Exhibit 10.1

















WORKOUT AND FOREBEARANCE AGREEMENT


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


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


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


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


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


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


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


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


 


























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


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


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


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


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


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


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


1.        Recitals Part of the Agreement.


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


2.        Accommodation Payments and Other Obligations.


 


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


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


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


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


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


 


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


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


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


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


3.             FPMC Limited Release.


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


 


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


4.             CMI Limited Release.


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


5.             FPMC's Standing with CMI.


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


6.             Acceleration Upon Payment Default.


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


 


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7.             Other Repurchase Obligations


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


8.             Cooperation


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


9.             Representations and Warranties.


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


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


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


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


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


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


 


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


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


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


10.         Governing Law and Venue.


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


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


11.         Prevailing Party Entitled To Attorneys Fees.


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


12.         Parties Bound.


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


13.         Severability.


 


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


14.             
No Third Party Beneficiaries.


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


15.             
The Captions.


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


CITIMORTGAGE, INC.


/s/Louise Sherman,                                                                   Date:    August
1, 2005

Louise Sherman,

Director-(Intermediary Management)


FIRST PREFERENCE MORTGAGE CORPORATION


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

David W. Mann, President




 




 




 




 




 




 


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