EXHIBIT 4.1


                       FIRST HORIZON ASSET SECURITIES INC.

                                    Depositor

                       FIRST HORIZON HOME LOAN CORPORATION

                                 Master Servicer

                                       and

                              THE BANK OF NEW YORK,

                                     Trustee

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

                         POOLING AND SERVICING AGREEMENT

                           Dated as of October 1, 2004

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

          FIRST HORIZON ALTERNATIVE MORTGAGE SECURITIES TRUST 2004-AA5

               MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2004-AA5

<PAGE>
                                TABLE OF CONTENTS

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

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

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

ARTICLE IV DISTRIBUTIONS AND ADVANCES BY THE MASTER SERVICER.................................................65
   SECTION 4.1 Advances......................................................................................65
   SECTION 4.2 Priorities of Distribution....................................................................66
</TABLE>

                                       i
<PAGE>

<TABLE>
<CAPTION>
<S>                                                                                                          <C>
   SECTION 4.3 Method of Distribution........................................................................70
   SECTION 4.4 Allocation of Losses..........................................................................71
   SECTION 4.5 [RESERVED]....................................................................................73
   SECTION 4.6 Monthly Statements to Certificateholders......................................................73

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

ARTICLE VI THE DEPOSITOR AND THE MASTER SERVICER.............................................................81
   SECTION 6.1 Respective Liabilities of the Depositor and the Master Servicer...............................81
   SECTION 6.2 Merger or Consolidation of the Depositor or the Master Servicer...............................82
   SECTION 6.3 Limitation on Liability of the Depositor, the Master Servicer and Others......................82
   SECTION 6.4 Limitation on Resignation of Master Servicer..................................................83

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

ARTICLE VIII CONCERNING THE TRUSTEE..........................................................................87
   SECTION 8.1 Duties of Trustee.............................................................................87
   SECTION 8.2 Certain Matters Affecting the Trustee.........................................................88
   SECTION 8.3 Trustee Not Liable for Certificates or Mortgage Loans.........................................90
   SECTION 8.4 Trustee May Own Certificates..................................................................90
   SECTION 8.5 Trustee's Fees and Expenses...................................................................90
   SECTION 8.6 Eligibility Requirements for Trustee..........................................................91
   SECTION 8.7 Resignation and Removal of Trustee............................................................91
   SECTION 8.8 Successor Trustee.............................................................................92
   SECTION 8.9 Merger or Consolidation of Trustee............................................................93
   SECTION 8.10 Appointment of Co-Trustee or Separate Trustee................................................93
   SECTION 8.11 Tax Matters..................................................................................94
   SECTION 8.12 Periodic Filings.............................................................................96

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

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

ARTICLE XI MISCELLANEOUS PROVISIONS..........................................................................99
   SECTION 11.1 Amendment....................................................................................99
</TABLE>

                                       ii
<PAGE>

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


                                    SCHEDULES

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

                                    EXHIBITS

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



                                      iii
<PAGE>

         THIS  POOLING  AND  SERVICING  AGREEMENT,  dated as of October 1, 2004,
among FIRST HORIZON ASSET SECURITIES INC., a Delaware corporation,  as depositor
(the "Depositor"), FIRST HORIZON HOME LOAN CORPORATION, a Kansas corporation, as
master  servicer  (the "Master  Servicer"),  and THE BANK OF NEW YORK, a banking
corporation  organized  under the laws of the State of New York, as trustee (the
"Trustee").

                                 WITNESSETH THAT

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

                              PRELIMINARY STATEMENT

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

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




                  [Remainder of Page Intentionally Left Blank]



                                       1
<PAGE>

<TABLE>
<CAPTION>
------------------------- ----------------------- --------------------- ---------------------- ---------------------
                              Initial Class             Initial                                 Integral Multiples
   Class Designation       Certificate Balance     Pass Through Rate    Minimum Denomination    in Excess Minimum
------------------------- ----------------------- --------------------- ---------------------- ---------------------
<S>                       <C>                         <C>     <C>       <C>                    <C>
Class I-A-1               $    185,031,000.00         5.1983% (1)       $          25,000      $           1,000
------------------------- ----------------------- --------------------- ---------------------- ---------------------
Class I-A-R               $            100.00         5.1983% (1)       $             100      $             N/A
------------------------- ----------------------- --------------------- ---------------------- ---------------------
Class II-A-1              $     87,581,000.00         5.2011% (2)       $          25,000      $             N/A
------------------------- ----------------------- --------------------- ---------------------- ---------------------
Class II-A-2              $               (3)         0.2978% (4)       $         500,000      $           1,000
------------------------- ----------------------- --------------------- ---------------------- ---------------------
Class B-1                 $      8,120,000.00         5.2949% (5)       $         100,000      $           1,000
------------------------- ----------------------- --------------------- ---------------------- ---------------------
Class B-2                 $      3,190,000.00         5.2949% (5)       $         100,000      $           1,000
------------------------- ----------------------- --------------------- ---------------------- ---------------------
Class B-3                 $      1,885,000.00         5.2949% (5)       $         100,000      $           1,000
------------------------- ----------------------- --------------------- ---------------------- ---------------------
Class B-4                 $      1,885,000.00         5.2949% (5)       $         100,000      $           1,000
------------------------- ----------------------- --------------------- ---------------------- ---------------------
Class B-5                 $      1,451,000.00         5.2949% (5)       $         100,000      $           1,000
------------------------- ----------------------- --------------------- ---------------------- ---------------------
Class B-6                 $        870,057.00         5.2949% (5)       $         100,000      $           1,000
------------------------- ----------------------- --------------------- ---------------------- ---------------------
</TABLE>

(1) The Pass-Through  Rates for the Class I-A-1 and Class I-A-R Certificates for
each subsequent  Distribution  Date will equal the Weighted Average Adjusted Net
Mortgage Rate for Pool I, as of the first day of the month  immediately prior to
the month in which the  relevant  Distribution  Date  occurs,  after taking into
account  scheduled  payments  of  principal  on  that  date  and  any  Principal
Prepayments received on or after such date and distributed to Certificateholders
on the prior Distribution Date.

(2) The Pass-Through Rate for the Class II-A-1  Certificates for each subsequent
Distribution  Date will  equal  the  excess,  if any,  of the  Weighted  Average
Adjusted  Net  Mortgage  Rate for  Pool II over  0.2978%  per  annum  until  the
Distribution  Date in October 2009, and commencing with the Distribution Date in
November  2009,  such  Pass-Through  Rate will equal the excess,  if any, of the
Weighted Average Adjusted Net Mortgage Rate for Pool II over 0.1250% per annum.

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

(4) The Pass-Through Rate for the Class II-A-2  Certificates for each subsequent
Distribution Date will be fixed at 0.2978% per annum until the Distribution Date
in October 2009, and  commencing  with the  Distribution  Date in November 2009,
such Pass-Through Rate will be fixed at 0.1250% per annum.

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



                                       2
<PAGE>

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


                                       3
<PAGE>

<TABLE>
<CAPTION>
<S>                                        <C>
Residual Certificates.................     The Class I-A-R Certificates.
Scheduled Principal Classes...........     None.
Senior Certificates...................     The Group I Senior Certificates and the Group II Senior Certificates,
                                           collectively.
Senior Support Certificates...........     None
Subordinated Certificates.............     The Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6
                                           Certificates.
Super Senior Certificates.............     None.
Support Classes.......................     None.
Targeted Principal Classes............     None.
Underwriter...........................     Credit Suisse First Boston LLC
</TABLE>


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



                                       4
<PAGE>

                                   ARTICLE I

                                  DEFINITIONS

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

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

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

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

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

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

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

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

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


                                       5
<PAGE>

in the month of such  Distribution  Date and (ii) all Scheduled  Payments in the
related Mortgage Pool due after the related Due Date.

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

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

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

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

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

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

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


                                       6
<PAGE>

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

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

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

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

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

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

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

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

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

         Certificate  Account: The separate Eligible Account or Accounts created
and maintained by the Master Servicer  pursuant to Section 3.5 with a depository
institution in the name of the Master Servicer for the benefit of the Trustee on
behalf of Certificateholders and designated "First Horizon Home Loan Corporation
in trust for the  registered  holders of First  Horizon  Asset  Securities  Inc.
Mortgage Pass-Through Certificates, Series 2004-AA5."


                                       7
<PAGE>

         Certificate Group:  As specified in the Preliminary Statement.

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

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

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

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

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

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

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

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

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

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


                                       8
<PAGE>

         Closing Date: October 29, 2004.

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

         COFI:  Not applicable.

         COFI Certificates:  Not applicable.

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

         Component:  Not applicable.

         Component Balance:  Not applicable.

         Component Certificates:  Not applicable.

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

         Coop Shares: Shares issued by a Cooperative Corporation.

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

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

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

         Corporate  Trust Office:  The  designated  office of the Trustee in the
State of New York at which at any particular  time its corporate  trust business
with respect to this Agreement shall be  administered,  which office at the date
of the  execution  of this  Agreement  is located  at The Bank of New York,  101
Barclay   Street,   8W,  New  York,  New  York  10286  (Attn:   Corporate  Trust
Mortgage-Backed  Securities  Group,  First Horizon Asset  Securities Inc. Series


                                       9
<PAGE>

2004-AA5),  facsimile  no.  (212)  815-3986,  and which is the  address to which
notices to and correspondence with the Trustee should be directed.

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

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

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

         Custodial  Agreement:  The Custodial  Agreement dated as of October 29,
2004 by and among the Trustee, the Master Servicer and the Custodian.

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

         Cut-off Date:  October 1, 2004.

         Cut-off  Date  Pool  Principal   Balance:   With  respect  to  Pool  I,
$196,841,838.85; and with respect to Pool II, $93,171,319.10.

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

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

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

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

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

         Delay Certificates:  Not applicable.


                                       10
<PAGE>

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

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

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

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

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

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

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

         Distribution   Account:  The  separate  Eligible  Account  created  and
maintained by the Trustee pursuant to Section 3.5 in the name of the Trustee for
the benefit of the  Certificateholders  and designated "The Bank of New York, in
trust for registered  Holders of First Horizon Asset  Securities  Inc.  Mortgage
Pass-Through  Certificates,  Series 2004-AA5." Funds in the Distribution Account
shall be held in trust for the  Certificateholders for the uses and purposes set
forth in this Agreement.

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

         Distribution  Date:  The  25th day of each  calendar  month  after  the
initial issuance of the Certificates, or if such 25th day is not a Business Day,
the next succeeding Business Day, commencing in November 2004.

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

         Eligible Account:  Any of (i) an account or accounts  maintained with a
federal  or  state  chartered  depository   institution  or  trust  company  the
short-term  unsecured debt obligations of which (or, in the case of a depository
institution  or trust  company  that is the  principal  subsidiary  of a holding
company,  the  debt  obligations  of such  holding  company)  have  the  highest
short-term  ratings of each  Rating  Agency at the time any  amounts are held on


                                       11
<PAGE>

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

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

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

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

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

         Event of Default:  As defined in Section 7.1 hereof.

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

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

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

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


                                       12
<PAGE>

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

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

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

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

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

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

         Fraud Loss Coverage Amount: As of the Closing Date,  $5,800,263.  As of
any Distribution  Date from the first  anniversary of the Cut-off Date and prior
to the fifth  anniversary  of the Cut-off Date,  the Fraud Loss Coverage  Amount
will equal $5,800,263 minus the aggregate amount of Fraud Losses that would have
been  allocated  to the  Subordinated  Certificates  in the  absence of the Loss
Allocation  Limitation since the Cut-off Date. As of any Distribution Date on or
after the earlier of the Cross-over Date or the fifth anniversary of the Cut-off
Date, the Fraud Loss Coverage Amount shall be zero.

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

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

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

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

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

         Index:  Not applicable.


                                       13
<PAGE>

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

         Initial Bankruptcy Coverage Amount:  $150,000.

         Initial Component Balance:  Not applicable.

         Insurance  Policy:  With respect to any Mortgage  Loan  included in the
Trust Fund, any insurance policy,  including all riders and endorsements thereto
in effect,  including  any  replacement  policy or  policies  for any  Insurance
Policies.

         Insurance  Proceeds:  Proceeds  paid  by an  insurer  pursuant  to  any
Insurance  Policy, in each case other than any amount included in such Insurance
Proceeds in respect of Insured Expenses.

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

         Insured Retail Certificates:  Not applicable.

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

         Interest Determination Date:  Not applicable.

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

         Lender PMI Mortgage Loan:  Not applicable.

         LIBOR:  Not applicable.

         LIBOR Certificates:  Not applicable.

         Liquidated  Mortgage  Loan:  With respect to any  Distribution  Date, a
defaulted Mortgage Loan (including any REO Property) which was liquidated in the
calendar month preceding the month of such Distribution Date and as to which the
Master  Servicer has determined (in accordance  with this Agreement) that it has


                                       14
<PAGE>

received all amounts it expects to receive in connection with the liquidation of
such Mortgage Loan, including the final disposition of an REO Property.

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

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

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

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

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

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

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

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

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

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

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


                                       15
<PAGE>

         Master  Servicing Fee Rate:  Prior to the initial  Adjustment  Date for
each Mortgage  Loan, a per annum rate equal to 0.386%.  On and after the initial
Adjustment Date for each Mortgage Loan, 0.369%.

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

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

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

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

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

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

         MLPA:  The Mortgage  Loan  Purchase  Agreement  dated as of October 29,
2004, by and between First Horizon Home Loan Corporation,  as seller,  and First
Horizon Asset  Securities Inc., as purchaser,  as related to the transfer,  sale
and conveyance of the Mortgage Loans.

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

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

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

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

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

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


                                       16
<PAGE>

                         (1)        the loan number;

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

                         (3)        the maturity date;

                         (4)        the original principal balance;

                         (5)        the Cut-off Date Principal Balance;

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

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

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

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

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

                         (11)       the Mortgage Rate;

                         (12)       the purpose for the Mortgage Loan;

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

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

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

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

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

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


                                       17
<PAGE>

         Mortgage Pool:  Either Pool I or Pool II.

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

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

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

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

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

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

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

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

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

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

         Notional Amount Component:  Not applicable.

         Notional Certificates:  As specified in the Preliminary Statement.

         Offered Certificates:  As specified in the Preliminary Statement.


                                       18
<PAGE>

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

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

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

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

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

         OTS:  The Office of Thrift Supervision.

         Outside Reference Date:  Not applicable.

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

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

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

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

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


                                       19
<PAGE>

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

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

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

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

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

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

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

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

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

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


                                       20
<PAGE>

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

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

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

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

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


                                       21
<PAGE>

subclauses  (a), (b), (c) or (d) of clause (vi) and the  governing  documents of
such person  prohibits  a transfer of any  interest in such person to any person
described in clause (vi). The terms "United States," "State" and  "International
Organization"  shall have the  meanings set forth in section 7701 of the Code or
successor provisions. A corporation will not be treated as an instrumentality of
the United  States or of any State or  political  subdivision  thereof for these
purposes if all of its  activities are subject to tax and, with the exception of
the Federal Home Loan Mortgage Corporation, a majority of its board of directors
is not selected by such government unit.

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

         Physical Certificate:  As specified in the Preliminary Statement.

         Planned Balance:  Not applicable.

         Planned Principal Classes:  Not applicable.

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

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

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

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

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


                                       22
<PAGE>

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

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

         Principal Balance Schedules:  Not applicable.

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

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

         Private Certificate:  As specified in the Preliminary Statement.

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

         PUD:  Planned Unit Development.

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

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


                                       23
<PAGE>

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

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

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

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

         Reference Bank:  Not applicable.

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

         Regular Certificates:  As specified in the Preliminary Statement.

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

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

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


                                       24
<PAGE>

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

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

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

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

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

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

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

         Residual Certificates:  As specified in the Preliminary Statement.

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

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

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

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

         Scheduled Balances:  Not applicable.

         Scheduled Certificates:  Not applicable.

         Scheduled Payment: The scheduled monthly payment on a Mortgage Loan due
on any Due Date  allocable to principal  and/or  interest on such  Mortgage Loan
which, unless otherwise specified herein,  shall give effect to any related Debt


                                       25
<PAGE>

Service  Reduction  and any Deficient  Valuation  that affects the amount of the
monthly payment due on such Mortgage Loan.

         Scheduled Principal Classes:  Not applicable.

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

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

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

         Senior Certificates:  As specified in the Preliminary Statement.

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

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

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

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

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

                  (4) the lesser of:

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


                                       26
<PAGE>

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

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

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

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

<TABLE>
<CAPTION>
--------------------------------- -------------------------------------------------------------------
PERIOD (DATES INCLUSIVE)          SENIOR PREPAYMENT PERCENTAGE
--------------------------------- -------------------------------------------------------------------
<S>                               <C>
November 2004 - October 2011      100%
--------------------------------- -------------------------------------------------------------------
November 2011 - October 2012      The related Senior Percentage plus 70% of the related Subordinated
                                  Percentage
--------------------------------- -------------------------------------------------------------------
November 2012 - October 2013      The related Senior Percentage plus 60% of the related Subordinated
                                  Percentage
--------------------------------- -------------------------------------------------------------------
November 2013 - October 2014      The related Senior Percentage plus 40% of the related Subordinated
                                  Percentage
--------------------------------- -------------------------------------------------------------------
November 2014 - October 2015      The related Senior Percentage plus 20% of the related Subordinated
                                  Percentage
--------------------------------- -------------------------------------------------------------------
November 2015 and thereafter      The related Senior Percentage
--------------------------------- -------------------------------------------------------------------
</TABLE>

provided  however,  (i) if on any Distribution  Date the Senior Percentage for a
Certificate  Group exceeds the initial Senior  Percentage  for such  Certificate
Group,  the Senior  Prepayment  Percentage for each  Certificate  Croup for such
Distribution  Date will equal 100%, (ii) if on any Distribution  Date before the


                                       27
<PAGE>

Distribution  Date in November 2007, prior to giving effect to any distributions
on such  Distribution  Date, the  Subordinated  Percentage for such  Certificate
Group for such  Distribution  Date is equal to or greater than twice the initial
Subordinated  Percentage for such Certificate  Group, then the Senior Prepayment
Percentage for such Certificate  Group for such Distribution Date will equal the
Senior  Percentage  for such  Certificate  Group  plus  50% of the  Subordinated
Percentage for such Certificate  Group and (iii) if on any Distribution  Date on
or after the  Distribution  Date in November 2007, prior to giving effect to any
distributions on such  Distribution  Date, the Subordinated  Percentage for such
Certificate  Group for such  Distribution Date is equal to or greater than twice
the initial Subordinated  Percentage for such Certificate Group, then the Senior
Prepayment Percentage for such Certificate Group for such Distribution Date will
equal the Senior Percentage for such Certificate Group.

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

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

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

                  (a) 20% of the aggregate  Original Group Subordinate Amount of
                  both Mortgage Pools if such  Distribution  Date occurs between
                  and including November 2004 and October 2007; and

                  (b) 30% of the aggregate  Original Group Subordinate Amount of
                  both  Mortgage  Pools if such  Distribution  Date occurs on or
                  after November 2007.

         Senior Support Certificates:  Not applicable.

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

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


                                       28
<PAGE>

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

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

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

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

                  (1) normal wear and tear;

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

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

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

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

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

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

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

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

                  (7) insurrection,  rebellion,  revolution,  civil war, usurped
power or action  taken by  governmental  authority  in  hindering,  combating or
defending against such an occurrence, seizure or destruction under quarantine or


                                       29
<PAGE>

customs regulations, confiscation by order of any government or public authority
or risks of contraband or illegal transportation or trade.

         Special Hazard Loss Coverage  Amount:  Upon the initial issuance of the
Certificates,  $3,000,000.  As of any Distribution Date, the Special Hazard Loss
Coverage Amount will equal the greater of

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

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

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

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

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

         Startup Day:  The Closing Date.

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

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

         Subordinated Certificates:  As specified in the Preliminary Statement.

         Subordinated Certificate Writedown Amount: As of any Distribution Date,
the amount by which (a) the sum of the Class Certificate  Balances of all of the
Certificates,  after giving  effect to the  distribution  of  principal  and the
allocation of Realized Losses in reduction of the Class Certificate  Balances of
all of the  Certificates on such  Distribution  Date,  exceeds (b) the aggregate


                                       30
<PAGE>

Pool Principal  Balance for both Mortgage Pools on the first day of the month of
such  Distribution  Date less any  Deficient  Valuations  occurring  before  the
Bankruptcy Loss Coverage Amount has been reduced to zero.

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

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

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

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

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

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

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


                                       31
<PAGE>

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

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

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

         Substitution  Adjustment  Amount:  The  meaning  ascribed  to such term
pursuant to Section 2.3.

         Super Senior Certificates:  Not applicable.

         Support Classes:  Not applicable.

         Targeted Balances:  Not applicable.

         Targeted Principal Classes:  Not applicable.

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

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

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


                                       32
<PAGE>

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

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

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

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

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

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

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

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

         Underwriter:  As specified in the Preliminary Statement.

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

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

         Voting  Rights:  The  portion  of  the  voting  rights  of  all  of the
Certificates  which  is  allocated  to  any  Certificate.  As  of  any  date  of
determination,  (a) 98% of all Voting Rights will be allocated among all Holders
of the Certificates,  other than the Class I-A-R and Class II-A-2  Certificates,
in proportion to their then outstanding Class Certificate Balances; and (b) 1.0%
of all Voting Rights will be allocated to the Class I-A-R  Certificates and 1.0%
of all Voting  Rights will be allocated to the Class II-A-2  Certificates  (such


                                       33
<PAGE>

Voting  Rights to be allocated  among the Holders of  Certificates  of each such
Class in accordance with their respective Percentage Interests).

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

ARTICLE II
                                               CONVEYANCE OF MORTGAGE LOANS;
                                               REPRESENTATIONS AND WARRANTIES

SECTION 2.1       Conveyance of Mortgage Loans.

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

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

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

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

            (ii)  except as provided  below and for each  Mortgage  Loan that is
                  not a MERS Mortgage Loan, the original  recorded Mortgage or a
                  copy of such Mortgage  certified by the Seller as being a true
                  and complete copy of the Mortgage and in the case of each MERS
                  Mortgage Loan, the original  Mortgage,  noting the presence of
                  the MIN of the Mortgage Loans and either  language  indicating
                  that the Mortgage Loan is a MOM Loan if the Mortgage Loan is a


                                       34
<PAGE>

                  MOM  Loan  or if the  Mortgage  Loan  was  not a MOM  Loan  at
                  origination,  the original Mortgage and the assignment thereof
                  to MERS, with evidence of recording  indicated  thereon,  or a
                  copy of the Mortgage  certified by the public recording office
                  in which such Mortgage has been recorded;

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

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

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

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

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

                  (B)   The executed Security Agreement;

                  (C)   The executed Proprietary Lease;

                  (D)   The executed Recognition Agreement;

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

                  (F)   Executed UCC-3 financing statements or other appropriate
                        UCC   financing   statements   required  by  state  law,
                        evidencing  a  complete  and  unbroken   line  from  the


                                       35
<PAGE>

                        mortgagee  to the Trustee  with  evidence  of  recording
                        thereon (or in a form suitable for recordation).

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

         In addition, in the event that in connection with any Mortgage Loan the
Depositor  cannot  deliver or cause to be  delivered  the  original or duplicate
original  lender's title policy (together with all riders  thereto),  satisfying
the  requirements  of clause  (v) above,  concurrently  with the  execution  and
delivery  hereof  because the related  Mortgage has not been  returned  from the
applicable  public  recording  office,  the Depositor shall promptly  deliver or
cause to be  delivered  to the  Trustee  or the  Custodian  on its  behalf  such
original or duplicate  original  lender's title policy (together with all riders
thereto) upon receipt thereof from the applicable title insurer, but in no event
shall any such  delivery of the original or duplicate  original  lender's  title
policy  be made  later  than one year  following  the  Closing  Date;  provided,
however,  in the  event  the  Depositor  is  unable  to  deliver  or cause to be
delivered by such date the original or duplicate  original lender's title policy
(together  with all riders  thereto)  because the related  Mortgage has not been
returned by the  appropriate  recording  office,  the Depositor shall deliver or
cause to be  delivered  such  documents  to the Trustee or the  Custodian on its


                                       36
<PAGE>

behalf as promptly as possible  upon receipt  thereof and, in any event,  within
720  days  following  the  Closing  Date.   Notwithstanding  the  preceding,  in
connection  with any  Mortgage  Loan for which  either the original or duplicate
original title policy has not been delivered to the Trust, if at any time during
the term of this Agreement the parent company of the Seller does not have a long
term senior debt rating of A- or higher from S&P and A- or higher from Fitch (if
rated by Fitch),  then the Depositor shall within 30 days deliver or cause to be
delivered  to  the  Trustee  or  the  Custodian  on its  behalf  (if it has  not
previously done so) a written commitment or interim binder or preliminary report
of the title issued by the title insurance or escrow company with respect to the
Mortgaged Property.

         Subject  to  the  immediately   following  sentence,   as  promptly  as
practicable subsequent to such transfer and assignment, and in any event, within
thirty  (30) days  thereafter,  the  Master  Servicer  shall (i)  complete  each
assignment  of  Mortgage,  as  follows:  "First  Horizon  Mortgage  Pass-Through
Certificates,  Series 2004-AA5, The Bank of New York, as trustee for the holders
of the  Certificates",  (ii)  cause  such  assignment  to be in proper  form for
recording in the appropriate  public office for real property  records and (iii)
cause to be delivered  for recording in the  appropriate  public office for real
property  records the assignments of the Mortgages to the Trustee,  except that,
with respect to any  assignments of Mortgage as to which the Master Servicer has
not received the  information  required to prepare such assignment in recordable
form, the Master Servicer's obligation to do so and to deliver the same for such
recording shall be as soon as practicable  after receipt of such information and
in any event within thirty (30) days after receipt thereof.  Notwithstanding the
foregoing,  the Master  Servicer  need not cause to be recorded  any  assignment
which  relates  to a  Mortgage  Loan  in  any  state  other  than  the  Required
Recordation States.

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

         Notwithstanding  anything  to the  contrary in this  Agreement,  within
thirty days after the Closing Date,  the  Depositor  shall either (i) deliver or
cause to be delivered to the Trustee or the Custodian on its behalf the Mortgage
File as required  pursuant to this Section 2.1 for each Delay Delivery  Mortgage
Loan or (ii) (A)  substitute or cause to be  substituted  a Substitute  Mortgage
Loan for the  Delay  Delivery  Mortgage  Loan or (B)  repurchase  or cause to be
repurchased the Delay Delivery  Mortgage Loan, which  substitution or repurchase
shall be  accomplished  in the manner and subject to the conditions set forth in
Section 2.3 (treating  each Delay Delivery  Mortgage Loan as a Deleted  Mortgage
Loan for purposes of such Section 2.3), provided, however, that if the Depositor
fails to deliver a Mortgage File for any Delay Delivery Mortgage Loan within the
thirty-day  period provided in the prior  sentence,  the Depositor shall use its
best reasonable efforts to effect or cause to be effected a substitution, rather
than a repurchase of, such Deleted  Mortgage Loan and provided  further that the
cure period provided for in Section 2.2 or in Section 2.3 shall not apply to the
initial delivery of the Mortgage File for such Delay Delivery Mortgage Loan, but
rather the  Depositor  shall have five (5) Business  Days to cure or cause to be
cured such failure to deliver. At the end of such thirty-day period, the Trustee
or the Custodian,  on its behalf shall send a Delay Delivery  Certification  for
the Delay Delivery  Mortgage Loans delivered  during such  thirty-day  period in


                                       37
<PAGE>

accordance with the provisions of Section 2.2.  Notwithstanding  anything to the
contrary  contained in this  Agreement,  none of the Mortgage Loans in the Trust
Fund is or will be Delay Delivery Mortgage Loans.

                  SECTION 2.2 Acceptance by Trustee of the Mortgage Loans.

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

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

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

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

         If, in the course of such  review,  the  Trustee or the  Custodian,  on
behalf of the Trustee, finds any document constituting a part of a Mortgage File
which does not meet the  requirements  of Section 2.1, the Trustee shall list or
shall  cause  the   Custodian  to  list  such  as  an  exception  in  the  Final
Certification;  provided,  however  that  neither the Trustee nor the  Custodian
shall make any  determination as to whether (i) any endorsement is sufficient to
transfer all right, title and interest of the party so endorsing,  as noteholder
or assignee  thereof,  in and to that Mortgage Note or (ii) any assignment is in
recordable form or is sufficient to effect the assignment of and transfer to the
assignee thereof under the mortgage to which the assignment relates.  The Seller
shall  promptly  correct or cure such defect within 90 days from the date it was
so  notified  of such  defect  and,  if the Seller does not correct or cure such
defect  within such  period,  the Seller  shall  either (a)  substitute  for the
related Mortgage Loan a Substitute  Mortgage Loan, which  substitution  shall be


                                       38
<PAGE>

accomplished  in the manner and subject to the  conditions  set forth in Section
2.3, or (b) purchase such Mortgage Loan from the Trustee within 90 days from the
date the Seller was notified of such defect in writing at the Purchase  Price of
such Mortgage Loan; provided,  however, that in no event shall such substitution
or purchase  occur more than 540 days from the Closing Date,  except that if the
substitution  or  purchase of a Mortgage  Loan  pursuant  to this  provision  is
required by reason of a delay in delivery of any  documents  by the  appropriate
recording  office,  and there is a dispute between either the Master Servicer or
the Seller and the Trustee over the location or status of the recorded document,
then such  substitution or purchase shall occur within 720 days from the Closing
Date. The Trustee shall deliver or shall cause the Custodian to deliver  written
notice to each Rating  Agency  within 270 days from the Closing Date  indicating
each Mortgage Loan (a) which has not been returned by the appropriate  recording
office or (b) as to which  there is a dispute as to  location  or status of such
Mortgage Loan. Such notice shall be delivered every 90 days thereafter until the
related Mortgage Loan is returned to the Trustee or the Custodian on its behalf.
Any such  substitution  pursuant to (a) above or purchase  pursuant to (b) above
shall not be  effected  prior to the  delivery  to the Trustee of the Opinion of
Counsel required by Section 2.5 hereof, if any, and any substitution pursuant to
(a) above shall not be effected prior to the additional  delivery to the Trustee
of a Request for Release substantially in the form of Exhibit L. No substitution
is permitted to be made in any calendar month after the  Determination  Date for
such month.  The Purchase Price for any such Mortgage Loan shall be deposited by
the Seller in the Certificate  Account on or prior to the  Distribution  Account
Deposit  Date for the  Distribution  Date in the  month  following  the month of
repurchase  and,  upon  receipt of such deposit and  certification  with respect
thereto in the form of Exhibit M hereto,  the Trustee  shall cause the Custodian
to release the related Mortgage File to the Seller and shall execute and deliver
at the Seller's request such  instruments of transfer or assignment  prepared by
the Seller, in each case without recourse,  as shall be necessary to vest in the
Seller,  or a designee,  the  Trustee's  interest in any Mortgage  Loan released
pursuant hereto. If pursuant to the foregoing  provisions the Seller repurchases
a Mortgage Loan that is a MERS Mortgage Loan,  the Master  Servicer shall either
(i)  cause  MERS to  execute  and  deliver  an  assignment  of the  Mortgage  in
recordable form to transfer the Mortgage from MERS to the Seller and shall cause
such  Mortgage  to be  removed  from  registration  on  the  MERS(R)  System  in
accordance  with MERS' rules and  regulations or (ii) cause MERS to designate on
the MERS(R) System the Seller as the beneficial holder of such Mortgage Loan.

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

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

         The  mortgage  loans  permitted  by the terms of this  Agreement  to be
included  in the Trust Fund are  limited to (i) the  Mortgage  Loans  (which the
Depositor   acquired   pursuant  to  the  MLPA,  which  contains,   among  other
representations and warranties, a representation and warranty of the Seller that


                                       39
<PAGE>

no  Mortgage  Loan is a "high cost loan" as defined by the  specific  applicable
predatory and abusive  lending laws,  which  includes the term  "High-Cost  Home
Loan" as defined in the New Jersey Home  Ownership Act,  effective  November 27,
2003,  and the New Mexico Home Loan  Protection  Act,  effective as of April 11,
2003 (collectively,  the "Acts")), and (ii) Substitute Mortgage Loans (which, by
definition  as set forth in this  Agreement  and  referred  to in the MLPA,  are
required  to  conform  to,  among  other   representations  and  warranties,   a
representation  and  warranty  of the  Seller  set  forth  in the  MLPA  that no
Substitute  Mortgage  Loan is a "high  cost  loan" as  defined  by the  specific
applicable   predatory  and  abusive  lending  laws,  which  includes  the  term
"High-Cost  Home Loan" as defined in the Acts).  It is therefore  understood and
agreed by the parties  hereto that it is not intended  that any Mortgage Loan be
included  in the Trust  Fund that is a  "High-Cost  Home Loan" as defined in the
Acts.

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

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

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


                                       40
<PAGE>

                  interests of the Certificateholders  therein,  notwithstanding
                  the Seller's  lack of knowledge  with respect to the substance
                  of such  representation or warranty,  such inaccuracy shall be
                  deemed a breach of the applicable representation or warranty.

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

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

         In the event that the Seller shall have  repurchased  a Mortgage  Loan,
the  Purchase  Price  therefor  shall be deposited  in the  Certificate  Account
pursuant to Section 3.5 on or before the  Distribution  Account Deposit Date for
the  Distribution  Date in the month following the month during which the Seller


                                       41
<PAGE>

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

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

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

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

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

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

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

         (a)      Notwithstanding  any contrary provision of this Agreement,  no
                  substitution  pursuant  to Section 2.2 or Section 2.3 shall be
                  made  more than 90 days  after the  Closing  Date  unless  the
                  Depositor delivers to the Trustee an Opinion of Counsel, which
                  Opinion of Counsel  shall not be at the  expense of either the
                  Trustee or the Trust Fund,  addressed to the  Trustee,  to the
                  effect  that  such  substitution  will not (i)  result  in the
                  imposition  of the  tax on  "prohibited  transactions"  on the
                  Trust Fund or contributions after the Startup Date, as defined


                                       42
<PAGE>

                  in Sections 860F(a)(2) and 860G(d) of the Code,  respectively,
                  or (ii) cause any REMIC  created  hereunder to fail to qualify
                  as a REMIC at any time that any Certificates are outstanding.

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

                  SECTION 2.6 Execution and Delivery of Certificates.

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

                  SECTION 2.7 REMIC Matters.

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

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

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


                                       43
<PAGE>

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

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

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                                                        Corresponding Class of Middle REMIC
   Lower REMIC                                                                       Interests
   Interest or     Lower REMIC Interest   Lower REMIC Interest Rate  ----------------------------------------
    Residual              Balance                                           Interest            Principal
------------------ ---------------------- -------------------------- ------------------------ ---------------
<S>                <C>                       <C>                              <C>                  <C>
L-I-A-1            $       106,296.65        Same as Class I-A-1               (1)                 (1)
------------------ ---------------------- -------------------------- ------------------------ ---------------
L-I-A-2            $        11,810.74        Same as Class I-A-1               (1)                 (1)
------------------ ---------------------- -------------------------- ------------------------ ---------------
L-I-A-ZZZ          $   196,723,731.46        Same as Class I-A-1               (1)                 (1)
------------------ ---------------------- -------------------------- ------------------------ ---------------
RL                 $             0.00                N/A                       N/A                 N/A
------------------ ---------------------- -------------------------- ------------------------ ---------------
L-II-A-1           $        50,312.87                (2)                       (1)                 (1)
------------------ ---------------------- -------------------------- ------------------------ ---------------
L-II-A-2           $         5,590.32                (2)                       (1)                 (1)
------------------ ---------------------- -------------------------- ------------------------ ---------------
L-II-A-ZZZ         $    93,115,415.91                (2)                       (1)                 (1)
------------------ ---------------------- -------------------------- ------------------------ ---------------
</TABLE>

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

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

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

         Unless a Cross-over Situation (as defined below) exists,  principal and
Realized  Losses  arising with respect to each  Mortgage Pool shall be allocated
first to cause the L1 and L2 Interests  corresponding  to such  Mortgage Pool to


                                       44
<PAGE>

equal 0.9% and 0.1% of the Group Subordinate  Amount of such Mortgage Pool as of
such  Distribution  Date (after  distributions  of principal  and  allocation of
Realized Losses are made) and all excess  principal and Realized Losses shall be
allocated to the LZZZ Interest  corresponding to such Mortgage Pool. A L1, L2 or
LZZZ Interest that is allocated principal on any Distribution Date shall receive
such  principal,  and have its principal  balance  reduced by the amount of such
principal,  on such Distribution Date. Similarly, a L1, L2 or LZZZ Interest that
is allocated a Realized Loss on any  Distribution  Date shall have its principal
balance reduced by the amount of such Realized Loss on such Distribution Date.

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

         If a Cross-over  Situation exists, the aggregate  principal balances of
the  outstanding  L1 and L2 Interests of all of the Mortgage  Pools shall not be
reduced below one percent of the aggregate Pool Principal  Balance of all of the
Mortgage  Pools for the  following  Distribution  Date in  excess of the  Senior
Certificates  as of the related  Distribution  Date (after  taking into  account
distributions   of  principal  and   allocations  of  Realized  Losses  on  such
Distribution  Date). To the extent this limitation  prevents the distribution of
principal  to the L1 and L2  Interests  of a Mortgage  Pool and the related LZZZ
Interest  has already  been  reduced to zero,  such excess  principal  from such
Mortgage  Pool  shall  be paid  proportionately  to the  LZZZ  Interests  of the


                                       45
<PAGE>

Mortgage  Pool whose  aggregate L1 and L2 Interests are less than one percent of
the Group  Subordinate  Amount.  Any such  shortfall as a result of the Mortgage
Pool receiving the extra payment having a Weighted Average Adjusted Net Mortgage
Rate lower than the Weighted  Average Adjusted Net Mortgage Rate of the Mortgage
Pool from which the payment was reallocated  shall be treated as a Realized Loss
and if excess arises as result of the Mortgage Pool  receiving the extra payment
having a Weighted  Average  Adjusted Net Mortgage  Rate higher than the Mortgage
Pool from which the payment was  reallocated it shall reimburse the Middle REMIC
for prior Realized Losses.  If on any  Distribution  Date, the L1 Interest or L2
Interest remains outstanding after the related Pool Principal Balance is at zero
as of the beginning of the Accrual  Period  corresponding  to such  Distribution
Date, their Lower REMIC Interest Rate shall be the Weighted Average Adjusted Net
Mortgage Rate of the Mortgage Pool with the lowest Weighted Average Adjusted Net
Mortgage  Rate  that  remains  outstanding  and the  excess of  interest  at the
Pass-Through  Rate  for the  Subordinated  Certificates  over  interest  at such
Weighted  Average Adjusted Net Mortgage Rate shall be treated as paid from Lower
REMIC to the Middle REMIC as reimbursement for prior Realized Losses.

<TABLE>
<CAPTION>
------------------ ---------------------- -------------------------- ----------------------------------------
     Middle                                                               Corresponding Class or Interest
 REMIC Interest        Middle REMIC         Middle REMIC Interest    ----------------------------------------
   or Residual       Interest Balance               Rate                    Interest            Principal
------------------ ---------------------- -------------------------- ------------------------ ---------------
<S>                <C>                       <C>                       <C>                     <C>
M-I-A-1            $   185,031,000.00        Same as Class I-A-1              I-A-1               I-A-1
------------------ ---------------------- -------------------------- ------------------------ ---------------
M-I-A-RU           $           100.00        Same as Class I-A-1           RU Interest         RU Interest
------------------ ---------------------- -------------------------- ------------------------ ---------------
M-II-A-1           $    87,581,000.00                (1)               II-A-1, II-A-2 (3)         II-A-1
------------------ ---------------------- -------------------------- ------------------------ ---------------
M-B-1              $     8,120,000.00                (2)                       B-1                 B-1
------------------ ---------------------- -------------------------- ------------------------ ---------------
M-B-2              $     3,190,000.00                (2)                       B-2                 B-2
------------------ ---------------------- -------------------------- ------------------------ ---------------
M-B-3              $     1,885,000.00                (2)                       B-3                 B-3
------------------ ---------------------- -------------------------- ------------------------ ---------------
M-B-4              $     1,885,000.00                (2)                       B-4                 B-4
------------------ ---------------------- -------------------------- ------------------------ ---------------
M-B-5              $     1,451,000.00                (2)                       B-5                 B-5
------------------ ---------------------- -------------------------- ------------------------ ---------------
M-B-6              $       870,057.95                (2)                       B-6                 B-6
------------------ ---------------------- -------------------------- ------------------------ ---------------
RM                 $             0.00                N/A                       N/A                 N/A
------------------ ---------------------- -------------------------- ------------------------ ---------------
</TABLE>

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

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

(3)  Interest  on the Middle  REMIC  Interest  M-II-A-1  shall be  allocated  as
follows:  (i)  interest  at a rate equal to the  Pass-Through  Rate on the Class
II-A-1  Certificates  is  allocated to the Class  II-A-1  Certificates  (ii) the
interest on the Class II-A-2  Certificates shall consist of two components,  one
accruing at the per annum rate of 0.1728% on the Middle REMIC  M-II-A-1  Balance


                                       46
<PAGE>

until the  Distribution  Date occurring in October 2009, then at a rate of 0.0%,
and one accruing at the per annum rate of 0.1250% on the Middle  REMIC  M-II-A-1
Balance, and the Class II-A-2 Certificates shall represent these two components.

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

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

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

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

                  SECTION 2.8 Covenants of the Master Servicer.

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

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

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

                                  ARTICLE III
                 ADMINISTRATION AND SERVICING OF MORTGAGE LOANS

                  SECTION 3.1 Master Servicer to Service Mortgage Loans.

         For and on behalf of the Certificateholders,  the Master Servicer shall
service and administer  the Mortgage  Loans in accordance  with the terms of (i)
the Servicing  Rights  Transfer and  Subservicing  Agreement,  pursuant to which
First  Tennessee  Mortgage  Services,   Inc.  engaged  the  Master  Servicer  to
subservice the Mortgage  Loans,  (ii) this Agreement and (iii) the customary and
usual standards of practice of prudent mortgage loan servicers; provided that if
there is a  conflict  between  the  terms  of the  Servicing  Agreement  and the


                                       47
<PAGE>

Servicing Rights Transfer and Subservicing  Agreement, on the one hand, and this
Agreement,  on the other hand,  the terms of this Agreement  shall  prevail.  In
connection  with such servicing and  administration,  the Master  Servicer shall
have full power and  authority,  acting alone  and/or  through  Subservicers  as
provided  in Section  3.2  hereof,  to do or cause to be done any and all things
that it may deem  necessary or desirable in connection  with such  servicing and
administration,  including but not limited to, the power and authority,  subject
to  the  terms   hereof  (i)  to  execute   and   deliver,   on  behalf  of  the
Certificateholders  and the  Trustee,  customary  consents  or waivers and other
instruments  and  documents,  (ii) to  consent  to  transfers  of any  Mortgaged
Property and  assumptions of the Mortgage Notes and related  Mortgages (but only
in the  manner  provided  in this  Agreement),  (iii) to collect  any  Insurance
Proceeds and other Liquidation Proceeds,  and (iv) to effectuate  foreclosure or
other  conversion  of the  ownership  of the  Mortgaged  Property  securing  any
Mortgage Loan;  provided that the Master Servicer shall not take any action that
is  inconsistent  with or  prejudices  the  interests  of the Trust  Fund or the
Certificateholders  in any  Mortgage  Loan or the  rights and  interests  of the
Depositor,  the Trustee and the  Certificateholders  under this  Agreement.  The
Master  Servicer shall  represent and protect the interests of the Trust Fund in
the same manner as it protects its own  interests  in mortgage  loans in its own
portfolio in any claim,  proceeding or litigation regarding a Mortgage Loan, and
shall not make or permit any  modification,  waiver or amendment of any Mortgage
Loan which would cause any REMIC created hereunder to fail to qualify as a REMIC
or result in the imposition of any tax under Section  860F(a) or Section 860G(d)
of the Code.  Without  limiting  the  generality  of the  foregoing,  the Master
Servicer,  in its own name or in the name of the Depositor  and the Trustee,  is
hereby  authorized  and  empowered by the  Depositor  and the Trustee,  when the
Master Servicer believes it appropriate in its reasonable  judgment,  to execute
and deliver, on behalf of the Trustee, the Depositor,  the Certificateholders or
any of them, any and all  instruments of  satisfaction  or  cancellation,  or of
partial or full release or discharge and all other comparable instruments,  with
respect to the Mortgage Loans, and with respect to the Mortgaged Properties held
for the benefit of the Certificateholders. The Master Servicer shall prepare and
deliver to the Depositor and/or the Trustee such documents  requiring  execution
and delivery by either or both of them as are necessary or appropriate to enable
the Master  Servicer to service and  administer the Mortgage Loans to the extent
that the Master  Servicer is not permitted to execute and deliver such documents
pursuant  to the  preceding  sentence.  Upon  receipt  of  such  documents,  the
Depositor  and/or the Trustee shall  execute such  documents and deliver them to
the Master Servicer.  The Master Servicer further is authorized and empowered by
the Trustee,  on behalf of the  Certificateholders  and the Trustee,  in its own
name or in the name of a Subservicer,  when the Master Servicer or a Subservicer
as the case may be, believes it appropriate in its best judgment to register any
Mortgage Loan on the MERS(R) System,  or cause the removal from the registration
of any Mortgage Loan on the MERS(R) System, to execute and deliver, on behalf of
the Trustee and the  Certificateholders  or any of them, any and all instruments
of assignment and other  comparable  instruments with respect to such assignment
or  re-recording  of a Mortgage  in the name of MERS,  solely as nominee for the
Trustee and its successors and assigns.

         In accordance with the standards of the preceding paragraph, the Master
Servicer  shall  advance  or cause to be  advanced  funds as  necessary  for the
purpose of  effecting  the  payment of taxes and  assessments  on the  Mortgaged
Properties,  which  advances  shall be  reimbursable  in the first instance from
related  collections from the Mortgagors pursuant to Section 3.6, and further as
provided in Section 3.8. The costs incurred by the Master  Servicer,  if any, in


                                       48
<PAGE>

effecting  the  timely  payments  of  taxes  and  assessments  on the  Mortgaged
Properties  and  related  insurance  premiums  shall  not,  for the  purpose  of
calculating  monthly  distributions to the  Certificateholders,  be added to the
Stated Principal  Balances of the related Mortgage Loans,  notwithstanding  that
the terms of such Mortgage Loans so permit.

                  SECTION 3.2  Subservicing;  Enforcement of the  Obligations of
         Servicers.

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

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

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

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


                                       49
<PAGE>

                  SECTION 3.4 Trustee to Act as Master Servicer.

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

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

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

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


                                       50
<PAGE>

                  that   enforcing  the  provision  of  the  Mortgage  or  other
                  instrument  pursuant  to which  such  payment is  required  is
                  prohibited by applicable law.

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

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

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

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

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

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

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

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

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

                  In addition, with respect to any Mortgage Loan that is subject
         to a buydown  agreement,  on each Due Date for such  Mortgage  Loan, in
         addition to the monthly payment  remitted by the Mortgagor,  the Master
         Servicer  shall  cause  funds  to  be  deposited  into  the  applicable


                                       51
<PAGE>

         subaccount of the Certificate Account in an amount required to cause an
         amount of interest to be paid with respect to such  Mortgage Loan equal
         to the amount of interest  that has accrued on such  Mortgage Loan from
         the  preceding Due Date at the related  Adjusted  Mortgage Rate on such
         date.

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

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

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

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

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

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


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<PAGE>

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

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

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

         (a)      To the extent  required by the related  Mortgage  Note and not
                  violative of current law, the Master  Servicer shall establish
                  and maintain one or more accounts (each, an "Escrow  Account")
                  and  deposit  and  retain  therein  all  collections  from the
                  Mortgagors  (or  advances  by the  Master  Servicer)  for  the


                                       53
<PAGE>

                  payment of taxes,  assessments,  hazard insurance  premiums or
                  comparable  items for the account of the  Mortgagors.  Nothing
                  herein shall require the Master Servicer to compel a Mortgagor
                  to establish an Escrow Account in violation of applicable law.

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

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

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

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

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

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

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

                  (i)      to the extent not  previously  retained by the Master
                           Servicer,  to pay to the Master  Servicer  the master
                           servicing   compensation  to  which  it  is  entitled


                                       54
<PAGE>

                           pursuant  to  Section   3.14,   and  earnings  on  or
                           investment   income  with  respect  to  funds  in  or
                           credited  to the  Certificate  Account as  additional
                           master servicing compensation;

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

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

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

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

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

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

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

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

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

                  The  Master   Servicer   shall  keep  and  maintain   separate
         accounting, on a Mortgage Loan-by-Mortgage Loan basis and on a Mortgage
         Pool-by-Mortgage   Pool  basis,  for  the  purpose  of  justifying  any
         withdrawal  from the  Certificate  Account  pursuant to such subclauses
         (i), (ii),  (iv), (v) and (vi). Prior to making any withdrawal from the
         Certificate  Account  pursuant to subclause  (iii), the Master Servicer


                                       55
<PAGE>

         shall  deliver to the Trustee an Officer's  Certificate  of a Servicing
         Officer indicating the amount of any previous Advance determined by the
         Master  Servicer to be a  Nonrecoverable  Advance and  identifying  the
         related  Mortgage  Loans(s),  and  their  respective  portions  of such
         Nonrecoverable Advance.

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

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

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

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

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

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

         (a)      The Master  Servicer  shall cause to be  maintained,  for each
                  Mortgage Loan,  hazard insurance with extended  coverage in an
                  amount that is at least equal to the lesser of (i) the maximum
                  insurable  value of the  improvements  securing  such Mortgage
                  Loan or (ii)  the  greater  of (y) the  outstanding  principal
                  balance of the  Mortgage  Loan and (z) an amount such that the
                  proceeds of such  policy  shall be  sufficient  to prevent the
                  Mortgagor  and/or the  mortgagee  from  becoming a co-insurer.
                  Each such policy of standard  hazard  insurance shall contain,
                  or have an accompanying  endorsement that contains, a standard
                  mortgagee clause. Any amounts collected by the Master Servicer
                  under any such policies  (other than the amounts to be applied
                  to the restoration or repair of the related Mortgaged Property
                  or amounts  released to the Mortgagor in  accordance  with the
                  Master  Servicer's  normal  servicing   procedures)  shall  be
                  deposited  in the  applicable  subaccount  of the  Certificate
                  Account.   Any  cost  incurred  by  the  Master   Servicer  in
                  maintaining  any such insurance  shall not, for the purpose of
                  calculating monthly distributions to the Certificateholders or
                  remittances to the Trustee for their benefit,  be added to the
                  principal balance of the Mortgage Loan,  notwithstanding  that
                  the terms of the Mortgage Loan so permit.  Such costs shall be
                  recoverable by the Master Servicer out of late payments by the
                  related Mortgagor or out of Liquidation Proceeds to the extent


                                       56
<PAGE>

                  permitted by Section 3.8 hereof.  It is understood  and agreed
                  that no  earthquake  or other  additional  insurance  is to be
                  required of any Mortgagor or  maintained on property  acquired
                  in  respect  of  a  Mortgage   other  than  pursuant  to  such
                  applicable  laws  and  regulations  as shall at any time be in
                  force and as shall require such additional  insurance.  If the
                  Mortgaged  Property is located at the time of  origination  of
                  the  Mortgage  Loan in a federally  designated  special  flood
                  hazard  area and such area is  participating  in the  national
                  flood insurance program, the Master Servicer shall cause flood
                  insurance to be maintained with respect to such Mortgage Loan.
                  Such flood  insurance shall be in an amount equal to the least
                  of (i) the original  principal balance of the related Mortgage
                  Loan, (ii) the replacement value of the improvements which are
                  part of such Mortgaged Property,  and (iii) the maximum amount
                  of such insurance available for the related Mortgaged Property
                  under the national flood insurance program.

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

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

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


                                       57
<PAGE>

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

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

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

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


                                       58
<PAGE>

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

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

         The Master  Servicer shall use reasonable  efforts to foreclose upon or
otherwise  comparably  convert the ownership of properties  securing such of the
Mortgage  Loans  as come  into  and  continue  in  default  and as to  which  no
satisfactory  arrangements can be made for collection of delinquent payments. In
connection with such foreclosure or other conversion,  the Master Servicer shall
follow such practices and procedures as it shall deem necessary or advisable and
as shall be normal and usual in its general  mortgage  servicing  activities and
meet the  requirements  of the  insurer  under any  Required  Insurance  Policy;
provided,  however, that the Master Servicer shall not be required to expend its
own funds in connection  with any  foreclosure or towards the restoration of any
property unless it shall determine (i) that such restoration  and/or foreclosure
will  increase  the  proceeds  of   liquidation   of  the  Mortgage  Loan  after
reimbursement  to itself of such  expenses and (ii) that such  expenses  will be
recoverable to it through Liquidation  Proceeds  (respecting which it shall have
priority for purposes of withdrawals from the Certificate  Account).  The Master
Servicer shall be responsible for all other costs and expenses incurred by it in


                                       59
<PAGE>

any  such  proceedings;   provided,  however,  that  it  shall  be  entitled  to
reimbursement  thereof from the liquidation proceeds with respect to the related
Mortgaged Property,  as provided in the definition of Liquidation  Proceeds.  If
the Master  Servicer has knowledge  that a Mortgaged  Property  which the Master
Servicer  is  contemplating  acquiring  in  foreclosure  or by  deed  in lieu of
foreclosure  is  located  within  a 1 mile  radius  of any  site  listed  in the
Expenditure Plan for the Hazardous  Substance Clean Up Bond Act of 1984 or other
site with  environmental  or hazardous waste risks known to the Master Servicer,
the Master Servicer will,  prior to acquiring the Mortgaged  Property,  consider
such risks and only take action in accordance with its established environmental
review procedures.

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

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


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<PAGE>

state or local income taxes on the income  earned from such  Mortgaged  Property
under Section  860G(c) of the Code or otherwise,  unless the Master Servicer has
agreed to  indemnify  and hold  harmless  the Trust  Fund  with  respect  to the
imposition of any such taxes.

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

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

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

         The Master  Servicer,  with the consent of the Trustee,  shall have the
right to purchase  for its own  account  from the Trust Fund any  Mortgage  Loan
which is 91 days or more delinquent at a price equal to the Purchase Price.  The
Purchase Price for any Mortgage Loan purchased  hereunder  shall be deposited in
the  applicable  subaccount  of the  Certificate  Account and the Trustee,  upon
receipt  of a  certificate  from the  Master  Servicer  in the form of Exhibit M
hereto,  shall release or cause to be released to the purchaser of such Mortgage


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Loan the related Mortgage File and shall execute and deliver such instruments of
transfer or assignment  prepared by the purchaser of such Mortgage Loan, in each
case without  recourse,  as shall be necessary to vest in the  purchaser of such
Mortgage Loan any Mortgage Loan  released  pursuant  hereto and the purchaser of
such Mortgage Loan shall succeed to all the Trustee's right,  title and interest
in and to such Mortgage Loan and all security and documents related thereto. The
purchaser of such Mortgage Loan shall  thereupon own such Mortgage Loan, and all
security and  documents,  free of any further  obligation  to the Trustee or the
Certificateholders with respect thereto.

                  SECTION 3.12 Trustee to Cooperate; Release of Mortgage Files.

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

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


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<PAGE>

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

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

                  SECTION 3.14 Master Servicing Compensation.

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

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


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<PAGE>

                  SECTION 3.15 Access to Certain Documentation.

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

                  SECTION 3.16 Annual Statement as to Compliance.

         The Master  Servicer  shall deliver to the Depositor and the Trustee on
or  before  120  days  after  the  end of the  Master  Servicer's  fiscal  year,
commencing with its 2004 fiscal year, an Officer's  Certificate  stating,  as to
the signer  thereof,  that (i) a review of the activities of the Master Servicer
during the preceding calendar year and of the performance of the Master Servicer
under this Agreement has been made under such officer's  supervision and (ii) to
the best of such officer's knowledge,  based on such review, the Master Servicer
has fulfilled all its obligations under this Agreement throughout such year, or,
if  there  has  been a  default  in the  fulfillment  of  any  such  obligation,
specifying  each such  default  known to such  officer and the nature and status
thereof.  The Trustee shall forward a copy of each such statement to each Rating
Agency.

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

         On or before  120 days after the end of the  Master  Servicer's  fiscal
year,  commencing  with its 2004 fiscal year, the Master Servicer at its expense
shall cause a nationally or regionally  recognized  firm of  independent  public
accountants  (who may also render  other  services to the Master  Servicer,  the
Seller or any affiliate  thereof) which is a member of the American Institute of
Certified  Public  Accountants  to furnish a  statement  to the  Trustee and the
Depositor  to the effect  that-such  firm has  examined  certain  documents  and
records  relating to the servicing of the Mortgage Loans under this Agreement or
of mortgage loans under pooling and servicing agreements  substantially  similar
to this Agreement  (such statement to have attached  thereto a schedule  setting
forth the pooling and  servicing  agreements  covered  thereby) and that, on the
basis  of such  examination,  conducted  substantially  in  compliance  with the
Uniform Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages  serviced for FNMA and FHLMC,  such  servicing  has been  conducted in
compliance  with  such  pooling  and  servicing   agreements   except  for  such
significant  exceptions  or errors in records that, in the opinion of such firm,
the Uniform Single Attestation Program for Mortgage Bankers or the Audit Program
for Mortgages  serviced for FNMA and FHLMC  requires it to report.  In rendering
such statement,  such firm may rely, as to matters  relating to direct servicing
of mortgage loans by Subservicers,  upon comparable  statements for examinations
conducted  substantially  in  compliance  with the  Uniform  Single  Attestation


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<PAGE>

Program for Mortgage  Bankers or the Audit  Program for  Mortgages  serviced for
FNMA and FHLMC  (rendered  within  one year of such  statement)  of  independent
public  accountants  with  respect to the  related  Subservicer.  Copies of such
statement  shall  be  provided  by  the  Trustee  to  any  Certificateholder  or
Certificate Owner upon request at the Master Servicer's  expense,  provided such
statement is delivered by the Master Servicer to the Trustee.

                  SECTION 3.18 Errors and Omissions Insurance; Fidelity Bonds.

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

                  SECTION 3.19 Notification of Adjustments.

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

                                   ARTICLE IV
                DISTRIBUTIONS AND ADVANCES BY THE MASTER SERVICER

                  SECTION 4.1 Advances.

         The Master  Servicer shall  determine on the Business Day prior to each
Master Servicer  Advance Date whether it is required to make an Advance pursuant
to the definition  thereof.  If the Master Servicer determines it is required to
make an Advance, it shall, on or before the Master Servicer Advance Date, either
(i) deposit into the applicable  subaccount of the Certificate Account an amount
equal to the Advance or (ii) make an appropriate  entry in its records  relating
to the applicable subaccount of the Certificate Account that any Amount Held for
Future  Distribution  has been used by the Master  Servicer in  discharge of its
obligation to make any such  Advance.  Any funds so applied shall be replaced by
the Master  Servicer by deposit in the applicable  subaccount of the Certificate


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<PAGE>

Account no later than the close of business on the  Business Day  preceding  the
next Master  Servicer  Advance Date. The Master Servicer shall be entitled to be
reimbursed  from the applicable  subaccount of the  Certificate  Account for all
Advances of its own funds made  pursuant to this  Section as provided in Section
3.8. The  obligation  to make  Advances  with respect to any Mortgage Loan shall
continue  until  the  ultimate  disposition  of the REO  Property  or  Mortgaged
Property relating to such Mortgage Loan. As to any Distribution Date, the Master
Servicer  shall inform the Trustee in writing of the amount of the Advance to be
made by the Master Servicer on each Master  Servicer  Advance Date no later 1:30
p.m.  Central  time  on the  second  Business  Day  immediately  preceding  such
Distribution Date.

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

                  SECTION 4.2 Priorities of Distribution.

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

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

                  (ii)     to the Classes of Senior  Certificates of the related
                           Certificate Group, any Accrued  Certificate  Interest
                           thereon   remaining   undistributed   from   previous
                           Distribution   Dates,  to  the  extent  of  remaining
                           Available Funds from the related Mortgage Pool;

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

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


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<PAGE>

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

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

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

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

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

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

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


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<PAGE>

                  (ii)     to the  Class  I-A-1  Certificates,  until  the Class
                           Certificate Balance thereof has been reduced to zero.

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

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

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

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


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                  undistributed  in accordance  with the  preceding  sentence or
                  (ii) the  amount  of an  Unanticipated  Recovery  exceeds  the
                  amount  of  the  Realized  Loss  previously  allocated  to any
                  outstanding Classes with respect to the related Mortgage Loan,
                  on  the  applicable   Distribution   Date  the  Trustee  shall
                  distribute  such  Unanticipated  Recoveries in accordance with
                  the priorities set forth in Section 4.2(a).

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

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


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<PAGE>

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

                  SECTION 4.3 Method of Distribution.

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

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


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

                  SECTION 4.4 Allocation of Losses.

         (a)      On or prior to each  Determination  Date, the Master  Servicer
                  shall  determine the amount of any Realized Loss in respect of
                  each  Mortgage  Loan  that  occurred  during  the  immediately
                  preceding calendar month.

         (b)      With respect to any Distribution  Date, the principal  portion
                  of each  Realized  Loss  (other  than any  Excess  Loss)  with
                  respect to a Mortgage Pool shall be allocated in the following
                  order of priority:

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

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

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

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

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


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<PAGE>

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

                  (vii)    to the Classes of Senior  Certificates of the related
                           Certificate Group, pro rata, in accordance with their
                           Class Certificate Balances.

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

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

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

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

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


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<PAGE>

                  SECTION 4.5 [RESERVED]

                  SECTION 4.6 Monthly Statements to Certificateholders.

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

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

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

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

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

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

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

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

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

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

                  (x)      the  number  and  aggregate   principal   amounts  of
                           Mortgage Loans (A) delinquent  (exclusive of Mortgage
                           Loans in  foreclosure)  (1) 1 to 30 days (2) 31 to 60
                           days  (3) 61 to 90 days  and (4) 91 or more  days and
                           (B) in  foreclosure  and  delinquent (1) 1 to 30 days


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                           (2) 31 to 60  days  (3) 61 to 90  days  and (4) 91 or
                           more days,  as of the close of  business  on the last
                           day of the calendar month preceding such Distribution
                           Date;

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

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

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

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

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

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

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

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

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

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


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                  information  shall be provided by the Trustee  pursuant to any
                  requirements of the Code as from time to time in effect.

                                   ARTICLE V
                                THE CERTIFICATES

                  SECTION 5.1 The Certificates.

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

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

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

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

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

         (a)      The  Trustee  shall  maintain,  or cause to be  maintained  in
                  accordance  with the  provisions  of  Section  5.6  hereof,  a
                  Certificate  Register for the Trust Fund in which,  subject to
                  the  provisions of  subsections  (b) and (c) below and to such
                  reasonable regulations as it may prescribe,  the Trustee shall
                  provide for the  registration of Certificates and of transfers


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<PAGE>

                  and  exchanges  of  Certificates  as  herein  provided.   Upon
                  surrender for registration of transfer of any Certificate, the
                  Trustee  shall  execute  and  deliver,  in  the  name  of  the
                  designated   transferee  or  transferees,   one  or  more  new
                  Certificates  of  the  same  Class  and  aggregate  Percentage
                  Interest.

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

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

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

         (b)      No transfer of a Private Certificate shall be made unless such
                  transfer  is  made  pursuant  to  an  effective   registration
                  statement  under the Securities  Act and any applicable  state
                  securities   laws  or  is   exempt   from   the   registration
                  requirements under said Act and such state securities laws. In
                  the event that a transfer  is to be made in  reliance  upon an
                  exemption  from the  Securities Act and such laws, in order to
                  assure  compliance  with the Securities Act and such laws, the
                  Certificateholder  desiring to effect such  transfer  and such
                  Certificateholder's  prospective transferee shall each certify
                  to the Trustee in writing the facts  surrounding  the transfer
                  in  substantially  the  forms  set  forth  in  Exhibit  I (the
                  "Transferor   Certificate")   and  (i)  deliver  a  letter  in
                  substantially  the form of either  Exhibit J (the  "Investment
                  Letter")  or Exhibit K (the "Rule 144A  Letter") or (ii) there
                  shall  be  delivered  to the  Trustee  at the  expense  of the
                  transferor  an Opinion of Counsel  that such  transfer  may be
                  made  pursuant to an exemption  from the  Securities  Act. The
                  Depositor shall provide to any Holder of a Private Certificate
                  and any prospective  transferee designated by any such Holder,
                  information   regarding  the  related   Certificates  and  the
                  Mortgage  Loans  and  such  other   information  as  shall  be
                  necessary to satisfy the condition to eligibility set forth in
                  Rule 144A(d)(4) for transfer of any such  Certificate  without
                  registration  thereof under the Securities Act pursuant to the
                  registration  exemption provided by Rule 144A. The Trustee and
                  the Master  Servicer  shall  cooperate  with the  Depositor in
                  providing  the  Rule  144A   information   referenced  in  the
                  preceding sentence,  including providing to the Depositor such
                  information regarding the Certificates, the Mortgage Loans and
                  other matters  regarding the Trust Fund as the Depositor shall
                  reasonably  request to meet its obligation under the preceding
                  sentence.  Each  Holder of a Private  Certificate  desiring to


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<PAGE>

                  effect  such  transfer  shall,   and  does  hereby  agree  to,
                  indemnify  the Trustee and the  Depositor,  the Seller and the
                  Master  Servicer  against any liability that may result if the
                  transfer  is not so exempt or is not made in  accordance  with
                  such federal and state laws.

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

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


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

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

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

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

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


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                           Certificate  at and after either such time.  Any such
                           payments so  recovered  by the Trustee  shall be paid
                           and  delivered  by the Trustee to the last  preceding
                           Permitted Transferee of such Certificate.

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

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

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

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


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                  furnished  by the  Depository  Participants  with  respect  to
                  indirect participating firms and persons shown on the books of
                  such  indirect  participating  firms  as  direct  or  indirect
                  Certificate Owners.

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

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

                  SECTION 5.3 Mutilated, Destroyed, Lost or Stolen Certificates.

         If (a) any mutilated  Certificate is surrendered to the Trustee, or the
Trustee receives evidence to its satisfaction of the destruction,  loss or theft
of any  Certificate  and (b) there is delivered  to the Master  Servicer and the
Trustee  such  security or  indemnity as may be required by them to save each of
them  harmless,  then,  in the  absence  of  notice  to the  Trustee  that  such
Certificate  has been  acquired  by a bona fide  purchaser,  the  Trustee  shall
execute,  countersign  and  deliver,  in  exchange  for or in lieu  of any  such
mutilated,  destroyed,  lost or stolen  Certificate,  a new  Certificate of like
Class, tenor and Percentage Interest. In connection with the issuance of any new
Certificate under this Section 5.3, the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental  charge that may be imposed in


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relation thereto and any other expenses  (including the fees and expenses of the
Trustee)  connected  therewith.  Any replacement  Certificate issued pursuant to
this  Section  5.3  shall  constitute  complete  and  indefeasible  evidence  of
ownership, as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.

                  SECTION 5.4 Persons Deemed Owners.

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

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

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

                  SECTION 5.6 Maintenance of Office or Agency.

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

                                   ARTICLE VI
                      THE DEPOSITOR AND THE MASTER SERVICER

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

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


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<PAGE>

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

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

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

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

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


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such action and any liability resulting  therefrom shall be expenses,  costs and
liabilities of the Trust Fund, and the Depositor,  and the Master Servicer shall
be entitled to be reimbursed  therefor out of the  applicable  subaccount of the
Certificate Account.

                  SECTION 6.4 Limitation on Resignation of Master Servicer.

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

                                  ARTICLE VII
                                     DEFAULT

                  SECTION 7.1 Events of Default.

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

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

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

                  (iii)    a decree or order of a court or agency or supervisory
                           authority having jurisdiction in the premises for the
                           appointment  of  a  receiver  or  liquidator  in  any
                           insolvency,  readjustment  of  debt,  marshalling  of


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                           assets and liabilities or similar proceedings, or for
                           the winding-up or  liquidation of its affairs,  shall
                           have been  entered  against the Master  Servicer  and
                           such  decree or order  shall have  remained  in force
                           undischarged   or   unstayed   for  a  period  of  60
                           consecutive days; or

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

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

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

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


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Mortgage  Loans.  All expenses  incurred in the  transferring  of the  servicing
duties from the Master  Servicer to a  Successor  Servicer  shall be paid by the
Master  Servicer,  and if not paid by the  Master  Servicer,  shall be paid from
amounts on deposit in the Certificate Account.

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

                  SECTION 7.2 Trustee to Act; Appointment of Successor.

         On and  after  the time  the  Master  Servicer  receives  a  notice  of
termination pursuant to Section 7.1 hereof, the Trustee shall, subject to and to
the extent  provided in Section  3.4, be the  successor  to the Master  Servicer
under this Agreement and the  transactions  set forth or provided for herein and
shall be subject to all the  responsibilities,  duties and liabilities  relating
thereto  placed on the Master  Servicer by the terms and  provisions  hereof and
applicable  law  including the  obligation to make Advances  pursuant to Section
4.1.  As  compensation  therefor,  the  Trustee  shall be  entitled to all funds
relating to the Mortgage Loans that the Master Servicer would have been entitled
to charge to the  Certificate  Account  or  Distribution  Account  if the Master
Servicer had continued to act hereunder.  Notwithstanding the foregoing,  if the
Trustee  has become the  successor  to the Master  Servicer in  accordance  with
Section 7.1  hereof,  the Trustee  may, if it shall be  unwilling  to so act, or
shall,  if it is prohibited by applicable law from making  Advances  pursuant to
Section 4.1 hereof or if it is otherwise unable to so act, appoint,  or petition
a court of competent  jurisdiction  to appoint,  any  established  mortgage loan
servicing  institution  the  appointment of which does not adversely  affect the
then current rating of the  Certificates  by each Rating Agency as the successor
to the Master  Servicer  hereunder in the  assumption  of all or any part of the
responsibilities,  duties or liabilities of the Master Servicer  hereunder.  Any
successor to the Master  Servicer  shall be an  institution  which is a FNMA and
FHLMC approved  seller/servicer  in good  standing,  which has a net worth of at
least  $10,000,000,  and which is  willing  to service  the  Mortgage  Loans and
executes and delivers to the  Depositor  and the Trustee an agreement  accepting
such delegation and  assignment,  which contains an assumption by such Person of
the rights, powers, duties, responsibilities, obligations and liabilities of the
Master Servicer (other than liabilities of the Master Servicer under Section 6.3
hereof  incurred prior to termination of the Master Servicer under Section 7.1),
with  like  effect  as if  originally  named as a party to this  Agreement;  and
provided  further that each Rating  Agency  acknowledges  that its rating of the
Certificates in effect  immediately prior to such assignment and delegation will
not be  qualified or reduced,  as a result of such  assignment  and  delegation.
Pending  appointment  of a  successor  to the  Master  Servicer  hereunder,  the
Trustee,  unless the Trustee is prohibited by law from so acting, shall, subject
to Section 3.4 hereof,  act in such  capacity as provided  above.  In connection
with such appointment and assumption, the Trustee may make such arrangements for
the  compensation  of such successor out of payments on Mortgage Loans as it and
such successor shall agree;  provided,  however, that no such compensation shall
be in  excess  of  the  Master  Servicing  Fee  permitted  the  Master  Servicer


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hereunder.  The Trustee and such  successor  shall take such action,  consistent
with this  Agreement,  as shall be necessary to effectuate any such  succession.
Neither the Trustee nor any other  successor  master servicer shall be deemed to
be in  default  hereunder  by reason  of any  failure  to make,  or any delay in
making,  any  distribution  hereunder  or any portion  thereof or any failure to
perform, or any delay in performing,  any duties or responsibilities  hereunder,
in either  case  caused by the  failure  of the  Master  Servicer  to deliver or
provide,  or any  delay in  delivering  or  providing,  any  cash,  information,
documents or records to it.

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

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

                  SECTION 7.3 Notification to Certificateholders.

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

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


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                                  ARTICLE VIII
                             CONCERNING THE TRUSTEE

                  SECTION 8.1 Duties of Trustee.

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

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

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

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

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


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

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

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

                  SECTION 8.2 Certain Matters Affecting the Trustee.

         Except as otherwise provided in Section 8.1:

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


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<PAGE>

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

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

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

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

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

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

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


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<PAGE>

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

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

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

                  SECTION 8.3 Trustee  Not Liable for  Certificates  or Mortgage
         Loans.

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

                  SECTION 8.4 Trustee May Own Certificates.

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

                  SECTION 8.5 Trustee's Fees and Expenses.

         The Trustee,  as  compensation  for its activities  prior to making the
distributions  pursuant to Section 4.2 hereunder,  shall be entitled to withdraw
from the Distribution  Account on each  Distribution Date an amount equal to the
Trustee Fee for such Distribution  Date. The Trustee and any director,  officer,
employee or agent of the Trustee shall be indemnified by the Master Servicer and
held  harmless  against any loss,  liability  or expense  (including  reasonable
attorney's  fees) (i)  incurred  in  connection  with any claim or legal  action
relating to (a) this Agreement,  (b) the  Certificates or (c) in connection with
the performance of any of the Trustee's duties  hereunder,  other than any loss,
liability  or expense  incurred by reason of willful  misfeasance,  bad faith or
negligence  in the  performance  of any of the  Trustee's  duties  hereunder  or
incurred by reason of any action of the Trustee  taken at the  direction  of the
Certificateholders  and (ii)  resulting from any error in any tax or information
return  prepared  by the Master  Servicer.  Such  indemnity  shall  survive  the
termination  of this  Agreement  or the  resignation  or removal of the  Trustee
hereunder.  Without  limiting the foregoing,  the Master Servicer  covenants and


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agrees,  except as  otherwise  agreed upon in writing by the  Depositor  and the
Trustee,  and except for any such expense,  disbursement or advance as may arise
from the  Trustee's  negligence,  bad  faith or  willful  misconduct,  to pay or
reimburse the Trustee, for all reasonable  expenses,  disbursements and advances
incurred or made by the Trustee in accordance with any of the provisions of this
Agreement with respect to: (A) the reasonable  compensation and the expenses and
disbursements  of its counsel not associated with the closing of the issuance of
the Certificates, (B) the reasonable compensation, expenses and disbursements of
any  accountant,  engineer or appraiser  that is not  regularly  employed by the
Trustee, to the extent that the Trustee must engage such persons to perform acts
or services hereunder and (C) printing and engraving expenses in connection with
preparing any Definitive Certificates.  Except as otherwise provided herein, the
Trustee  shall not be  entitled  to payment  or  reimbursement  for any  routine
ongoing expenses incurred by the Trustee in the ordinary course of its duties as
Trustee,  Registrar,  Tax Matters  Person or Paying  Agent  hereunder or for any
other expenses.

                  SECTION 8.6 Eligibility Requirements for Trustee.

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

                  SECTION 8.7 Resignation and Removal of Trustee.

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

         If at any time the Trustee  shall  cease to be  eligible in  accordance
with the provisions of Section 8.6 hereof and shall fail to resign after written
request  thereto by the  Depositor,  or if at any time the Trustee  shall become


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incapable  of acting,  or shall be  adjudged  as  bankrupt  or  insolvent,  or a
receiver of the Trustee or of its  property  shall be  appointed,  or any public
officer  shall  take  charge or control of the  Trustee  or of its  property  or
affairs for the purpose of rehabilitation, conservation or liquidation, or a tax
is imposed  with  respect to the Trust Fund by any state in which the Trustee or
the Trust Fund is located and the imposition of such tax would be avoided by the
appointment of a different  trustee,  then the Depositor or the Master  Servicer
may remove the Trustee and appoint a successor trustee by written instrument, in
triplicate,  one copy of which instrument shall be delivered to the Trustee, one
copy of which  shall be  delivered  to the Master  Servicer  and one copy to the
successor trustee.

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

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

                  SECTION 8.8 Successor Trustee.

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

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

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


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                  SECTION 8.9 Merger or Consolidation of Trustee.

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

                  SECTION 8.10 Appointment of Co-Trustee or Separate Trustee.

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

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

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


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<PAGE>

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

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

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

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

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

                  SECTION 8.11 Tax Matters.

         It is  intended  that the  assets  with  respect  to which  each  REMIC
election  is to be  made,  as set  forth  in  the  preliminary  statement  shall
constitute,  and that the conduct of matters  relating  to such assets  shall be
such as to qualify such assets as, a "real estate mortgage  investment  conduit"
as defined in and in accordance  with the REMIC  Provisions.  In  furtherance of
such intention, the Trustee covenants and agrees that it shall act as agent (and
the Trustee is hereby appointed to act as agent) on behalf of any such REMIC and
that in such  capacity it shall:  (a) prepare and file,  or cause to be prepared
and filed, in a timely manner,  a U.S. Real Estate Mortgage  Investment  Conduit
Income  Tax Return  (Form 1066 or any  successor  form  adopted by the  Internal
Revenue Service) and prepare and file or cause to be prepared and filed with the
Internal  Revenue Service and applicable  state or local tax authorities  income
tax or information returns for each taxable year with respect to any such REMIC,
containing  such  information  and at the  times  and  in the  manner  as may be
required  by the Code or state or local tax  laws,  regulations,  or rules,  and
furnish or cause to be furnished to Certificateholders the schedules, statements
or information at such times and in such manner as may be required thereby;  (b)
within thirty days of the Closing Date,  furnish or cause to be furnished to the
Internal Revenue  Service,  on Forms 8811 or as otherwise may be required by the


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

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


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<PAGE>

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

                  SECTION 8.12 Periodic Filings.

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

                                   ARTICLE IX
                                   TERMINATION

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

         Subject to Section 9.3, the  obligations  and  responsibilities  of the
Depositor,  the Master  Servicer and the Trustee  created hereby with respect to
the Trust Fund shall  terminate  upon the  earlier  of (a) the  purchase  by the
Master  Servicer of all  Mortgage  Loans (and REO  Properties)  remaining in the
Trust  Fund at the price  equal to the sum of (i) 100% of the  Stated  Principal
Balance  of each  Mortgage  Loan  (other  than a  Mortgage  Loan  that  has been
foreclosed and subject to clause (ii)) plus one month's accrued interest thereon
at the applicable  Adjusted  Mortgage Rate, (ii) the lesser of (x) the appraised
value  of any  REO  Property  as  determined  by the  higher  of two  appraisals


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<PAGE>

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

                  SECTION 9.2 Final Distribution on the Certificates.

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

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

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


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<PAGE>

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

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

                  SECTION 9.3 Additional Termination Requirements.

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

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

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


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<PAGE>

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

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

                                   ARTICLE X
                                   [RESERVED]

                                   ARTICLE XI
                            MISCELLANEOUS PROVISIONS

                  SECTION 11.1 Amendment.

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


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<PAGE>

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

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

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

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

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

                  SECTION 11.2 Recordation of Agreement; Counterparts.

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


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<PAGE>

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

                  SECTION 11.3 Governing Law.

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

                  SECTION 11.4 Intention of Parties.

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

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

                  SECTION 11.5 Notices.

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

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


                                      101
<PAGE>

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

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

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

                  (5)      The final payment to Certificateholders.

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

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

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

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

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

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

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

                  SECTION 11.6 Severability of Provisions.

         If any one or more of the covenants, agreements, provisions or terms of
this  Agreement  shall be for any  reason  whatsoever  held  invalid,  then such
covenants,  agreements,  provisions or terms shall be deemed  severable from the


                                      102
<PAGE>

remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or  enforceability of the other provisions of this
Agreement or of the Certificates or the rights of the Holders thereof.

                  SECTION 11.7 Assignment.

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

                  SECTION 11.8 Limitation on Rights of Certificateholders.

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

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

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


                                      103
<PAGE>

                  SECTION 11.9 Inspection and Audit Rights.

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

                  SECTION 11.10 Certificates Nonassessable and Fully Paid.

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

                  SECTION 11.11 Limitations on Actions; No Proceedings.

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

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

                  SECTION 11.12 Acknowledgment of Seller.

         Seller hereby acknowledges the provisions of this Agreement,  including
the obligations  under Sections  2.1(a),  2.2, 2.3(b) and 8.11 of this Agreement
and further  acknowledges the Depositor's  assignment of its rights and remedies


                                      104
<PAGE>

for the breach of the  representations  and warranties  made by the Seller under
the MLPA.


                                   * * * * * *



                                      105
<PAGE>

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

                                           FIRST HORIZON ASSET SECURITIES INC.,
                                           as Depositor


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


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


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


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


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

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

FIRST HORIZON HOME LOAN CORPORATION,
in its capacity as Seller

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

<PAGE>

                                   SCHEDULE I

                       First Horizon Asset Securities Inc.
               Mortgage Pass-Through Certificates Series 2004-AA5

                             Mortgage Loan Schedule

                      [Available Upon Request from Trustee]


                                      I-1
<PAGE>

                                   SCHEDULE II

                       First Horizon Asset Securities Inc.
               Mortgage Pass-Through Certificates Series 2004-AA5

              Representations and Warranties of the Master Servicer

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

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

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

                  (3) The  execution  and delivery of the Pooling and  Servicing
         Agreement by First  Horizon,  the  servicing  of the Mortgage  Loans by
         First  Horizon  under  the  Pooling  and   Servicing   Agreement,   the
         consummation  of any  other  of the  transactions  contemplated  by the
         Pooling and Servicing  Agreement,  and the fulfillment of or compliance
         with the terms thereof are in the ordinary  course of business of First
         Horizon  and will not (A)  result in a  material  breach of any term or
         provision of the charter or by-laws of First Horizon or (B)  materially
         conflict with,  result in a material breach,  violation or acceleration
         of, or  result  in a  material  default  under,  the terms of any other
         material  agreement or  instrument to which First Horizon is a party or
         by which it may be bound, or (C) constitute a material violation of any


                                      II-1
<PAGE>

         statute,  order or regulation applicable to First Horizon of any court,
         regulatory  body,  administrative  agency or  governmental  body having
         jurisdiction over First Horizon;  and First Horizon is not in breach or
         violation of any  material  indenture  or other  material  agreement or
         instrument,  or in violation of any statute, order or regulation of any
         court,  regulatory  body,  administrative  agency or governmental  body
         having  jurisdiction  over it which breach or violation may  materially
         impair  First  Horizon's   ability  to  perform  or  meet  any  of  its
         obligations under the Pooling and Servicing Agreement.

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

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



                                      II-2
<PAGE>

                              SCHEDULE III

                       First Horizon Asset Securities Inc.
               Mortgage Pass-Through Certificates Series 2004-AA5

                     Form of Monthly Master Servicer Report

                              [Begins on Next Page]



                                     III-1
<PAGE>

                                    EXHIBIT A

                          [FORM OF SENIOR CERTIFICATE]

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

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

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



                                      A-1

<PAGE>

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


          First Horizon Alternative Mortgage Securities Trust 2004-AA5
               Mortgage Pass-Through Certificates, Series 2004-AA5
                                Class [________]

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

                First Horizon Asset Securities Inc., as Depositor

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

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

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


                                      A-2
<PAGE>

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


                                      A-3
<PAGE>

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

Dated:  October __, 2004

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



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


Countersigned:

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


                                      A-4
<PAGE>

                                    EXHIBIT B

                       [FORM OF SUBORDINATED CERTIFICATE]

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

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

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

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

[NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED  UNLESS THE
TRANSFEREE  REPRESENTS  TO THE TRUSTEE THAT SUCH  TRANSFEREE  IS NOT AN EMPLOYEE
BENEFIT PLAN OR ARRANGEMENT  SUBJECT TO THE EMPLOYEE  RETIREMENT INCOME SECURITY
ACT OF 1974, AS AMENDED ("ERISA"),  OR A PLAN OR ARRANGEMENT  SUBJECT TO SECTION
4975 OF THE  CODE,  OR,  IF  SUCH  PURCHASER  IS AN  INSURANCE  COMPANY  AND THE
CERTIFICATE   HAS  BEEN   SUBJECT  TO  AN   ERISA-QUALIFYING   UNDERWRITING,   A
REPRESENTATION  IN ACCORDANCE  WITH THE PROVISIONS OF THE AGREEMENT  REFERRED TO


                                      B-1
<PAGE>

HEREIN,  OR DELIVERS TO THE TRUSTEE AN OPINION OF COUNSEL IN ACCORDANCE WITH THE
PROVISIONS OF THE AGREEMENT  REFERRED TO HEREIN.  SUCH  REPRESENTATION  SHALL BE
DEEMED TO HAVE BEEN MADE TO THE  TRUSTEE  BY THE  TRANSFEREE'S  ACCEPTANCE  OF A
CERTIFICATE OF THIS CLASS AND BY A BENEFICIAL OWNER'S ACCEPTANCE OF ITS INTEREST
IN A CERTIFICATE  OF THIS CLASS.  NOTWITHSTANDING  ANYTHING ELSE TO THE CONTRARY
HEREIN,  ANY  PURPORTED  TRANSFER  OF THIS  CERTIFICATE  TO OR ON  BEHALF  OF AN
EMPLOYEE  BENEFIT  PLAN  SUBJECT TO ERISA OR TO THE CODE  WITHOUT THE OPINION OF
COUNSEL  SATISFACTORY  TO THE TRUSTEE AS DESCRIBED ABOVE SHALL BE VOID AND OF NO
EFFECT.]


                                      B-2
<PAGE>





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


          First Horizon Alternative Mortgage Securities Trust 2004-AA5
               Mortgage Pass-Through Certificates, Series 2004-AA5
                                   Class [___]

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

                First Horizon Asset Securities Inc., as Depositor

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

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


                                      B-3
<PAGE>

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

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

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


                                      B-4
<PAGE>

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



                                      B-5
<PAGE>



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

Dated:  October __, 2004

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



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


Countersigned:

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



                                      B-6
<PAGE>

                                    EXHIBIT C

                         [FORM OF RESIDUAL CERTIFICATE]

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

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

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

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


                                      C-1
<PAGE>

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


          First Horizon Alternative Mortgage Securities Trust 2004-AA5
               Mortgage Pass-Through Certificates, Series 2004-AA5

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

                First Horizon Asset Securities Inc., as Depositor

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

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

         Any  distribution of the proceeds of any remaining  assets of the Trust
Fund  will be made only upon  presentment  and  surrender  of this  Class  I-A-R
Certificate at the Corporate Trust Office or the office or agency  maintained by


                                      C-2
<PAGE>

the Trustee in New York, New York.  This Class I-A-R  Certificate  represents an
ownership in the RL Interest and RU Interest, as defined in the Agreement.

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

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

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


                                      C-3
<PAGE>

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



                                      C-4
<PAGE>

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

Dated:  October __, 2004

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


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


Countersigned:

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



                                      C-5
<PAGE>

                        [Form of Reverse of Certificates]

          First Horizon Alternative Mortgage Securities Trust 2004-AA5
                       Mortgage Pass-Through Certificates

         This  Certificate  is one of a duly  authorized  issue of  Certificates
designated as First  Horizon  Alternative  Mortgage  Securities  Trust  2004-AA5
Mortgage Pass-Through  Certificates,  of the Series specified on the face hereof
(herein collectively called the  "Certificates"),  and representing a beneficial
ownership interest in the Trust Fund created by the Agreement.

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

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

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

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

         The Agreement permits,  with certain  exceptions therein provided,  the
amendment  thereof and the  modification  of the rights and  obligations  of the
Trustee and the rights of the Certificateholders under the Agreement at any time
by the  Depositor,  the Master  Servicer and the Trustee with the consent of the
Holders of  Certificates  affected by such  amendment  evidencing  the requisite
Percentage  Interest,  as provided  in the  Agreement.  Any such  consent by the
Holder of this  Certificate  shall be conclusive  and binding on such Holder and
upon all future Holders of this  Certificate and of any Certificate  issued upon
the  transfer  hereof or in exchange  therefor or in lieu hereof  whether or not


                                      D-2
<PAGE>

notation  of such  consent is made upon this  Certificate.  The  Agreement  also
permits the amendment  thereof,  in certain limited  circumstances,  without the
consent of the Holders of any of the Certificates.

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

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

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

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

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

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

                                      D-3
<PAGE>

         ASSIGNMENT

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

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

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

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

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

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

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

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

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

Dated:
       ------------------------

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


                            DISTRIBUTION INSTRUCTIONS

         The assignee should include the following for purposes of distribution:

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

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


                                      D-3
<PAGE>

                                    EXHIBIT E

                   FORM OF INITIAL CERTIFICATION OF CUSTODIAN

                                     [date]

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

The Bank of New York
101 Barclay Street, 8W
New York, New York  10286

         Re:      Custodial  Agreement dated as of October 29, 2004 by and among
                  the Bank of New York,  as  Trustee,  First  Horizon  Home Loan
                  Corporation,  as Servicer and First  Tennessee  Bank  National
                  Association, as Custodian

Gentlemen:

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

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

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

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

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


                                      E-1
<PAGE>

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

                                                  FIRST TENNESSEE BANK NATIONAL
                                                  ASSOCIATION,
                                                  as Custodian


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



                                      E-2
<PAGE>

                                    EXHIBIT F

                      FORM OF DELAY DELIVERY CERTIFICATION

                                     [date]


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

The Bank of New York
101 Barclay Street, 8W
New York, New York  10286

         Re:      Custodial  Agreement dated as of October 29, 2004 by and among
                  the Bank of New York,  as  Trustee,  First  Horizon  Home Loan
                  Corporation,  as Servicer,  and First  Tennessee Bank National
                  Association, as Custodian

Ladies and Gentlemen:

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

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

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

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

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

         The  Custodian  has made no  independent  examination  of any documents
contained in each Mortgage File beyond the review  specifically  required in the
Custodial  Agreement.  The  Custodian  makes no  representations  as to: (i) the
validity,  legality,  sufficiency,  enforceability  or genuineness of any of the


                                      F-1
<PAGE>

documents  contained in each Mortgage File of any of the Delay Delivery Mortgage
Loans  identified on the Mortgage  Loan  Schedule,  or (ii) the  collectability,
insurability,  effectiveness or suitability of any such Delay Delivery  Mortgage
Loan.

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


                                                  FIRST TENNESSEE BANK NATIONAL
                                                  ASSOCIATION,
                                                  as Custodian


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


                                      F-2
<PAGE>

                                    EXHIBIT G

                    FORM OF FINAL CERTIFICATION OF CUSTODIAN

                                     [date]


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

The Bank of New York
101 Barclay Street, 8W
New York, New York  10286

         Re:      Custodial  Agreement dated as of October 29, 2004 by and among
                  the Bank of New York,  as  Trustee,  First  Horizon  Home Loan
                  Corporation,  as Servicer,  and First  Tennessee Bank National
                  Association, as Custodian

Ladies and Gentlemen:

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

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

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

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


                                      G-1
<PAGE>

                           recording  office  in which  such  Mortgage  has been
                           recorded;

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

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

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

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

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

                           (b)      The executed Security Agreement;

                           (c)      The executed Proprietary Lease;

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

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

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


                                      G-2
<PAGE>

                  Article I of the Pooling and  Servicing  Agreement  accurately
                  reflects information set forth in the Mortgage File.

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

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


                                                  FIRST TENNESSEE BANK NATIONAL
                                                  ASSOCIATION,
                                                  as Custodian


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


                                      G-3
<PAGE>

                                    EXHIBIT H

                               TRANSFER AFFIDAVIT

          First Horizon Alternative Mortgage Securities Trust 2004-AA5
                       Mortgage Pass-Through Certificates
                                 Series 2004-AA5

STATE OF              )
                      ) ss.:
COUNTY OF             )

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

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

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

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

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

                                      H-1
<PAGE>

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

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

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

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

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

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

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

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

         13.  The  Transferee  is a  domestic  corporation  taxable as a regular
corporation  for U.S.  federal  income  tax  purposes  (a  "taxable  domestic  C
corporation") and is not a real estate investment  trust,  regulated  investment
company or REMIC.  The Transferee  will not cause income from the Certificate to
be attributable,  for U.S. federal income tax purposes, to a non-U.S.  permanent


                                      H-2
<PAGE>

establishment  or fixed base  (within  the meaning of an  applicable  income tax
treaty) of the Transferee or another U.S. taxpayer. At the time of the Transfer,
and at the close of each of the Transferee's two fiscal years preceding the year
of the Transfer,  the Transferee's gross assets for financial reporting purposes
exceeded $10 million (together,  the "Asset  Requirements"),  and the Transferee
hereby covenants that any subsequent  Transfer of its Ownership  Interest in the
Certificate  will be to another taxable,  domestic C corporation  satisfying the
Asset Requirements

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


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

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

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

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



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

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



                                      H-3
<PAGE>

                                                          EXHIBIT 1 to EXHIBIT H

                               Certain Definitions

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

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

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

         "Transfer":  Any direct or indirect  transfer or sale of any  Ownership
Interest in a  Certificate,  including the  acquisition  of a Certificate by the
Depositor.


                                      H-4
<PAGE>

         "Transferee":  Any Person who is acquiring  by Transfer  any  Ownership
Interest in a Certificate.


                                      H-5
<PAGE>

                                                          EXHIBIT 2 to EXHIBIT H

                         Section 5.2(c) of the Agreement

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

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

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

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

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


                                      H-6
<PAGE>

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

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


                                      H-7
<PAGE>

                                    EXHIBIT I

                         FORM OF TRANSFEROR CERTIFICATE

                                                          _______________, 20___


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

The Bank of New York
101 Barclay Street, 8W
New York, New York  10286

         Re:      First Horizon  Alternative  Mortgage Securities Trust 2004-AA5
                  Mortgage Pass-Through Certificates, Series 2004-AA5, Class ___

Ladies and Gentlemen:

         In connection with our disposition of the above Certificates we certify
that (a) to the extent we are disposing of a Private Certificate,  we understand
that the Private Certificate has not been registered under the Securities Act of
1933,  as amended (the "Act"),  and is being  disposed of by us in a transaction
that is exempt from the  registration  requirements  of the Act, (b) we have not
offered or sold any Certificates to, or solicited offers to buy any Certificates
from,  any person,  or otherwise  approached or negotiated  with any person with
respect  thereto,  in a manner that would be deemed,  or taken any other  action
which  would  result in, a  violation  of  Section 5 of the Act,  and (c) to the
extent we are  disposing of a Residual  Certificate,  we have no  knowledge  the
transferee is not a Permitted Transferee.

         Capitalized  terms used herein shall have the meaning  ascribed to such
terms in the Pooling and  Servicing  Agreement,  dated as of October 1, 2004, by
and among First Horizon Asset Securities Inc., as depositor,  First Horizon Home
Loan  Corporation,  as master  servicer,  and The Bank of New York,  as trustee,
pursuant to which the Residual Certificates were issued.

                                               Very truly yours,


                                               ---------------------------------
                                               Print Name of Transferor


                                               By:
                                                   -----------------------------
                                                   Authorized Officer


                                      I-1
<PAGE>

                                    EXHIBIT J

                    FORM OF INVESTMENT LETTER (NON-RULE 144A)

                                                            _____________, 20___

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

The Bank of New York
101 Barclay Street, 8W
New York, New York  10286
Attention:  Mortgage-Backed Securities Group

         Re:      First Horizon  Alternative  Mortgage Securities Trust 2004-AA5
                  Mortgage Pass-Through Certificates, Series 2004-AA5, Class ___

Ladies and Gentlemen:

         In connection with our acquisition of the above Certificates we certify
that (a) we understand that the  Certificates are not being registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws and
are  being  transferred  to  us  in  a  transaction  that  is  exempt  from  the
registration  requirements  of  the  Act  and  any  such  laws,  (b)  we  are an
"accredited  investor,"  as defined in Regulation D under the Act, and have such
knowledge and  experience in financial and business  matters that we are capable
of evaluating the merits and risks of investments  in the  Certificates,  (c) we
have had the  opportunity  to ask  questions  of and  receive  answers  from the
Depositor  concerning the purchase of the  Certificates and all matters relating
thereto or any  additional  information  deemed  necessary  to our  decision  to
purchase the Certificates, (d) either (i) we are not an employee benefit plan or
arrangement  that is subject to the Employee  Retirement  Income Security Act of
1974, as amended,  or a plan or  arrangement  that is subject to Section 4975 of
the Internal  Revenue Code of 1986,  as amended,  nor are we acting on behalf of
any such plan or  arrangement  nor are we using  the  assets of any such plan or
arrangement   to  effect   such   acquisition   or  (ii)  if,  in  the  case  of
ERISA-Restricted  Certificates that have been the subject of an ERISA-Qualifying
Underwriting,  we are an  insurance  company,  a  representation  that we are an
insurance  company which is purchasing such Certificates with funds contained in
an "insurance  company general account" (as such term is defined in Section V(e)
of Prohibited  Transaction  Class  Exemption  95-60 ("PTCE 95-60")) and that the
purchase and holding of such  Certificates  are covered under Sections I and III
of PTCE 95-60,  (e) we are acquiring the Certificates for investment for our own
account  and not  with a view to any  distribution  of  such  Certificates  (but
without  prejudice to our right at all times to sell or otherwise dispose of the
Certificates  in accordance  with clause (g) below),  (f) we have not offered or
sold any Certificates to, or solicited offers to buy any Certificates  from, any
person,  or  otherwise  approached  or  negotiated  with any person with respect
thereto,  or taken any other action which would result in a violation of Section
5 of the Act,  and (g) we will not sell,  transfer or  otherwise  dispose of any
Certificates  unless  (1)  such  sale,  transfer  or other  disposition  is made
pursuant to an effective  registration statement under the Act or is exempt from
such registration requirements, and if requested, we will at our expense provide


                                      J-1
<PAGE>

an opinion of counsel  satisfactory to the addressees of this  Certificate  that
such sale,  transfer or other  disposition  may be made pursuant to an exemption
from the Act, (2) the purchaser or transferee of such  Certificate  has executed
and  delivered to you a  certificate  to  substantially  the same effect as this
certificate, and (3) the purchaser or transferee has otherwise complied with any
conditions for transfer set forth in the Pooling and Servicing Agreement.

                                               Very truly yours,


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


                                               By:
                                                   -----------------------------
                                                   Authorized Officer


                                      J-2
<PAGE>

                                    EXHIBIT K


                            FORM OF RULE 144A LETTER

                                                               ___________, 20__


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

The Bank of New York
101 Barclay Street, 8W
New York, New York  10286
Attention:  Mortgage-Backed Securities Group

         Re:      First Horizon  Alternative  Mortgage Securities Trust 2004-AA5
                  Mortgage Pass-Through Certificates, Series 2004-AA5, Class ___

Ladies and Gentlemen:

         In connection with our acquisition of the above Certificates we certify
that (a) we understand that the  Certificates are not being registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws and
are  being  transferred  to  us  in  a  transaction  that  is  exempt  from  the
registration  requirements  of the Act  and  any  such  laws,  (b) we have  such
knowledge and  experience in financial and business  matters that we are capable
of evaluating the merits and risks of investments  in the  Certificates,  (c) we
have had the  opportunity  to ask  questions  of and  receive  answers  from the
Depositor  concerning the purchase of the  Certificates and all matters relating
thereto or any  additional  information  deemed  necessary  to our  decision  to
purchase  the  Certificates,  (d)  we  are  not  an  employee  benefit  plan  or
arrangement  that is subject to the Employee  Retirement  Income Security Act of
1974, as amended,  or a plan or  arrangement  that is subject to Section 4975 of
the Internal  Revenue Code of 1986,  as amended,  nor are we acting on behalf of
any  such  plan  or  arrangement  nor  using  the  assets  of any  such  plan or
arrangement to effect such acquisition, (e) if an insurance company, in the case
of   ERISA-restricted   Certificates   that   have  been  the   subject   of  an
ERISA-Qualifying  Underwriting,  we are purchasing the  Certificates  with funds
contained in an "insurance  company general account" (as defined in Section V(e)
of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")) and our purchase
and holding of the  Certificates  are covered  under  Sections I and III of PTCE
95-60,  (f)  we  have  not,  nor  has  anyone  acting  on  our  behalf  offered,
transferred,  pledged,  sold or  otherwise  disposed  of the  Certificates,  any
interest in the  Certificates or any other similar security to, or solicited any
offer  to  buy  or  accept  a  transfer,  pledge  or  other  disposition  of the
Certificates,  any interest in the  Certificates  or any other similar  security
from, or otherwise  approached or negotiated  with respect to the  Certificates,
any interest in the  Certificates or any other similar security with, any person
in any manner, or made any general  solicitation by means of general advertising
or in any other  manner,  or taken any other  action,  that would  constitute  a
distribution  of the  Certificates  under  the  Act or  that  would  render  the


                                      K-1
<PAGE>

disposition  of the  Certificates a violation of Section 5 of the Act or require
registration  pursuant  thereto,  nor  will  act,  nor  has  authorized  or will
authorize  any person to act, in such manner with  respect to the  Certificates,
(g) we are a  "qualified  institutional  buyer" as that term is  defined in Rule
144A  under the Act  ("Rule  144A")  and have  completed  either of the forms of
certification  to that effect  attached hereto as Annex 1 or Annex 2, (h) we are
aware that the sale to us is being made in reliance on Rule 144A, and (i) we are
acquiring the  Certificates  for our own account or for resale  pursuant to Rule
144A and further,  understand that such  Certificates may be resold,  pledged or
transferred  only  (A)  to a  person  reasonably  believed  to  be  a  qualified
institutional  buyer that  purchases for its own account or for the account of a
qualified institutional buyer to whom notice is given that the resale, pledge or
transfer  is being made in  reliance  on Rule 144A,  or (B)  pursuant to another
exemption from registration under the Act.

                                               Very truly yours,


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


                                               By:
                                                   -----------------------------
                                                   Authorized Officer


                                      K-2
<PAGE>

                                                            ANNEX 1 TO EXHIBIT K


            QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A

          [For Transferees Other Than Registered Investment Companies]

         The  undersigned  (the  "Buyer")  hereby  certifies  as  follows to the
parties  listed  in  the  Rule  144A   Transferee   Certificate  to  which  this
certification relates with respect to the Certificates described therein:

         1.  As  indicated  below,  the  undersigned  is  the  President,  Chief
Financial  Officer,  Senior Vice  President  or other  executive  officer of the
Buyer.

         2. In connection with purchases by the Buyer, the Buyer is a "qualified
institutional  buyer" as that term is defined in Rule 144A under the  Securities
Act of 1933,  as  amended  ("Rule  144A")  because  (i) the Buyer  owned  and/or
invested on a  discretionary  basis $ ______(1)  in  securities  (except for the
excluded  securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being  calculated in accordance with Rule 144A and (ii)
the Buyer satisfies the criteria in the category marked below.

                  ___ Corporation, etc. The Buyer is a corporation (other than a
         bank,   savings   and  loan   association   or  similar   institution),
         Massachusetts  or similar  business trust,  partnership,  or charitable
         organization  described in Section  501(c)(3)  of the Internal  Revenue
         Code of 1986, as amended.

                  ___  Bank.  The  Buyer  (a)  is a  national  bank  or  banking
         institution  organized  under the laws of any State,  territory  or the
         District of Columbia,  the business of which is substantially  confined
         to  banking  and is  supervised  by the  State or  territorial  banking
         commission  or  similar  official  or is a foreign  bank or  equivalent
         institution,  and (b) has an audited net worth of at least  $25,000,000
         as demonstrated in its latest annual  financial  statements,  a copy of
         which is attached hereto.

                  ___  Savings  and Loan.  The  Buyer (a) is a savings  and loan
         association, building and loan association, cooperative bank, homestead
         association or similar institution, which is supervised and examined by
         a  State  or  Federal  authority  having   supervision  over  any  such
         institutions or is a foreign savings and loan association or equivalent
         institution and (b) has an audited net worth of at least $25,000,000 as
         demonstrated in its latest annual financial statements, a copy of which
         is attached hereto.

                  ___  Broker-dealer.  The Buyer is a dealer registered pursuant
         to Section 15 of the Securities Exchange Act of 1934.

                  ___ Insurance Company. The Buyer is an insurance company whose
         primary and predominant  business  activity is the writing of insurance
         or the  reinsuring  of risks  underwritten  by insurance  companies and
         which is subject to  supervision  by the  insurance  commissioner  or a

--------
(1) Buyer must own and/or invest on a discretionary  basis at least $100,000,000
in securities unless Buyer is a dealer, and, in that case, Buyer must own and/or
invest on a discretionary basis at least $10,000,000 in securities.

                                      K-3
<PAGE>

         similar  official or agency of a State,  territory  or the  District of
         Columbia.

                  ___ State or Local Plan. The Buyer is a plan  established  and
         maintained  by a State,  its political  subdivisions,  or any agency or
         instrumentality  of the State or its  political  subdivisions,  for the
         benefit of its employees.

                  ___ ERISA Plan.  The Buyer is an employee  benefit plan within
         the meaning of Title I of the Employee  Retirement  Income Security Act
         of 1974.

                  ___  Investment  Advisor.  The Buyer is an investment  advisor
         registered under the Investment Advisors Act of 1940.

                  ___  Small  Business  Investment  Company.  Buyer  is a  small
         business  investment  company  licensed  by  the  U.S.  Small  Business
         Administration  under  Section  301(c)  or (d) of  the  Small  Business
         Investment Act of 1958.

                  ___  Business  Development   Company.   Buyer  is  a  business
         development  company as defined in Section 202(a)(22) of the Investment
         Advisors Act of 1940.

         3. The term "securities" as used herein does not include (i) securities
of issuers that are affiliated with the Buyer,  (ii) securities that are part of
an unsold  allotment to or  subscription by the Buyer, if the Buyer is a dealer,
(iii)  securities  issued  or  guaranteed  by the  U.S.  or any  instrumentality
thereof,  (iv)  bank  deposit  notes  and  certificates  of  deposit,  (v)  loan
participations,  (vi) repurchase agreements,  (vii) securities owned but subject
to a repurchase  agreement  and (viii)  currency,  interest  rate and  commodity
swaps.

         4. For purposes of determining the aggregate amount of securities owned
and/or invested on a discretionary  basis by the Buyer,  the Buyer used the cost
of such  securities  to the  Buyer  and did not  include  any of the  securities
referred to in the preceding  paragraph,  except (i) where the Buyer reports its
securities  holdings in its  financial  statements  on the basis of their market
value,  and  (ii) no  current  information  with  respect  to the  cost of those
securities has been published. If clause (ii) in the preceding sentence applies,
the securities may be valued at market.  Further,  in determining such aggregate
amount,  the Buyer may have included  securities  owned by  subsidiaries  of the
Buyer,  but only if such  subsidiaries  are  consolidated  with the Buyer in its
financial  statements  prepared in accordance with generally accepted accounting
principles  and if the  investments of such  subsidiaries  are managed under the
Buyer's direction.  However, such securities were not included if the Buyer is a
majority-owned,  consolidated  subsidiary of another enterprise and the Buyer is
not itself a reporting  company  under the  Securities  Exchange Act of 1934, as
amended.

         5. The  Buyer  acknowledges  that it is  familiar  with  Rule  144A and
understands  that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements  made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.

         6. Until the date of  purchase of the Rule 144A  Securities,  the Buyer
will  notify  each of the  parties  to which this  certification  is made of any
changes in the information and conclusions  herein.  Until such notice is given,
the Buyer's purchase of the Certificates will constitute a reaffirmation of this


                                      K-4
<PAGE>

certification  as of the date of such purchase.  In addition,  if the Buyer is a
bank or  savings  and loan is  provided  above,  the Buyer  agrees  that it will
furnish to such parties updated annual financial  statements promptly after they
become available.


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


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

                                               Date:
                                                     ---------------------------



                                      K-5
<PAGE>

                                                            ANNEX 2 TO EXHIBIT K


            QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A

           [For Transferees That are Registered Investment Companies]

         The  undersigned  (the  "Buyer")  hereby  certifies  as  follows to the
parties  listed  in  the  Rule  144A   Transferee   Certificate  to  which  this
certification relates with respect to the Certificates described therein:

         1.  As  indicated  below,  the  undersigned  is  the  President,  Chief
Financial  Officer or Senior Vice  President  of the Buyer or, if the Buyer is a
"qualified  institutional  buyer" as that term is defined in Rule 144A under the
Securities  Act of 1933,  as amended  ("Rule  144A")  because Buyer is part of a
Family of  Investment  Companies (as defined  below),  is such an officer of the
Adviser.

         2. In  connection  with  purchases by Buyer,  the Buyer is a "qualified
institutional  buyer" as  defined in SEC Rule 144A  because  (i) the Buyer is an
investment  company  registered  under the  Investment  Company Act of 1940,  as
amended and (ii) as marked  below,  the Buyer  alone,  or the Buyer's  Family of
Investment Companies,  owned at least $100,000,000 in securities (other than the
excluded  securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining  the amount of securities  owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was  used,  except  (i)  where the  Buyer or the  Buyer's  Family of  Investment
Companies  reports its  securities  holdings in its financial  statements on the
basis of their market value, and (ii) no current information with respect to the
cost of those  securities  has been  published.  If clause (ii) in the preceding
sentence applies, the securities may be valued at market.

                  ___ The Buyer owned $ in  securities  (other than the excluded
         securities  referred to below) as of the end of the Buyer's most recent
         fiscal year (such  amount  being  calculated  in  accordance  with Rule
         144A).

                  ___ The  Buyer is part of a  Family  of  Investment  Companies
         which owned in the aggregate $ in  securities  (other than the excluded
         securities  referred to below) as of the end of the Buyer's most recent
         fiscal year (such  amount  being  calculated  in  accordance  with Rule
         144A).

         3. The term "Family of  Investment  Companies" as used herein means two
or more registered  investment  companies (or series thereof) that have the same
investment  adviser or  investment  advisers that are  affiliated  (by virtue of
being majority owned  subsidiaries  of the same parent or because one investment
adviser is a majority owned subsidiary of the other).

         4. The term "securities" as used herein does not include (i) securities
of issuers that are affiliated  with the Buyer or are part of the Buyer's Family
of Investment Companies, (ii) securities issued or guaranteed by the U.S. or any
instrumentality  thereof,  (iii) bank deposit notes and certificates of deposit,
(iv) loan participations,  (v) repurchase agreements,  (vi) securities owned but
subject  to a  repurchase  agreement  and  (vii)  currency,  interest  rate  and
commodity swaps.

                                      K-6
<PAGE>

         5. The  Buyer is  familiar  with  Rule  144A and  understands  that the
parties  listed  in  the  Rule  144A   Transferee   Certificate  to  which  this
certification  relates are relying and will  continue to rely on the  statements
made  herein  because one or more sales to the Buyer will be in reliance on Rule
144A. In addition, the Buyer will only purchase for the Buyer's own account.

         6. Until the date of purchase of the Certificates, the undersigned will
notify the parties listed in the Rule 144A Transferee  Certificate to which this
certification  relates of any changes in the information and conclusions herein.
Until such  notice is given,  the  Buyer's  purchase  of the  Certificates  will
constitute a reaffirmation  of this  certification  by the undersigned as of the
date of such purchase.

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


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


                                               IF AN ADVISER:


                                               ---------------------------------
                                               Print Name of Buyer


                                               Date:
                                                     ---------------------------


                                      K-7
<PAGE>

                                    EXHIBIT L

                               REQUEST FOR RELEASE

                     [Substitution of Deleted Mortgage Loans
                                       or
                          Mortgage Loans Paid in Full]

            ____________________________________ Mortgage Loan Files

_____________________   hereby   certifies   that   he/she  is  an   officer  of
_____________________,  holding the office set forth beneath his/her  signature,
and hereby further certifies as follows:

(Check One)

[ ]      With respect to the mortgage loans described in the attached  schedule,
         each such mortgage loan  constitutes a "Substitute  Mortgage  Loan" (as
         the term is defined in the Pooling and Servicing Agreement).

[ ]      With  respect  to the  "Mortgage  Loans" (as the term is defined in the
         custodial agreement) described in the attached schedule:

         All payments of  principal,  premium (if any),  and interest  have been
made with respect to the following:

         Loan Number:___________________________________


         Borrower's Name: ______________________________


         County: _______________________________________

         We hereby  certify that all amounts to be received in  connection  with
         such payments have been received.

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

Dated:
       -----------------------

[ ] Vice President

[ ] Assistant Vice President


                                      L-1
<PAGE>

                                    EXHIBIT M

                         REQUEST FOR RELEASE AND RECEIPT
                         [For Servicing and Foreclosure]

            _____________________________________ Mortgage Loan Files

LOAN INFORMATION

         Name of Mortgagor:         __________________________________

         Loan No.:  _______         __________________________________

         The  undersigned  hereby  acknowledges  that it has received from FIRST
TENNESSEE  BANK  NATIONAL  ASSOCIATION,  as Custodian  for  ____________________
Mortgage Loan Files,  the  documents  referred to below (the  "Documents").  All
capitalized  terms not otherwise defined in this Request for Release and Receipt
shall have the meanings ascribed to them in the Custodial  Agreement dated as of
__________________  among  ___________________ and FIRST TENNESSEE BANK NATIONAL
ASSOCIATION, as Custodian (the "Custodial Agreement").

                             [COMPLETE AS NECESSARY]

         The undersigned hereby acknowledges an agrees as follows:

         (1) The undersigned  shall hold and retain  possession of the Documents
in trust for the benefit of __________________, solely for the purposes provided
in the Custodial Agreement.

         (2) The  undersigned  shall not cause or permit the Documents to become
subject to, or encumbered  by, any claim,  liens,  security  interest,  charges,
writs of attachment or other  impositions  nor shall the  undersigned  assert or
seek to assert any claims or rights of setoff to or against the Documents or any
proceeds thereof.

         (3) The  undersigned  shall return each and every  Document  previously
requested  from the Mortgage  File to the  Custodian  when the need  therefor no
longer  exists,  unless the Mortgage  Loan  relating to the  Documents  has been
liquidated.

Date:  _____________________


                                               NAME

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


                                      M-1