writing by the Trustee to be satisfactory and the Servicer
         shall thereafter pursue such corrective action diligently until such
         default is cured but in no event longer than 90 days from the date of
         such notice.

          SECTION 2       NOTICE OF SERVICER DEFAULT.  In the case of a
Servicer Default referred to in Section 6.1 hereof or upon any termination of
the Servicer pursuant to Article VII hereof, the Trustee shall immediately
notify the Supervisory Servicer by telephone or telecopy (telephonic notice to
be followed by written notice within one Business Day) and shall promptly
notify the Rating Agency and the Holders by first-class mail.

          SECTION 3       REMEDIES.  So long as any such Servicer Default shall
not have been remedied within any applicable cure period, the Trustee may, and
at the direction of the Noteholders holding not less than 66 2/3% of the
Outstanding Note Amount shall, by notice in writing specifying the termination
date to the Servicer and the Supervisory Servicer (and to the Trustee if given
by the Holders), terminate all of the rights and obligations of the Servicer
under this Agreement and in and to the Loans and the proceeds thereof.  On or
after the receipt by the Servicer of such written notice, all authority and
power shall pass to and be vested in the Supervisory Servicer pursuant to and
under this Section; and, without limitation, the Supervisory Servicer is hereby
authorized and empowered to execute and deliver, on behalf of the 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 purposes of
such notice of termination, whether to complete the transfer and assignment of
the Loans and related documents or otherwise.  Any costs and expenses of the
Trustee, the Supervisory Servicer or the Servicer caused by such termination
and transfer will be at the expense of the Servicer.  The Servicer agrees to
cooperate with the Supervisory Servicer in effecting the termination of the
Servicer's responsibilities and rights hereunder, including, without
limitation, the transfer to the Supervisory Servicer for administration by it
of any cash amounts held by the Servicer or thereafter received relating





SERVICING AGREEMENT - PAGE 27
<PAGE>   32
to the Loans and all Servicer Files.  In addition to any other amounts which
are then, or, notwithstanding the termination of its activities as Servicer,
may become payable to the Servicer under this Agreement, the Servicer shall be
entitled to receive out of any delinquent payment on account of interest on a
Loan due during a Collection Period prior to the notice of termination received
pursuant to this Section 6.3 and received after such notice, that portion of
such payment which it would have received pursuant to Section 3.8 hereof if
such notice had not been given.

          SECTION 4       ADDITIONAL REMEDIES OF TRUSTEE UPON SERVICER
DEFAULTS.  Upon any Servicer Default, the Trustee, in addition to the rights
specified in Section 6.3 hereof, shall have the right, in its own name and as
Trustee, to take all actions now or hereafter existing at law, in equity or by
statute to enforce its rights and remedies and to protect the interests, and
enforce the rights and remedies, of the Noteholders (including the institution
and prosecution of all judicial, administrative and other proceedings and the
filings of proofs of claim and debt in connection therewith).  No remedy
provided for by this Agreement shall be exclusive of any other remedy, and each
and every remedy shall be cumulative and in addition to any other remedy and no
delay or omission to exercise any right or remedy shall impair any such right
or remedy or shall be deemed to be a waiver of any Servicer Default.

          SECTION 5       SUPERVISORY SERVICER TO ACT; APPOINTMENT OF
SUCCESSOR.  On the effective date of any resignation of the Servicer pursuant
to Section 7.1 hereof or on the date the Servicer is removed as servicer
pursuant to this Article VI, the Supervisory Servicer (or any successor
appointed by the Supervisory Servicer pursuant to the Supervisory Servicing
Agreement) hereof shall be the successor in all respects to the Servicer in its
capacity as servicer under this Agreement and the transactions set forth or
provided for herein and shall be subject to all the responsibilities, duties
and liabilities (other than any liabilities of the predecessor Servicer)
relating thereto placed on the Servicer by the terms and provisions hereof in
accordance with and subject to the terms and conditions of the Supervisory
Servicing Agreement.  The Supervisory Servicer (or other successor) shall
assume all of the rights and obligations of the Servicer in accordance with the
terms and conditions of the Supervisory Servicing Agreement which shall control
over any provisions herein covering the same subject matter.  The Servicer
shall, upon request of the Trustee or the Supervisory Servicer but at the
expense of the Servicer, deliver to the Supervisory Servicer (or other
successor), all Servicer Loan Files, documents and records (including computer
tapes and diskettes) relating to the Loans and an accounting of any amounts
collected and held by the Servicer and otherwise use its reasonable efforts to
effect the orderly and efficient transfer of servicing rights and obligations
to the assuming party.

         The Servicer agrees to cooperate with the Trustee and the Supervisory
Servicer or any other successor servicer in effecting the termination of the
Servicer's servicing responsibilities and rights hereunder and shall promptly
provide the Supervisory Servicer or such successor servicer, as applicable, all
documents and records reasonably requested by it to enable it to assume the
Servicer's functions hereunder and shall promptly also transfer to the
Supervisory Servicer





SERVICING AGREEMENT - PAGE 28
<PAGE>   33
or such successor servicer, as applicable, all amounts which then have been or
should have been deposited in the Lockbox Account by the Servicer or which are
thereafter received with respect to the Loans.  Neither the Trustee, the
Supervisory Servicer nor any other successor servicer shall be held liable by
reason of any failure to make, or any delay in making, any distribution
hereunder or any portion thereof caused by (i) the failure of the Servicer to
deliver, or any delay in delivering, cash, documents or records to it, or (ii)
restrictions imposed by any regulatory authority having jurisdiction over the
Servicer hereunder.  The Supervisory Servicer shall provide written notice of
each appointment of a successor to the Servicer hereunder, other than the
Supervisory Servicer, to each Holder and the Rating Agency, and the Trustee.

          SECTION 6       WAIVER OF DEFAULTS.  The Trustee (with the consent of
Required Noteholders and with notice to the Rating Agency) may, on behalf of
all Noteholders, waive any events permitting removal of the Servicer as
servicer pursuant to this Article VI.  Upon any waiver of a past default, such
default shall cease to exist, and any Servicer Default arising therefrom shall
be deemed to have been remedied for every purpose of this Agreement.  No such
waiver shall extend to any subsequent or other default or impair any right
consequent thereto except to the extent expressly so waived.


                                  ARTICLE VII

                                  TERMINATION

          SECTION 1       SERVICER NOT TO RESIGN.  The Servicer shall not
assign this Agreement or resign from the obligations and duties hereby imposed
on it except by mutual consent of the Servicer and the Trustee (with the
Required Noteholders' consent), or upon the determination that the Servicer's
duties hereunder are no longer permissible under applicable law and such
incapacity cannot be cured by the Servicer.  Any such determination permitting
the resignation of the Servicer shall be evidenced by a Certificate of an
Authorized Officer of the Servicer to such effect delivered to the Trustee, the
Noteholders, the Supervisory Servicer and the Rating Agency.  No such
resignation shall become effective until a successor has assumed the Servicer's
responsibilities and obligations hereunder in accordance with Section 6.5.

          SECTION 2       TERM OF AGREEMENT.  This Agreement shall continue in
existence and effect until the earlier of (a) the later of the final payment or
other liquidation of the last Loan or the disposition of all property acquired
upon foreclosure or deed in lieu of foreclosure of any Loan and the remittance
of all funds due thereunder, (b) the payment in full of the Notes in accordance
with the Indenture and the discharge of the Indenture in





SERVICING AGREEMENT - PAGE 29
<PAGE>   34
accordance with the terms thereof, or (c) mutual consent of the Servicer, the
Trustee, the Supervisory Servicer and all Holders in writing.


                                  ARTICLE VIII

                            MISCELLANEOUS PROVISIONS

          SECTION 1       AMENDMENT.  This Agreement may be amended from time
to time by the Servicer, the Issuer and the Trustee by written agreement, with
30 days prior written notice to the Rating Agency and with prior written notice
to and consent of the Supervisory Servicer.

          SECTION 2       GOVERNING LAW.  THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.

          SECTION 3       NOTICES.  All demands, notices and communications
hereunder shall be in writing and shall be duly given if addressed to the
appropriate Notice Address and delivered by hand or sent by nationally
recognized express courier, or mailed by registered mail, postage prepaid, or
transmitted by telecopy, and shall be effective upon receipt, except when
telecopied, in which case, any such communication shall be effective upon
telecopy against receipt of answer back or written confirmation thereof.

          SECTION 4       SEVERABILITY OF PROVISIONS.  If any one or more of
the covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, 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 covenants, agreements, provisions or terms of
this Agreement.  The parties hereto further agree that the holding by any court
of competent jurisdiction that any remedy pursued by the Trustee hereunder is
unavailable or unenforceable shall not affect in any way the ability of the
Trustee to pursue any other remedy available to it.

          SECTION 5       NO PARTNERSHIP.  Nothing herein contained shall be
deemed or construed to create a partnership or joint venture between the
parties hereto, and the services of the Servicer shall be rendered as an
independent contractor and not as agent for the Trustee.

          SECTION 6       COUNTERPARTS.  This Agreement may be executed in one
or more counterparts and by the different parties hereto on separate
counterparts, each of which,





SERVICING AGREEMENT - PAGE 30
<PAGE>   35
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same agreement.

          SECTION 7       SUCCESSORS AND ASSIGNS.  This Agreement shall inure
to the benefit of and be binding upon the Servicer, the Issuer, the Supervisory
Servicer and the Trustee and their respective successors and assigns.

          SECTION 8       NOTIFICATION TO RATING AGENCY AND NOTEHOLDERS.  The
Trustee shall give prompt notice to the Rating Agency and the Noteholders of
the occurrence of any of the following events of which it has received notice:
(a) any modification or amendment to this Agreement, the Indenture or any other
Transaction Documents, (b) any proposed removal, replacement, resignation or
change of the Trustee or the Servicer, (c) any Event of Default under the
Indenture or any Servicer Default and (d) the final payment in full of the
Notes.  Whenever the terms of this Agreement require that notice or reports be
given to the Rating Agency or the Noteholders, the Person to provide such
notice or reports shall first give them to the Trustee who shall provide them
to the Rating Agency or the Noteholders, as applicable.  Additionally, the
Trustee, upon receipt, shall provide copies to the Rating Agency and the
Noteholders of all compliance reports, Determination Date Reports, financial
statements, operating reports, environmental reports and any and all other
reports received by the Trustee from the Servicer, the Issuer or the
Supervisory Servicer from time to time.

          SECTION 9       INDULGENCES; NO WAIVERS.  Neither the failure nor any
delay on the part of a party to exercise any right, remedy, power or privilege
under this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power or privilege,
nor shall any waiver of any right, remedy, power or privilege with respect to
any occurrence be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence.  No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted
such waiver.

          SECTION 10      TITLES NOT TO AFFECT INTERPRETATION.  The titles of
paragraphs and subparagraphs contained in this Agreement are for convenience
only, and they neither form a part of this Agreement nor are they to be used in
the construction or interpretation hereof.

          SECTION 11      ENTIRE AGREEMENT.  This Agreement contains the entire
agreement and understanding among the parties hereto with respect to the
subject matter hereof, and supersedes all prior and contemporaneous agreements,
understandings, inducements and conditions, express or implied, oral or
written, of any nature whatsoever with respect to the subject matter hereof.
The express terms hereof control and supersede any course of performance and/or
usage of the trade inconsistent with any of the terms hereof.





SERVICING AGREEMENT - PAGE 31
<PAGE>   36
          SECTION 12  RECORDATION OF AGREEMENT.  To the extent permitted by
applicable law, this Agreement is subject to recordation in all appropriate
public offices for real property records in all the counties or the comparable
jurisdictions in which any Mortgaged Property is situated,  and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by the Servicer and at its expense upon the written request of the
Trustee.

          SECTION 13  FURTHER ASSURANCES.  Notwithstanding any other provision
of this Agreement, the Trustee shall have no obligation to consent to any
amendment or modification of this Agreement unless it has been provided
reasonable security or indemnity against its out-of-pocket expenses (including
reasonable attorneys' fees) to be incurred in connection therewith by the
person requesting the amendment.  To the extent permitted by law, the Servicer
agrees that it will, from time to time, execute, acknowledge and deliver, or
cause to be executed, acknowledged and delivered, such further instruments as
the Trustee may reasonably request to effectuate the intention of or facilitate
the performance of this Agreement.

                  [Remainder of page intentionally left blank]





SERVICING AGREEMENT - PAGE 32
<PAGE>   37
         IN WITNESS WHEREOF, the Issuer, the Servicer, the Supervisory Servicer
and the Trustee have caused their names to be signed hereto by their respective
officers thereunto duly authorized as of the day and year first above written.

                              PMC CAPITAL, INC., as Servicer


                              By:    \s\                                      
                                 ----------------------------------------------
                                   Name:     Jan F. Salit                      
                                        ---------------------------------------
                                   Title: Executive Vice President             
                                         --------------------------------------

                              SUNTRUST BANK, CENTRAL FLORIDA
                              NATIONAL ASSOCIATION,
                              as Trustee


                              By:   \s\                                 
                                 ----------------------------------------------
                                   Jonathan W. Fox, Senior Vice President

                              SUNTRUST BANK, CENTRAL FLORIDA
                              NATIONAL ASSOCIATION,
                              as Supervisory Servicer

                              By:   \s\                                        
                                 ----------------------------------------------
                                   Jonathan W. Fox, Senior Vice President

                              PMC CAPITAL LIMITED PARTNERSHIP,
                              as Issuer

                              By:  PMC Trust 1996-A,
                                   Its General Partner

                                   By:    PMC Capital Corp. 1996-A,
                                          Its Independent Trustee


                                          By:    \s\                           
                                             ----------------------------------
                                              Name:    Jan F. Salit            
                                                   ----------------------------
                                              Title: Executive Vice President  
                                                    ---------------------------





SERVICING AGREEMENT - PAGE 33
<PAGE>   38
                                   EXHIBIT A
                                       TO
                              SERVICING AGREEMENT

                             FORM OF TRUST RECEIPT


Loan Information

     Name of Obligor:                                                          
                      ---------------------------------------------------------

     Servicer Loan No.:                                                        
                        -------------------------------------------------------

     Trustee Loan No.:                                                         
                       --------------------------------------------------------

Trustee

     Name:                                                                     
           --------------------------------------------------------------------

     Address:                                                                  
              -----------------------------------------------------------------

     The undersigned Servicer hereby acknowledges that it has received from the
Trustee the documents referred to below (the "Documents").  All capitalized
terms not otherwise defined in this Trust Receipt shall have the meanings given
them in the Servicing Agreement.

( )  Deed of Trust Note dated                    in the original principal sum
     of $          made by            , payable to, or endorsed to the order
     of, the Trustee.

( )  Mortgage recorded on                     as instrument no.            in
     the County Recorder's Office of the County of             , State of     
     in book/reel/docket                of official records at page/image      .

( )  Deed of Trust recorded on                as instrument no.          in the
     County Recorder's Office of the County of           , State of          
     in book/reel/docket                of official records at page/image      .

( )  Assignment of Mortgage or Deed of Trust to the Trustee, recorded on      
     as instrument no.           in the County Recorder's Office of the County
     of           , State of          in book/reel/docket               of
     official records at page/image              .

( )  Power of Attorney to other instrument authorizing                to sign
     on behalf of the Obligor.
     
( )  Other documents as follows (describe by date, names of parties and title
     of documents):
     




                                      A-1
<PAGE>   39
                                  ( )
                                     -----------------------------------------

                                  ( )
                                     -----------------------------------------

                                  ( )
                                     -----------------------------------------

                                  ( )
                                     -----------------------------------------

         1.      The Servicer shall hold and retain possession of the Documents
in trust for the benefit of the Trustee, solely for the purposes provided in
the Servicing Agreement.

         2.      The Servicer 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 Servicer assert or seek
to assert any claims or rights of setoff to or against the Documents or any
proceeds thereof.

         3.      The Servicer shall not retain possession or custody of the
Documents for more than 30 days following the date such Documents are released
by the Trustee, and the Servicer shall return the Documents to the Trustee
within such time, unless (i) the Loan relating to the Documents has been
liquidated and paid in full and the proceeds thereof have been remitted to the
Lockbox Account prior to the expiration of the 30-day period, or (ii) the
Documents have been delivered to an attorney, or to a public trustee or other
public official as required by law, for purposes of initiating or pursuing
legal action or other proceedings for the foreclosure of the Mortgaged
Property, either judicially or nonjudicially, and the Servicer has delivered to
the Trustee an Officer's Certificate certifying as to name and address of the
Person to which the Documents were delivered and the purpose of such delivery.

         4.      The Documents and any proceeds thereof, and any proceeds of
proceeds, coming into the possession or control of the Servicer, shall at all
times be earmarked for the account of the Trustee and the Servicer shall keep
the Documents and any proceeds separate and distinct from all other property in
the Servicer's possession, custody or control.

                                 PMC CAPITAL, INC., Servicer


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

Dated:





                                      A-2
<PAGE>   40
                                   EXHIBIT B
                                       TO
                              SERVICING AGREEMENT

                           FORM OF LOCKBOX AGREEMENT





                                      B-1
<PAGE>   41
                                   EXHIBIT C
                                       TO
                              SERVICING AGREEMENT

                         FORM OF LOCKBOX NOTICE LETTER





                                      C-1
<PAGE>   42
                                   EXHIBIT D
                                       TO
                              SERVICING AGREEMENT

                           DETERMINATION DATE REPORT





                                      D-1
<PAGE>   43
                                   EXHIBIT E
                                       TO
                              SERVICING AGREEMENT

                            FORM OF ANNUAL STATEMENT

PMC CAPITAL LIMITED PARTNERSHIP

LOAN-BACKED FIXED RATE NOTES, SERIES 1996-A

ANNUAL STATEMENT FROM SERVICER REQUIRED BY SECTION 5.1(b) OF THE SERVICING
AGREEMENT

YEAR                                       XX/XX/96         THRU    XX/XX/96


<TABLE>
<CAPTION>
NOTEHOLDER INFORMATION                                                   Total
              <S>                                <C>                  <C>
              Beginning Noteholder Balance                             XXX,XXX.XX
              Less: Principal Paid                                     XXX,XXX.XX
              (Due but not paid                  XXX,XXX.XX)
              Ending Noteholder Balance                                XXX,XXX.XX
                                             
              Interest Paid                                            XXX,XXX.XX
              Interest Accrued                                         XXX,XXX.XX
                                             
                                                                         Total
              Beginning Loan Balance                                   XXX,XXX.XX
              Less: Principal Paid                                     XXX,XXX.XX
              Ending Loan Balance                                      XXX,XXX.XX
</TABLE>





                                      E-1
<PAGE>   44
                                   EXHIBIT F
                                       TO
                              SERVICING AGREEMENT

                        QUARTERLY OFFICER'S CERTIFICATE


                              ____________, 199__



         I, ______________________, ________________________, of [PMC Capital,
Inc.] (the "Servicer"), pursuant to the provisions of Section  5.3 of the
Servicing Agreement dated as of November 1, 1996 (the "Agreement"), by and
among SunTrust Bank, Central Florida, National Association, in its capacity as
Trustee and Supervisory Servicer, PMC Capital Limited Partnership and the
Servicer, do hereby certify as follows:

         (i)     the Servicer has fully complied with the provisions of the
                 Agreement;

         (ii)    a review of the activities of the Servicer during the
                 preceding quarter and of the Servicer's performance under the
                 Agreement has been made under my supervision; and

         (iii)   to the best of my knowledge, based on the review referred to
                 in (ii) above, the Servicer has fulfilled all of its
                 obligations, duties and responsibilities under the Agreement
                 throughout the preceding quarterly period, and unless
                 otherwise described on Schedule I hereto, no Servicer Default
                 exists.

         Capitalized terms used but not otherwise defined herein shall have the
same meanings ascribed to such terms in the Agreement.

         IN WITNESS WHEREOF, I have executed this certificate this ____ day of
_________, 199__.

                                     PMC CAPITAL, INC., Servicer


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





                                      F-1
<PAGE>   45
                                   Schedule I
                                       to
                        Quarterly Officer's Certificate

                               SERVICER DEFAULTS

                 [Describe any Servicer Defaults and the status thereof and the
                 action being taken by the Servicer to cure any such Servicer
                 Default.]
<PAGE>   46
                                   EXHIBIT G
                                       TO
                              SERVICING AGREEMENT

                             OFFICER'S CERTIFICATE

                              ____________, 199__


         I, ______________________, ________________________, of [PMC Capital,
Inc.] (the "Servicer"), pursuant to the provisions of Section  5.5 of the
Servicing Agreement dated as of November 1, 1996 (the "Agreement"), by and
among SunTrust Bank, Central Florida, National Association, in its capacity as
Trustee and Supervisory Servicer, PMC Capital Limited Partnership and the
Servicer, do hereby certify as follows:

         (iv)    I have confirmed that the Fidelity Bond, the Errors and
                 Omissions Insurance Policy and any other bonds required by
                 Section 2.4 of the Agreement are in full force and effect; and

         (v)     The representations and warranties of the Servicer set forth
                 in Section 2.1 of the Agreement are true and correct in all
                 material respects as if made on the date hereof.

         Capitalized terms used but not otherwise defined herein shall have the
same meanings ascribed to such terms in the Agreement.

         IN WITNESS WHEREOF, I have executed this certificate this ____ day of
_________, 199__.

                                     PMC CAPITAL, INC., Servicer


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





                                      G-1
<PAGE>   47
                                   EXHIBIT H
                                       TO
                              SERVICING AGREEMENT

                             FORM OF OBLIGOR LETTER

                                     [Date]

VIA CERTIFIED MAIL

[Obligor]
[Address]
[Address]
[Address]

    Re:          PMC Capital, Inc. (PMC)
                 Loan Number
                            ------------------

Dear [Obligor]:

    Your loan serviced by PMC is part of a pool of loans for which SunTrust
Bank, Central Florida, National Association serves as trustee.  As part of our
servicing responsibility we are required to verify certain information with
respect to your loan.

    Our records indicate your loan was previously delinquent by more than 90
days and has recently been brought current.  We are required to demonstrate
that you did in fact make the delinquent payments.

    If these facts are correct, please indicate your acknowledgment by signing
and returning a copy of this letter to our attention, in the envelope provided.
If these facts are not correct, please indicate your disagreement by signing
this letter and indicating your disagreement beneath your signature and
returning a copy of this letter to our attention, in the envelope provided.

    If we do not hear from you within 30 days of the date of this letter we
will assume that these facts are true.





                                      H-1
<PAGE>   48
  If you have any questions, please contact the undersigned at (XXX) XXX-XXXX.

                                     Sincerely,



                                     [Officer]
                                     [Title]

Acknowledged by:



-------------------------------------
Mortgagor Name               Date





                                      H-2