<PAGE>
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                               SECURITY AGREEMENT

                                      among

                         AUTOBOND FUNDING CORPORATION II

                                  (as Borrower)

                         AUTOBOND ACCEPTANCE CORPORATION

                                       and

                  NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION

                              (as Collateral Agent)

                          Dated as of February 1, 1997


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                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                       Page
                                                                                                       ----

<S>                     <C>                                                                            <C>
SECTION 1.              DEFINED TERMS..................................................................  1

SECTION 2.              SECURITY INTERESTS.............................................................  6

SECTION 3.              CERTAIN RIGHTS OF SECURED PARTIES WITH
                        RESPECT TO COLLATERAL..........................................................  8

SECTION 4.              REMEDIES UPON THE OCCURRENCE OF AN
                        EVENT OF DEFAULT...............................................................  8

SECTION 5.              REPRESENTATIONS, WARRANTIES AND
                        COVENANTS...................................................................... 10

SECTION 6.              COLLATERAL ACCOUNT............................................................. 12

             6.01.      Establishment and Maintenance of Lockbox and
                        Collateral Account............................................................. 12
             6.02.      Required Deposits to the Accounts.............................................. 12
             6.03.      Right of Withdrawal from the Collateral Account................................ 14
             6.04.      Application of Funds in the Collateral Account;
                        Application of Proceeds of Realization on Collateral........................... 14
             6.05.      Investment of Funds Deposited in Collateral Account............................ 17

SECTION 7.              DISPOSITIONS OF AUTO LOANS..................................................... 17

SECTION 8.              THE COLLATERAL AGENT........................................................... 18

             8.01.      Appointment.................................................................... 18
             8.02.      Exculpatory Provisions......................................................... 18
             8.03.      Reliance by Collateral Agent................................................... 19
             8.04.      Notice of Default.............................................................. 19
             8.05.      Non-Reliance on Collateral Agent............................................... 20
             8.06.      Successor Collateral Agent..................................................... 20
             8.07.      Delivery of Collateral and Permitted Investments............................... 21
             8.08.      Duties and Covenants of Collateral Agent....................................... 21
             8.09.      Annual Report and Quarterly Certificate........................................ 23

SECTION 9.              AMENDMENTS AND WAIVERS......................................................... 24

</TABLE>





                                        i





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<TABLE>
<CAPTION>

                                                                                                       Page
                                                                                                       ----

<S>                     <C>                                                                            <C>

SECTION 10.             NOTICES........................................................................ 25

SECTION 11.             LIMITATION ON COLLATERAL AGENT'S DUTY
                        IN RESPECT OF COLLATERAL....................................................... 26

SECTION 12.             SEVERABILITY................................................................... 27

SECTION 13.             NO WAIVER; CUMULATIVE REMEDIES................................................. 27

SECTION 14.             PAYMENT OF EXPENSES AND TAXES.................................................. 27

SECTION 15.             SUCCESSORS AND ASSIGNS; GOVERNING LAW.......................................... 29

SECTION 16.             ENFORCEMENT RIGHTS OF LENDERS.................................................. 30

SECTION 17.             BANKRUPTCY PETITION AGAINST THE
                        BORROWER....................................................................... 30

SECTION 18.             MISAPPLICATION OF FUNDS........................................................ 30

SECTION 19.             COUNTERPART SIGNATURES......................................................... 30

SECTION 20.             THIRD PARTY BENEFICIARY........................................................ 30

SECTION 21.             STATUS OF COLLATERAL AGENT..................................................... 31

SECTION 22.             ACTS OF LENDERS................................................................ 31
</TABLE>


                                                 EXHIBITS

EXHIBIT A            -     FORM OF COLLATERAL ASSIGNMENT
EXHIBIT B            -     FORM OF TRUST RECEIPT
EXHIBIT C            -     FORM OF COLLATERAL AGENT REPORT





                                       ii





<PAGE>



                               SECURITY AGREEMENT

                  SECURITY  AGREEMENT,  dated as of February 1, 1997 made by and
among AUTOBOND FUNDING  CORPORATION II, a Nevada  corporation (the  "Borrower"),
AUTOBOND ACCEPTANCE  CORPORATION,  a Texas corporation  ("AutoBond") and NORWEST
BANK MINNESOTA, NATIONAL ASSOCIATION, as collateral agent (in such capacity, the
"Collateral Agent").

                               W I T N E S S E T H

                  WHEREAS,  the  Borrower  has entered  into a Credit  Agreement
dated  as  of  February  1,  1997  (as  may  from  time  to  time,  be  amended,
supplemented,   or  modified,   the  "Credit   Agreement")  with  Daiwa  Finance
Corporation,  as lender (the "Initial  Lender") and AutoBond,  pursuant to which
advances will be made to the Borrower (the "Advances") from time to time; and

                  WHEREAS,  it is a condition to the  obligations of the Lenders
to make the  Advances  under the  Credit  Agreement  that the  Borrower  and the
Collateral  Agent shall have executed and  delivered to the Initial  Lender this
Security Agreement.

                  NOW,  THEREFORE,  to induce the Lenders to make the  Advances,
the Borrower and  AutoBond  hereby  agrees with the  Collateral  Agent,  for the
benefit of the Secured Parties, as follows:

         SECTION 1. DEFINED TERMS.

                  (a) The  terms  "inventory",  "goods",  "accounts",  "contract
rights",  "chattel  paper",  "general  intangibles",   "checks",  "instruments",
"securities" and "documents" have the respective meanings ascribed in the UCC.

                  (b)  Capitalized  terms used herein  undefined  shall,  unless
otherwise  defined herein,  have the respective  meanings ascribed in the Credit
Agreement; and the following terms shall have the following meanings:

                  "Accounts"  shall mean the  Lockbox  Account,  the  Collateral
Account,  the Reserve  Account,  the Loan  Purchase  Account and the  Collection
Account.

                  "Automobile"  shall mean a new or used automobile,  light-duty
truck or van.



<PAGE>




                  "Collateral" shall have the meaning set forth in Section 2(a).

                  "Collateral Agent Fee" shall mean, as of any Payment Date, the
sum of (a) the  product  of (i) 1/12th,  (ii) 0.20% and (iii) the daily  average
aggregate  principal  balance of all Specified Auto Loans that are not Defaulted
Auto Loans during such Collection Period immediately preceding such Payment Date
and (b) any expenses  reimbursable  in accordance  with the  Collateral  Agent's
activities under this Agreement and the Servicing Agreement,  including, without
limitation,  the  costs  and  expenses  incurred  by  the  Collateral  Agent  in
connection  with the  assumption of the duties and  obligations  of the Servicer
pursuant to the Servicing Agreement.

                  "Collateral Assignment" shall mean a certificate of assignment
by the Borrower to the Collateral Agent,  substantially in the form of Exhibit A
giving notice of, and  evidencing the pledge of Specified Auto Loans and related
collateral to the Collateral Agent for the benefit of the Lenders.

                  "Collection  Account" shall have the meaning  assigned to such
term in Section 6.01 hereof.

                  "Collection  Agent" shall mean AutoBond,  as collection  agent
under the Servicing Agreement.

                  "Collection  Agent Fee" shall mean, a fee equal to the product
of (i) $7 and  (ii)  the  total  number  of  Specified  Auto  Loans  which  were
outstanding at any time during the preceding Interest Period,  plus Reimbursable
Collection Agent Expenses.

                  "Collection  Period"  shall  mean,  (a)  with  respect  to the
initial Collection Period, the period commencing on the Initial Closing Date and
ending on February 28,  1997,  and (b)  thereafter,  with respect to any Payment
Date, the period commencing on the first day of the calendar month preceding the
calendar  month in which such  Payment Date occurs and ending on the last day of
the  calendar  month  preceding  the  calendar  month in which such Payment Date
occurs.

                  "Delinquency  Ratio" shall mean, as of any Determination Date,
the  percentage  equivalent  of a fraction (a) the numerator of which equals the
sum of (i) the  aggregate  Unpaid  Principal  Balance of Auto  Loans  which have
become  Defaulted Auto Loans as of the end of the most recently ended Collection
Period minus (ii) the sum of the aggregate Unpaid  Principal  Balance of (A) all
Auto Loans against which  insurance  claims have been filed as of the end of the
most recently ended  Collection  Period and (B) Auto Loans for which the related
Financed Vehicles are subject to repossession as of the end of the most recently
ended  Collection  Period  and  which  are  not  included  in  (A),  and (B) the
denominator of which equals the aggregate

                                        2





<PAGE>



Unpaid  Principal  Balance of Auto Loans  outstanding  as of the end of the most
recently ended Collection Period minus the amount determined  pursuant to clause
(ii) above.

                  "Event  of  Purchase   Termination"  shall  have  the  meaning
assigned to such term in the Loan Acquisition Agreement.

                  "Excess Reserve Account Amount" shall mean, as of each Payment
Date, the amount,  if any, held in the Reserve  Account in excess of the Reserve
Account Required Balance after giving effect to any withdrawals from the Reserve
Account pursuant to Section 6.04(d)(i), (ii) and (iii) on such Payment Date.

                  "Financed Vehicle" shall mean a new or used automobile, van or
light-duty truck, the purchase of which the Obligor financed with an Auto Loan.

                  "Interest  Payment Date" shall mean the first  Business Day of
each calendar month.

                  "Loan Documents" means, with respect to a Specified Auto Loan,
(a) the fully executed  original retail  installment  loan contract and security
agreement  evidencing  such  Specified  Auto Loan,  including the  assignment to
AutoBond,  (b) the original  confirmation of title,  copy of the application for
title or letter of guaranty from the applicable  Dealer, as the case may be, for
the related Financed Vehicle,  (c) a copy of the credit application,  (d) a copy
of an executed agreement to provide insurance signed by the Obligor, a binder in
respect  thereof or the original  confirmation  of payment of premiums  required
under the VSI  Policy and (e) a copy of the  funding  check made to the order of
the Dealer or the Originator.

                  "Loan  Files"  means,  with  respect  to any  Auto  Loan,  the
original retail installment loan contract and security agreement  evidencing the
Auto Loan and  originals  or  copies of such  other  documents  and  instruments
relating to such Auto Loan and the security  interest on the  selected  Financed
Vehicle as specified in the Credit and Collection Policies.

                  "Loan  Purchase  Account"  shall have the meaning  assigned to
such term in Section 6.01 hereof.

                  "Lockbox"   means  the  Lockbox   established  and  maintained
pursuant to the Lockbox Agreement.

                  "Lockbox  Account"  means  the  account  in  the  name  of the
Servicer, as custodian for AutoBond, established in respect of the Auto Loans at
the Lockbox Bank and maintained pursuant to the Lockbox Agreement.

                                        3





<PAGE>



                  "Lockbox  Agreement" means the Lockbox  Operations  Agreement,
dated as of September 30, 1996 between the Servicer,  as custodian for AutoBond,
and the Lockbox Bank.

                  "Lockbox Bank" means Banc One, Texas, N.A.

                  "Monthly  Repossession  Ratio" shall mean on any Determination
Date, a fraction (a) the  numerator  of which is equal to the  aggregate  Unpaid
Principal  Balance  of  all  Designated  Auto  Loans  which  were  put  out  for
repossession  as of  the  end of the  related  Collection  Period  and  (b)  the
denominator of which is the aggregate Unpaid Principal Balance of all Designated
Auto Loans as of the end of the related Collection Period.

                  "Payment  Date"  shall mean the 15th day of each month (or, if
such day is not a Business Day, the next  succeeding  Business Day),  commencing
March 15, 1997, and each other date on which Advances are paid or payable.

                  "Proceeds" shall have the meaning assigned such term under the
UCC of the State of New York, and of each other  jurisdiction  whose law governs
the grant or perfection of the  Collateral  Agent's  interest in the  particular
proceeds  of the  Collateral  and shall also  include (to the extent not already
included):  (a) any and all  proceeds  of any  insurance,  indemnity,  warranty,
guaranty  or letter of credit  payable  to the  Borrower  from time to time with
respect  to any of the  Collateral,  (b)  any  and all  payments  (in  any  form
whatsoever)  made or rights to amounts payable to the Borrower from time to time
in  connection  with any  requisition,  confiscation,  condemnation,  seizure or
forfeiture  of all or any  part  of the  Collateral  by any  governmental  body,
authority,  bureau or agency (or any person  acting under color of  governmental
authority), (c) any and all other amounts, products, offspring, rents or profits
from time to time paid or payable under or in connection with the Collateral and
(d) all additions to or substitutions or replacements for any of the Collateral.

                  "Program  Manual"  shall mean the AutoBond  Program  Manual in
effect as of the date hereof, as modified from time to time.

                  "Reimbursable  Collection Agent Expenses" means,  with respect
to any  Payment  Date,  all  reasonable  and  customary  out-of-pocket  fees and
expenses of third parties incurred by the Collection  Agent (including  expenses
related to financing  statements and titles required to be paid or reimbursed by
the  Collection   Agent)  in  connection  with  their  respective   repossession
activities,  including, without limitation, fees of attorneys, appraisers, third
party  collateral  managers  and others  (who shall  have been  retained  by the
Collection Agent, in accordance with the Servicing Agreement) for the Collection
Period immediately  preceding such Payment Date, but not including expenses paid
net of recoveries.

                                        4





<PAGE>



                  "Reserve Account" shall have the meaning assigned to such term
in Section 6.01 hereof.

                  "Reserve  Account  Balance"  shall mean the amount of funds on
deposit in the Reserve Account.

                  "Reserve  Account  Deficiency  Amount"  shall  mean  as of any
Payment Date the amount by which the Reserve  Account  Required  Balance exceeds
the Reserve Account Balance as of such Payment Date.

                  "Reserve  Account  Required  Balance"  shall  mean,  as of any
Determination  Date,  the greater of (a) $150,000 and (b) the product of (i) the
Target Reserve Percentage and (ii) the aggregate Unpaid Principal Balance of the
Specified Auto Loans as of the end of the preceding Collection Period.

                  "Responsible  Officer"  shall mean,  when used with respect to
the Collateral  Agent, any officer within the corporate trust department (or any
successor  thereof) including any vice president,  assistant vice president,  or
any officer or assistant officer of the Collateral Agent customarily  performing
functions similar to those performed by any of the above-designated officers.

                  "Repossession  Ratio" shall mean, on any Determination Date on
or  after  May  10,  1997,  the  product  of (a)  the  average  of  the  Monthly
Repossession Ratios for the three immediately  preceding calendar months and (b)
12.

                  "Secured  Parties" shall mean the Lenders from time to time in
respect of the Advances.

                  "Servicer  Fee" shall mean, as of any Payment Date, the sum of
(a) an initial  booking  fee equal to the product of (i) $10 and (ii) the number
of  additional  Specified  Auto  Loans  purchased  by the  Borrower  during  the
immediately  preceding Interest Period, (b) a servicing fee equal to the product
of (i) $8.00 and (ii) the  total  number of  Specified  Auto  Loans  which  were
outstanding  at any  time  during  the  preceding  Interest  Period  and (c) any
expenses reimbursable in accordance with the Servicing Agreement.

                  "Specified Auto Loan" shall mean each Auto Loan pledged by the
Borrower to the  Collateral  Agent  hereunder  as security  for its  obligations
hereunder and under the Credit Agreement.

                  "Target Reserve Percentage" shall mean 6%; provided,  that if,
as of a Determination Date,

                                        5





<PAGE>




                           (a) the Delinquency Ratio on such  Determination Date
                  or any prior  Determination  Date is greater  than or equal to
                  the 7%, then the Target Reserve  Percentage  shall  thereafter
                  equal 9%;

                           (b) the Repossession Ratio on such Determination Date
                  or any prior  Determination  Date is greater  than or equal to
                  20%, then the Target Reserve Percentage shall thereafter equal
                  9%; and

                           (c) the Repossession Ratio on such Determination Date
                  or any prior  Determination  Date is greater  than or equal to
                  27%, then the Target Reserve Percentage shall thereafter equal
                  12%.

                  If more than one of the foregoing  clauses is applicable as of
a particular  Determination  Date, then the applicable Target Reserve Percentage
shall be the highest amount so applicable.

                  "Uniform Commercial Code" or "UCC" shall mean, with respect to
any jurisdiction,  the Uniform Commercial Code, or any successor statute, or any
comparable  law, as the same may from time to time be amended,  supplemented  or
otherwise modified and in effect.

                  "Unpaid  Principal  Balance"  shall mean,  with respect to any
Auto Loan as of any  Determination  Date, (a) for an Auto Loan bearing  interest
calculable on a simple interest basis, the unpaid principal amount for such Auto
Loan or (b) for a Precomputed  Receivable,  the Net Principal  Balance,  in each
case as of the end of the most recent Collection Period,  provided that, for any
Auto Loan where the Net Unrealized  Amount equals the Unpaid Principal  Balance,
such  Unpaid  Principal  Balance  shall  thereafter  equal zero  (other than for
purposes of calculating the Net Unrealized Amounts.

                  "Unused  Facility Fee" shall mean, with respect to any Payment
Date,  the product of (i) a fraction (A) the numerator of which is the number of
days  elapsed  during  the  immediately  preceding  Interest  Period and (B) the
denominator  of  which is 360,  (ii)  the  average  outstanding  balance  of the
Available  Facility  Amount  during  such  Interest  Period and (iii) the Unused
Facility Fee Rate.

                  "Unused  Facility  Fee Rate"  shall  mean the per  annum  rate
agreed to by the Borrower and the Initial Lender.

                                        6





<PAGE>



         SECTION 2. SECURITY INTERESTS.

                  (a) As security  for the prompt,  complete  and  unconditional
payment and  performance  of all  obligations  of the Borrower in respect of the
Advances,  the Borrower hereby pledges,  assigns,  transfers and delivers to the
Collateral  Agent for the  benefit  of the  Secured  Parties,  and grants to the
Collateral Agent for the benefit of the Secured Parties, a continuing first lien
on, and first and prior security interest in, all of the Borrower's right, title
and interest in, to and under the following (the "Collateral"):

                     (i) each Specified Auto Loan, including without limitation,
         all rights to payments  thereunder,  purchased by or otherwise conveyed
         to or  established  by the  Borrower  pursuant to the Loan  Acquisition
         Agreement;

                     (ii) each Financed  Vehicle and all other Property,  now or
         hereafter acquired, securing or evidenced by, each Specified Auto Loan,
         including,  without  limitation,  the  certificate of title relating to
         each Financed Vehicle,  any insurance proceeds with respect to any such
         Financed   Vehicle  or  Specified   Auto  Loan,  the  proceeds  of  any
         repossession and liquidation of any such Financed Vehicle, rights under
         judgments  with respect to  defaulted  obligors,  rights to  deficiency
         judgments  with  respect to  defaulted  obligors  and rights  under any
         service contracts with respect to any such Financed Vehicle;

                     (iii) the Loan Purchase Account, the Collection Account and
         the Reserve  Account and all moneys,  checks,  instruments,  documents,
         securities,  Investments,  deposits and other  credits  (whether or not
         permitted by the Program Documents) credited to the Collateral Account,
         or otherwise held by the Collateral Agent;

                     (iv) all securities and other  Investments held at any time
         on behalf of the Borrower in the Collateral Account;

                     (v) the Loan Files; and

                     (vi) all Proceeds of any of the foregoing.

                  (b) All rights of the Collateral Agent and the Secured Parties
and all liens and  security  interests  granted  hereunder,  shall be  absolute,
unconditional and irrevocable  unless and until released pursuant to the Program
Documents, irrespective of any condition or circumstance whatsoever.

                  (c) The grant of the security interest to the Collateral Agent
pursuant  to this  Section  2 shall  not:  (i)  relieve  the  Borrower  from the
performance of any term, covenant,

                                        7





<PAGE>



condition or agreement on the Borrower's  part to be performed or observed under
or in  connection  with  the  Collateral,  (ii)  impose  any  obligation  on the
Collateral  Agent or the  Secured  Parties to perform or observe  any such term,
covenant,  condition or agreement on the  Borrower's  part to be so performed or
observed,  or (iii) impose any liability on the Collateral  Agent or the Secured
Parties  for any act or  omission  on the part of the  Borrower,  or any  Person
acting as agent for or on behalf of the Borrower,  relative to or for any breach
of any representation or warranty on the part of the Borrower in connection with
the Collateral.

         SECTION 3. CERTAIN RIGHTS OF SECURED PARTIES WITH RESPECT TO
                    COLLATERAL.

                  Upon the occurrence and during the  continuance of an Event of
Default,  the Borrower  hereby  irrevocably  authorizes the Collateral  Agent to
execute and  deliver,  as the  attorney-in-fact  of the  Borrower,  any consent,
waiver or amendment which, under the terms of any Program Document, is or may be
executed and delivered by the Borrower with respect to the  Collateral,  subject
to  the  provisions  of the  Program  Documents;  provided,  however,  that  the
Collateral  Agent  shall have no duty or  obligation  to execute and deliver any
such consent, waiver or amendment unless directed in writing to take the actions
specified  therein by the  Lenders  in respect of at least 66 2/3% in  aggregate
principal amount of the Advances  outstanding;  and provided,  further, that the
Collateral  Agent shall not be required to take any action which the  Collateral
Agent  reasonably  believes  may be  contrary to  applicable  law or which would
expose the Collateral  Agent to financial  liability if the Collateral Agent has
reasonable grounds to believe that repayment of such financial  liability is not
reasonably  assured.  The  Borrower  hereby  agrees  to remit to the  Collection
Account for deposit in  accordance  with this  Agreement any and all Proceeds of
any Collateral received by the Borrower.

         SECTION 4. REMEDIES UPON THE OCCURRENCE OF AN EVENT OF DEFAULT.

                  (a) (i) If at any time an Event of Default shall have occurred
and be continuing,  the Collateral  Agent may,  without demand of performance or
other demand,  advertisement or notice of any kind (except for any notice of the
time  and  place of  public  or  private  sale  required  by law) to or upon the
Borrower  or any  other  Person  (all of which  demands,  advertisements  and/or
notices are hereby expressly waived),  and in its own name or in the name of the
Borrower,  forthwith demand, collect,  receive, sue for, appropriate and realize
upon the Collateral,  or any part thereof,  and/or may forthwith  sell,  assign,
grant an option or options to purchase, contract to sell or otherwise dispose of
and deliver  said  Collateral,  or any part  thereof,  in one or more parcels at
public or private  sale or sales,  at any location or locations at the option of
the Collateral Agent acting upon any  instructions  received from the Lenders in
respect of a majority in aggregate principal amount of Advances outstanding, all
upon such terms and

                                        8





<PAGE>



conditions and at such prices as such Lenders may deem advisable, for cash or on
credit or for future  delivery  without  assumption of any credit risk, with the
right of the Collateral  Agent or any Secured Party upon any such public sale or
sales to purchase the whole or any part of said  Collateral so sold, free of any
right of redemption in the Borrower,  which right is hereby expressly waived and
released.  At the  instruction  of the  Lenders  in  respect  of a  majority  in
aggregate  principal amount of Advances  outstanding,  the Collateral Agent may,
without notice or  publication,  adjourn any public or private sale or cause the
same to be  adjourned  from time to time by  announcement  at the time and place
fixed for the sale,  and such sale may be made at any time or place to which the
same may be so adjourned.

                     (ii) If at any time an Event of Default shall have occurred
         and be continuing and the Lenders in respect of a majority in aggregate
         principal amount of Advances  outstanding give written direction to the
         Collateral  Agent as to the  disposition of the Collateral or as to the
         exercise  of remedies  against the  Collateral,  the  Collateral  Agent
         hereby agrees to follow such direction; provided, however, no provision
         of this Agreement shall require the Collateral Agent to take any action
         which it or its counsel  deems to be unlawful nor shall the  Collateral
         Agent be obligated  to expend or risk its own funds or otherwise  incur
         any financial  liability in the  performance  of any rights,  powers or
         duties hereunder, if the Collateral Agent shall have reasonable grounds
         for  believing  that  repayment  of such  funds or  adequate  indemnity
         against  such risk or liability is not  reasonably  assured.  Until all
         Advances have been repaid and satisfied in full, the  Collateral  Agent
         shall be obligated, subject to the foregoing proviso, to take direction
         only from the Lenders in respect of a majority in  aggregate  principal
         amount of Advances  outstanding  as to, upon the  occurrence and during
         the  continuance  of an  Event  of  Default,  the  disposition  of  the
         Collateral,  or the exercise of remedies  against or in connection with
         the Collateral.

                           (iii)  Notwithstanding  the above  provisions of this
         Section 4(a), the Collateral Agent may not sell or otherwise  liquidate
         the  Collateral  following an Event of Default,  other than an Event of
         Default as described in  paragraphs  (a) and (b) of Section 13.1 of the
         Credit  Agreement,  unless (A) the Collateral Agent shall have received
         written evidence  reasonably  satisfactory to the Collateral Agent that
         the  Lenders in respect of 100% in  aggregate  principal  amount of the
         Advances  outstanding consent thereto, (B) the proceeds of such sale or
         liquidation distributable to the Lenders, as determined by the Lenders,
         are  sufficient  to discharge in full the  principal of and the accrued
         interest  on and fees in  respect of the  Advances  at the date of such
         sale or  liquidation;  written  evidence  of such  determination  to be
         provided  by the  Lenders to the  Collateral  Agent or (C) the  Lenders
         determine that the Collateral  will not continue to provide  sufficient
         funds for the  payment  of  principal  of and  interest  on and fees in
         respect of the  Advances  as and when they would have become due if the
         Advances had not been declared due and payable and the Lenders  provide
         written notice to the Collateral Agent to such effect.

                                        9





<PAGE>




                  (b) If  any  notification  of a  proposed  disposition  of the
Collateral is required by law, such notification  shall be deemed reasonably and
properly given if made in any manner  provided in Section 10 hereof at least ten
days before such disposition.

                  (c) In addition to the rights,  powers and remedies granted to
it in this Security Agreement and in any other instrument or agreement securing,
evidencing or relating to the Advances,  the Collateral  Agent shall have all of
the rights,  powers and remedies  now or  hereafter  permitted in law or equity,
including,  without  limitation,  those of a secured  party under the UCC of the
State of New York and any other applicable jurisdiction.

                  (d) The  Collateral  Agent shall apply the net proceeds of any
collection,  recovery, receipt,  appropriation,  realization or sale referred to
above in this Section 4 in accordance  with the  provisions  of Section  6.04(e)
hereof.  The Borrower shall remain  absolutely liable for the amount, if any, by
which the  amount  due under  the  Advances  exceeds  the  proceeds  of any such
collection, recovery, receipt, appropriation, realization or sale.

                  (e) The Borrower shall provide  written  payment  instructions
(including  the account  number of the bank account to which  payments are to be
directed and the name,  address and ABA number of the bank in which such account
is maintained,  if payments are to be made to such party by the wire transfer of
immediately  available funds) to the Collateral  Agent.  Failure to provide such
notice shall not affect the Borrower's right to receive any funds to which it is
otherwise  entitled in  accordance  with the Program  Documents,  but failure to
deliver such notice may result in a delay in the receipt of such funds.

         SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS.

                  The Borrower  represents,  warrants and agrees, as of the date
hereof, and as of each Closing Date, that:

                  (a) No security  agreement,  financing  statement,  equivalent
security or lien  instrument or continuation  statement  listing the Borrower as
debtor covering all or any part of the Collateral is on file or of record in any
jurisdiction, except such as may have been filed, for the benefit of the Secured
Parties  recorded  or made by the  Borrower  in  favor of the  Collateral  Agent
pursuant to this Security Agreement or the Credit Agreement.

                  (b) This Security Agreement is effective to create a valid and
continuing  Lien on the  Collateral  in favor of the  Collateral  Agent  for the
benefit of the Secured  Parties,  which Lien is prior to all other Liens  except
Permitted  Liens,  and is  enforceable  as  such  as  against  creditors  of and
purchasers from the Borrower.  All action  necessary or desirable to protect and
perfect such security interest has been duly taken.

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<PAGE>




                  (c) The  Borrower's  chief  executive  office  is at 300 South
Fourth Street,  Suite 620, Las Vegas, Nevada 89101. The Borrower will not change
its name and will not change its principal  place of business or chief executive
office unless the Borrower shall have given the Collateral Agent at least thirty
(30) days prior  written  notice  thereof and the Borrower  shall have taken all
action necessary to assure  continuous  perfection of the security interest held
by the Collateral  Agent in the Collateral as evidenced by an opinion of counsel
addressed  to the  Collateral  Agent and the Lenders to the effect that the lien
and security  interest  created by this Security  Agreement with respect to such
Collateral  will continue to be maintained,  and that the priority  thereof will
not be affected, after giving effect to such action or actions.

                  (d) At any time and from time to time, and at the sole expense
of the Borrower, the Borrower will promptly and duly execute and deliver any and
all such further  instruments  and documents and take such further action as the
Lenders in  respect of a majority  in  aggregate  principal  amount of  Advances
outstanding may reasonably deem desirable in obtaining the full benefits of this
Security  Agreement  and of the  rights and powers  herein  granted,  including,
without limitation, the filing of any financing or continuation statements under
the Uniform  Commercial Code in effect in any  jurisdiction  with respect to the
liens and security interests granted hereby. The Borrower also hereby authorizes
the  Collateral  Agent to file  any such  financing  or  continuation  statement
without the signature of the Borrower to the extent permitted by applicable law;
provided,  however, that such authorization shall not be deemed to create a duty
in the Collateral  Agent.  If any amount payable under or in connection with any
of the Collateral  shall be or become  evidenced by any promissory note or other
instrument,  or any chattel  paper,  the Borrower shall  immediately  notify the
Collateral  Agent and shall duly endorse such note,  instrument or chattel paper
to the order of the  Collateral  Agent and  deliver  such  note,  instrument  or
chattel  paper to the  Collateral  Agent  promptly,  and shall  take such  other
actions and execute  such other  documents  as may be required by law to perfect
the Collateral Agent's interest in such note, instrument or chattel paper.

                  (e) The  Borrower  will  warrant  and  defend  the  Collateral
Agent's right,  title and interest in and to the Collateral,  for the benefit of
the Secured Parties against the claims and demands of all Persons whomsoever.

                  (f) All  authorizations  in this  Security  Agreement  for the
Collateral  Agent to endorse checks,  instruments and securities and to execute,
deliver  and  file  financing  statements,   continuation  statements,  security
agreements  and other  instruments  with  respect to the  Collateral  are powers
coupled  with an  interest  and are  irrevocable  so  long as any  Advances  are
outstanding; provided however, the foregoing authorizations shall not create any
duty or  obligation  on the  part  of the  Collateral  Agent  other  than  those
obligations set forth in this Agreement.

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<PAGE>



         SECTION 6. COLLATERAL ACCOUNT.

                  6.01.  Establishment and Maintenance of Lockbox and Collateral
Account.  AutoBond shall cause to be  established  and maintained at all times a
lockbox and related account (the "Lockbox" and the Lockbox  Account) in the name
of the Servicer, as custodian for AutoBond and its designees. AutoBond agrees to
cause the Lockbox Bank to sweep funds from the Lockbox Account to the Collection
Account at least once each week.  Autobond  agrees to require,  and to cause the
Servicer to require,  that all payments by Obligors on  Specified  Auto Loans be
made to the Lockbox.  Only payments on Specified  Auto Loans will be received in
the  Collection  Account  and no other  funds  other  than  funds  in which  the
Collateral  Agent has an  interest  hereunder  will be  commingled  therein.  In
addition,  concurrently  with the execution and delivery hereof,  the Collateral
Agent  shall  establish  the  following  segregated  accounts  entitled  (a) the
"AutoBond Funding Corporation II Loan Purchase Account,  Norwest Bank Minnesota,
National  Association,  as Collateral Agent" (the "Loan Purchase Account");  (b)
the "AutoBond Funding Corporation II Collection Account, Norwest Bank Minnesota,
National Association,  as Collateral Agent" (the "Collection Account");  and (c)
the "AutoBond  Funding  Corporation II Reserve Account,  Norwest Bank Minnesota,
National  Association,  as Collateral Agent" (the "Reserve  Account").  The Loan
Purchase Account,  the Collection  Account and the Reserve Account are sometimes
collectively  referred to herein as the  "Collateral  Account".  The  Collateral
Account shall be  maintained in the State of Minnesota in either (i)  segregated
trust  accounts with the corporate  trust  department of Norwest Bank  Minnesota
(National  Association) or any replacement  collateral  agent or (ii) segregated
deposit accounts with banks or trust companies (which may include the Collateral
Agent or a replacement  collateral  agent) the  short-term  debt  obligations of
which are rated  "A-1" by S&P and P-1 by  Moody's.  The  Borrower  shall have no
right of withdrawal from the Collateral Account.

                  6.02.  Required  Deposits to the  Accounts.  (a) The  Borrower
shall cause the following amounts to be paid to the Collateral Agent for deposit
to the accounts established pursuant to Section 6.01:

                       (i) on the  initial  Closing  Date,  an  amount  equal to
         $150,000 shall be deposited in the Reserve Account;

                       (ii) all amounts  payable to the Borrower by or on behalf
         of Lenders in respect of Advances  shall be  deposited  directly in the
         Loan Purchase Account;

                       (iii) all  amounts  representing  payments  in respect of
         Specified Auto Loans (including,  without limitation, all Recoveries on
         Receivables,   all  late  charges,  all  payments  in  respect  of  the
         Repurchase Price of Specified Auto Loans repurchased by

                                       12





<PAGE>



         AutoBond in  accordance  with the Loan  Acquisition  Agreement  and all
         proceeds of any  Dispositions)  shall be  deposited  in the  Collection
         Account;

                       (iv) all  amounts in respect of  principal  of  Permitted
         Investments  shall be  allocated  to the  account  to which  the  funds
         applied for purchase of such Permitted Investments were deposited;

                       (v)  all  amounts  representing   insurance  proceeds  in
         respect of Specified Auto Loans  (including,  without  limitation,  the
         proceeds of any credit  default)  shall be deposited in the  Collection
         Account;

                       (vi) all amounts  representing  repossession  proceeds in
         respect of Specified  Auto Loans shall be  deposited in the  Collection
         Account; and

                       (vii) all other  amounts paid to the  Borrower  under the
         Program Documents,  other than indemnity payments made to the Borrower,
         and all investment earnings on Permitted Investments shall be deposited
         in the Collection Account.

                  (b) The Collateral Agent is hereby irrevocably  authorized and
empowered, as the Borrower's attorney-in-fact, to endorse any check or any other
instrument or security presented for deposit in the Collateral Account requiring
the endorsement of the Borrower; provided, however, the foregoing authorizations
shall not create any duty or obligation on the part of the Collateral Agent.

                  (c) Notwithstanding  the foregoing  provisions of this Section
6.02,  if at any time the  Borrower,  AutoBond  or any  Person  on behalf of the
Borrower or AutoBond  (including  the Servicer  under the Servicing  Agreement),
receives  any proceeds or payments  required to be  deposited in the  Collateral
Account, all such amounts shall be held by the Borrower,  AutoBond or such other
person  as the agent of,  and in trust  for,  the  Collateral  Agent and  shall,
forthwith upon receipt by the Borrower, AutoBond or such other Person, be turned
over to the Collateral  Agent for deposit to the Collection  Account or the Loan
Purchase  Account,  as the case  may be,  in the same  form as  received  by the
Borrower,  AutoBond  or such other  Person  (and,  if  received in the form of a
check, instrument or security requiring endorsement,  duly endorsed on behalf of
the  Borrower,  AutoBond  or such  other  Person to the order of the  Collateral
Agent).

                  (d) The  Borrower  shall  cause all  amounts  remitted  to the
Collateral  Agent for deposit  pursuant to Section  6.02(a) to be  identified to
permit  the  deposit  of the same  into the  appropriate  account;  any  amounts
received by the  Collateral  Agent without  sufficient  identification  shall be
deposited by the Collateral Agent into the Collection Account until such time as
sufficient  identification  is received,  at which time the Collateral  Agent is
authorized, if

                                       13





<PAGE>



necessary, to withdraw such amounts from the Collection Account and deposit same
in accordance with such identification.

                  6.03.  Right of Withdrawal  from the  Collateral  Account.  In
furtherance  of the  security  interest  provided  in Section 2, the  Collateral
Agent, acting on behalf of the Secured Parties, and the Borrower, agree (a) that
the Collateral  Account shall be maintained in the name of the Collateral Agent,
(b) that the  Collateral  Account shall be subject to the exclusive  dominion of
the  Collateral  Agent,  and (c) that the  Collateral  Agent shall have the sole
right of withdrawal from the Collateral Account.  The Borrower,  the Lender, the
Servicer and AutoBond shall timely provide written remittance information to the
Collateral Agent specifying payment instructions with respect to amounts payable
pursuant to each provision of Section 6.04.  The Collateral  Agent shall have no
liability  to the  Borrower,  any Lender or any other  Person for failure to pay
funds to any Person in  accordance  with  Section  6.04 in the absence of timely
receipt of such written remittance instructions or in the event of any errors in
such written remittance instructions.

                  6.04.   Application  of  Funds  in  the  Collateral   Account;
Application of Proceeds of  Realization  on Collateral.  (a) Except as otherwise
provided in Section  6.05,  if no Event of Default  shall have  occurred  and be
continuing,  the Collateral  Agent, in the case of clause (iii), on each Payment
Date or, in the case of clause (ii), on each Business Day, shall apply collected
funds in the Loan Purchase  Account in the following order of priority  pursuant
to written  instructions  of the Borrower in the case of clauses (i) and (ii) or
pursuant to the Servicer  Report (as defined in the Servicing  Agreement) in the
case of clause (iii):

                           (i) on each  Closing  Date  other  than  the  Initial
         Closing  Date,  deposit  to the  Reserve  Account,  2% of each  related
         Advance;

                           (ii) to pay to AutoBond  an amount  equal to the Loan
         Acquisition  Price (less the amount deposited in (i) above), in respect
         of all  Specified  Auto Loans,  if any, to be purchased the Borrower on
         such date on or before 10:00 a.m.,  New York City time;  provided that,
         with respect to each such  Specified  Auto Loan,  such amounts shall be
         payable  only if the  Collateral  Agent has  received  each of the Loan
         Documents with respect to such Specified Auto Loan from AutoBond; and

                           (iii) to pay to the Lenders,  pro rata,  all interest
         on the  Advances  and any  Unused  Facility  Fee then due to the extent
         funds on deposit in the Collection  Account and the Reserve  Account on
         such date are insufficient therefor;

and, if any such funds shall remain unused after being applied for the foregoing
purposes,  so long as any Advances remain  outstanding the remaining funds shall
be  retained  in  the  Loan  Purchase  Account  and  continue  to be  Collateral
hereunder, and if so instructed in writing by

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<PAGE>



AutoBond,  may be invested or withdrawn by the  Collateral  Agent in  accordance
with Section 6.05 hereof. The Collateral Agent may liquidate any investment when
required to make an  application  pursuant to clauses (i), (ii) and (iii) above.
No investment  made pursuant to this section will have a maturity later than one
Business  Day  prior to the date on which  such  funds  will be  needed  to make
payment on the Advances.

                  (c)  If no  Event  of  Default  shall  have  occurred  and  be
continuing,  the Collateral Agent on each Payment Date shall apply funds held in
the  Collection  Account  in  respect  of the  prior  Collection  Period  in the
following order of priority (in accordance with the Servicer Report):

                       (i) to the Lenders,  pro rata, an amount equal to accrued
         and unpaid  interest on the  Advances and an amount equal to the Unused
         Facility Fee payable on such Payment Date;

                       (ii) to the Collateral Agent and the Servicer,  an amount
         equal to the Collateral  Agent Fee and the Servicer Fee,  respectively,
         payable on such Payment Date;

                       (iii) to the Loan  Purchase  Account as  Advances to fund
         Auto  Loans,  unless  directed  by  the  Initial  Lender  to pay to the
         Lenders,  pro rata, as payment of principal on the Advances,  an amount
         equal to any  principal  received  in respect of  Specified  Auto Loans
         during the immediately preceding Collection Period;

                       (iv) to the  Reserve  Account,  an  amount  equal  to the
         Reserve Account  Deficiency  Amount,  until the Reserve Account Balance
         equals the Reserve Account Required Balance;

                       (v) to the Collection  Agent,  an amount equal to the sum
         of (i) the  Collection  Agent Fee payable on such Payment Date and (ii)
         any late charges received in respect of Specified Auto Loans during the
         immediately preceding Collection Period;

                       (vi) to the  discharge  of all other  obligations  of the
         Borrower  which are then due under the  Program  Documents  (or, to the
         extent such obligations have not yet matured,  to be set aside and held
         in trust solely to satisfy such obligations, as and when they mature or
         otherwise become due) in an amount equal to such obligations; and

                       (vii) to the  Borrower,  an  amount  equal  to any  funds
         remaining in the Collection Account.

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<PAGE>



                  (d)  If no  Event  of  Default  shall  have  occurred  and  be
continuing,  the Collateral Agent on each Payment Date shall apply funds held in
the Reserve  Account in the following  order of priority (in accordance with the
Servicer Report):

                       (i) to the  Lenders,  pro rata,  an  amount  equal to the
         accrued and unpaid  interest and fees on the Advances  (including,  any
         accrued and unpaid  Unused  Facility  Fees) to the extent that funds on
         deposit  in the  Collection  Account  on  such  date  are  insufficient
         therefor;

                       (ii) to the  Lenders,  pro rata,  an amount  equal to the
         principal  of the  Advances  due and payable on such date to the extent
         that  funds on  deposit  in the  Collection  Account  on such  date are
         insufficient therefor; and

                       (iii) to the Collection  Account,  if 30 days have passed
         since the cancellation of any optional credit life, accident and health
         insurance  policy or optional  extended  service contract in respect of
         any  Specified  Auto Loan and the Borrower has not received a refund of
         any unearned Dealer's  commission or insurance premium, an amount equal
         to such unearned Dealer's commission or insurance premium; and

                       (iv) to the  Collection  Account,  an amount equal to the
         Excess Reserve Account Amount.

                  (e)  If an  Event  of  Default  shall  have  occurred  and  be
continuing,  the  Collateral  Agent  shall  apply all  amounts  held in the Loan
Purchase  Account,  the  Collection  Account  and the  Reserve  Account  and the
proceeds of any collection,  recovery,  receipt,  appropriation,  realization or
sale of any Collateral in connection with any Event of Default (after  deducting
all reasonable  costs and expenses of every kind incurred in any way relating to
the exercise of rights of the  Collateral  Agent with respect to the  Collateral
upon an Event of Default,  including reasonable attorney's fees and expenses) in
the following order of priority:

                       (i) to the Collateral Agent, an amount equal to all fees,
         costs and expenses owing to the Collateral Agent under this Agreement;

                       (ii) to the Servicer,  an amount equal to all fees, costs
         and expenses owing to the Servicer under the Servicing Agreement;

                       (iii) to the Lenders, pro rata, in the following order of
         priority  (A) an amount  equal to all  unpaid  interest  on,  (B) other
         amounts  due or to  become  due  with  respect  to  including,  without
         limitation,  any  accrued  and unpaid  Unused  Facility  Fees,  and (C)
         principal of, the Advances (in the event any such  principal is not due
         and the Advances have not been  accelerated,  all such amounts shall be
         retained in the Collateral

                                       16





<PAGE>



         Account and applied  solely to pay  principal  of and  interest on, and
         other  amounts due or to become due with respect to, the  Advances,  as
         and when due until all principal and interest on, and other amounts due
         or to become due with respect to, the Advances shall have been paid and
         satisfied in full);

                       (iv) to the  discharge  of all other  obligations  of the
         Borrower  which are then due (or, to the extent such  obligations  have
         not yet  matured,  to be set aside and held in trust  solely to satisfy
         such  obligations,  as and when they mature or otherwise become due) in
         an amount equal to such obligations; and

                       (v)  to the  Borrower,  an  amount  equal  to  any  funds
         remaining in the Collateral Account.

                  6.05. Investment of Funds Deposited in Collateral Account. The
Collateral  Agent shall, in accordance with the provisions of this Section 6.05,
invest and reinvest,  at the written  direction of AutoBond,  in the  Collateral
Agent's own name or in the name of the  Collateral  Agent's  nominee,  collected
funds in each of the Loan  Purchase  Account,  the  Collection  Account  and the
Reserve Account in Permitted  Investments  which shall mature, or be redeemed at
the option of the holder,  prior to the respective dates when the money invested
in such  Permitted  Investments is required for  application in accordance  with
this Section 6. To the extent that the sum of amounts held in the Loan  Purchase
Account exceeds  $5,000,000,  the Collateral Agent shall notify the Borrower and
the Lender. In the event that three (3) Business Days following the Business Day
on which the amount on deposit in the Loan Purchase Account exceeded $5,000,000,
the amount on deposit in the Loan Purchase  Account  (after giving effect to any
disbursements  pursuant to Section  6.04(a) on such date) is still  greater than
$5,000,000,  the  Collateral  Agent,  unless  otherwise  directed by the Initial
Lender,  shall  withdraw  an amount  equal to the  amount by which the amount on
deposit in the Loan Purchase Account exceeds $4,000,000 and disburse such amount
to the Lenders,  pro rata as a prepayment of Advances in accordance with Section
8 of the Credit Agreement.

         SECTION 7. DISPOSITIONS OF AUTO LOANS.

                  The Collateral  Agent, at the written direction of the Initial
Lender,  shall release from the lien of this Agreement any of the Specified Auto
Loans held as  Collateral  upon a  Disposition,  a  prepayment  of Advances or a
repurchase  by AutoBond in  accordance  with the terms of the Credit  Agreement;
provided,  that the proceeds of any such  Disposition,  voluntary  prepayment or
repurchase  (net of expenses and costs) have been  deposited into the Collection
Account for application in accordance with Section 6.04(c);  provided,  however,
that,  upon  satisfaction  of the  conditions  set forth in this  Section 7, the
Collateral Agent will release to or at the direction of AutoBond the certificate
of title with respect to a Financed Vehicle subject

                                       17





<PAGE>



to a  Disposition  within one  Business  Day of such  request by  AutoBond.  Any
Disposition  shall in and of  itself  have no effect  on the  obligation  of the
Lender under the Credit Agreement to make Advances.

         SECTION 8. THE COLLATERAL AGENT.

                  8.01.  Appointment.  By accepting the benefits of the security
interest granted herein,  each Secured Party hereby  irrevocably  designates and
appoints Norwest Bank Minnesota, National Association as the Collateral Agent of
such Secured  Party under this Security  Agreement,  and each such Secured Party
irrevocably  authorizes  Norwest Bank  Minnesota,  National  Association  as the
Collateral Agent for such Secured Party, to take such action on its behalf under
the  provisions  of this  Security  Agreement  and to  exercise  such powers and
perform such duties as are expressly  delegated to the  Collateral  Agent by the
terms  of this  Security  Agreement  together  with  such  other  powers  as are
reasonably  incidental  thereto  but in  each  instance  solely  at the  written
instruction  of the  Lenders  in respect  of at least a  majority  in  aggregate
principal amount of Advances  outstanding.  Notwithstanding any provision to the
contrary  elsewhere in this Security  Agreement,  the Collateral Agent shall not
have any duties or responsibilities, except those expressly set forth herein, or
any fiduciary  relationship  with any Secured Party,  and no implied  covenants,
functions,  responsibilities,  duties,  obligations or liabilities shall be read
into this Security  Agreement or otherwise  exist against the Collateral  Agent.
Norwest Bank Minnesota,  National  Association hereby accepts its appointment as
Collateral  Agent,  subject to, and in reliance  upon,  the  provisions  of this
Section 8.01.

                  8.02. Exculpatory Provisions. Neither the Collateral Agent nor
any  of  its  officers,  directors,  employees,  agents,   attorneys-in-fact  or
affiliates  shall be (a) liable for any action  lawfully  taken or omitted to be
taken by it or such Person under or in connection  with this Security  Agreement
(except for its or such Person's own  negligence or wilful  misconduct),  or (b)
responsible  in any  manner  to any of the  Secured  Parties  for any  recitals,
statements,  representations  or warranties  made by the Borrower or any officer
thereof  contained  herein or in the Loan Acquisition  Agreement,  the Servicing
Agreement,  the Credit  Agreement or in any  certificate,  report,  statement or
other  document  referred to or provided  for in, or received by the  Collateral
Agent  under  or in  connection  with,  this  Agreement,  the  Loan  Acquisition
Agreement,  the Servicing  Agreement or the Credit Agreement,  or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency (except with
respect to  enforceability  of this  Agreement  as it relates to the  Collateral
Agent)  of  this  Agreement,  the  Loan  Acquisition  Agreement,  the  Servicing
Agreement,  the Lockbox  Agreement,  the Credit  Agreement,  the Advances or the
Collateral  or for any  failure  of the  Borrower  to  perform  its  obligations
hereunder or under the Loan Acquisition Agreement,  the Servicing Agreement, the
Lockbox, the Credit Agreement or the Advances. The Collateral Agent shall not be
under any  obligation  to any Secured Party to ascertain or to inquire as to the
observance or performance of any of

                                       18





<PAGE>



the agreements contained in, or conditions of, any of the Program Documents,  or
to inspect the  properties,  books or records of the  Borrower or the  Servicer.
Except for its duty to maintain possession of the Auto Loans and as set forth in
this Agreement, the Collateral Agent shall at no time have any responsibility or
liability for or with respect to the legality,  validity and  enforceability  of
any security  interest in any  Automobile or any Auto Loan, or the perfection or
priority of such a security  interest or the  maintenance of any such perfection
or priority or for or with  respect to the ability of the Auto Loans to generate
the  payments  to be  distributed  to the  Lender  under the  Credit  Agreement,
including, without limitation, the existence,  condition, location and ownership
of any Financed  Vehicle;  the  existence of any insurance  thereon  (including,
without  limitation,  any VSI  Policy);  the  compliance  by the  Borrower,  the
Servicer  or the  Collection  Agent  with  any  covenant  or the  breach  by the
Borrower, the Servicer or the Collection Agent of any warranty or representation
made under this Agreement or the Servicing Agreement or in any related document;
the accuracy of any such warranty or representation; any investment of monies by
the  Collateral  Agent in  accordance  with the terms of this  Agreement  or the
Servicing  Agreement or any loss resulting  therefrom;  the acts or omissions of
the Borrower,  the Servicer,  the Collection Agent or any Obligor; or any action
of the  Servicer or the  Collection  Agent  taken in the name of the  Collateral
Agent.

                  8.03. Reliance by Collateral Agent. The Collateral Agent shall
be entitled to rely, and shall be fully protected in relying,  upon any Advance,
writing, resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram,  telecopy,  telex  or  teletype  message,  statement,  order  or other
document  or  conversation  believed by it to be genuine and correct and to have
been  signed,  sent or made by the proper  person or Persons and upon advice and
statements  of legal  counsel  (including,  without  limitation,  counsel to the
Borrower),  independent accountants and other experts selected by the Collateral
Agent.  The Collateral  Agent shall be fully justified in failing or refusing to
take any action under this Security Agreement unless it shall first receive such
written  advice or  concurrence  as it deems  appropriate  or it shall  first be
indemnified to its satisfaction (by one or more Secured Parties) against any and
all  liability  and  expense  which may be incurred by it by reason of taking or
continuing to take any such action.  The Collateral  Agent may from time to time
consult with legal counsel,  independent accountants or other experts of its own
selection in the event of any disagreement, controversy, question or doubt as to
the  construction  of any  provision  of  this  Agreement  or any of its  duties
hereunder,  and the Collateral  Agent shall be fully protected in acting in good
faith in  reliance  upon the  advice or  opinion  of any such  counsel  or other
expert.

                  8.04.  Notice of Default.  The  Collateral  Agent shall not be
deemed to have  knowledge  or notice of the  occurrence  of any Event of Default
under the Credit  Agreement  unless a Responsible  Officer has received  written
notice from the Lenders of a majority in aggregate  principal amount of Advances
outstanding or the Borrower  referring to this Security Agreement and describing
such Event of  Default  or unless a  Responsible  Officer  otherwise  has actual
knowledge of such Event of Default.

                                       19





<PAGE>




                  8.05. Non-Reliance on Collateral Agent. Neither the Collateral
Agent nor any of its officers, directors,  employees, agents,  attorneys-in-fact
or affiliates has made any representations or warranties to the Secured Parties,
and no act by the Collateral Agent hereafter taken,  including any review of the
affairs of the Borrower,  shall be deemed to constitute  any  representation  or
warranty  by the  Collateral  Agent to any Secured  Party.  Each  Secured  Party
represents  (or will be deemed to have  represented  at such time as such  party
becomes  a  Secured  Party  hereunder)  to the  Collateral  Agent  that  it has,
independently  and without reliance upon the Collateral Agent, and based on such
documents and information as it has deemed  appropriate,  made its own appraisal
of and  investigation  into the business,  operations,  property,  financial and
other condition and  creditworthiness  of the Borrower and made its own decision
to extend credit to the Borrower.  Each Secured  Party will,  independently  and
without  reliance upon the  Collateral  Agent,  and based on such  documents and
information as it shall deem  appropriate at the time,  continue to make its own
credit  analysis,  appraisals and decisions in taking or not taking action under
this Security Agreement, and to make such investigation as it deems necessary to
inform  itself as to the  business,  operations,  property,  financial and other
condition and creditworthiness of the Borrower.  Except for notices, reports and
other  documents  expressly  required to be  furnished by the  Collateral  Agent
hereunder,  the Collateral Agent shall have no duty or responsibility to provide
any Secured Party with any credit or other information  concerning the business,
operations,  property,  financial and other condition or creditworthiness of the
Borrower which may come into the  possession of the  Collateral  Agent or any of
its officers, directors, employees, agencies, attorneys-in-fact or affiliates.

                  8.06.  Successor  Collateral  Agent.  The Collateral Agent may
resign as collateral  agent hereunder and under the Servicing  Agreement upon 60
days' notice to the Borrower, AutoBond and the Lenders. The Collateral Agent may
be removed at any time by the Borrower  acting at the  direction of, or with the
consent of, the Lenders in respect of the majority in aggregate principal amount
of the Advances  outstanding if at any time the  Collateral  Agent shall fail to
comply with its obligations under this Security  Agreement.  No such resignation
or removal shall be effective unless and until a successor  collateral agent has
accepted  appointment  as such  pursuant to this  Agreement and in the case of a
removal,  any and all amounts then due to the  Collateral  Agent  hereunder have
been  paid in full.  If the  Collateral  Agent  shall  resign or be  removed  as
collateral  agent,  then the Borrower  shall appoint a commercial  bank having a
combined capital and surplus of at least $250,000,000, subject to supervision or
examination  by federal or state  authority and having an  established  place of
business  in the United  States as  successor  collateral  agent for the Secured
Parties upon (a) acceptance of such  appointment  by such  successor  collateral
agent,  (b) the  approval  of such  appointment  by the  Lenders in respect of a
majority in aggregate principal amount of the Advances outstanding,  and (c) the
filing of any necessary  amendments  to any UCC financing  statements to reflect
such appointment.  Such successor  collateral agent shall succeed to the rights,
powers and duties of the Collateral Agent, and the term "Collateral Agent" shall
mean such successor  collateral  agent effective upon its  appointment,  and the
former Collateral Agent's rights, powers and duties as Collateral Agent

                                       20





<PAGE>



shall be  terminated,  without  any other or further  act or deed on the part of
such former Collateral Agent. Such successor  collateral agent shall be entitled
to amend any UCC financing  statements  and any other filings,  recordation  and
declarations it deems advisable or necessary in connection with such termination
and cancellation.  After any retiring  Collateral Agent's resignation or removal
hereunder as Collateral  Agent,  the provisions of this Section 8 and Section 14
shall inure to its benefit as to any actions  taken or omitted to be taken by it
while it was Collateral Agent under this Security Agreement. Notwithstanding the
foregoing,  if no successor collateral agent shall be appointed as aforesaid, or
if appointed,  such  successor  shall not have accepted its  appointment  within
thirty (30) days after resignation of the Collateral Agent, the Collateral Agent
may petition a court of competent jurisdiction to make such appointment.

                  8.07.  Delivery of Collateral and Permitted  Investments.  All
finance  contracts  representing  or  evidencing  the  Collateral  and Permitted
Investments  from time to time shall be delivered to and held by or on behalf of
the Collateral  Agent pursuant  hereto and shall, in the case of the Collateral,
be in suitable form for transfer by delivery,  or shall be  accompanied  by duly
executed  instruments  of transfer or  assignment  in blank.  Each Secured Party
hereby appoints the Collateral Agent as its agent for the purpose of holding any
Auto Loans and Permitted Investments. The Collateral Agent shall be the agent of
the Secured Parties and of the Borrower.  The Collateral Agent shall not release
possession of any Auto Loans or any documents  related  thereto  except (a) upon
receipt of a trust receipt  substantially in the form attached hereto as Exhibit
B  obligating  the Servicer or AutoBond,  acting as  Collection  Agent under the
Servicing  Agreement,  to hold  same in trust  for the  benefit  of the  Secured
Parties and obligating  the Servicer or AutoBond,  as the case may be, to return
same when the need  therefor  no longer  exists,  (b) upon  receipt  of  written
notification  from  the  Servicer  pursuant  to  Section  2.07 of the  Servicing
Agreement  that the Auto Loan has been paid in full,  (c) in  connection  with a
Disposition  or other  prepayment in full of Advances or (d) in connection  with
any repurchase by AutoBond in accordance with the terms of the Loan  Acquisition
Agreement upon the receipt by the Collateral Agent of the Repurchase Price.

                  8.08.  Duties and Covenants of Collateral Agent.

                  (a) The Collateral  Agent  undertakes to perform the duties as
are set forth in this Agreement, including, without limitation:

                       (i) upon the  request of  AutoBond  and/or the  Servicer,
         providing  information  reasonably  within  its  possession  and within
         reasonable  time  constraints  regarding  payments and receipt of funds
         from and to AutoBond and the Servicer;

                       (ii) acting as custodian of all documents delivered to it
         related to the Collateral;

                                       21





<PAGE>




                       (iii)   depositing  funds  received  by  it,  whether  as
         proceeds of  Advances,  as  collections  on Auto Loans,  as proceeds of
         repossession  or  otherwise  in  accordance  with  the  terms  of  this
         Agreement;

                        (iv) making payments from amounts held in the Collateral
         Account,  whether on the  Advances,  to the  Servicer,  to  AutoBond or
         otherwise  based solely upon timely  receipt of remittance  information
         from the Borrower, the Lenders, the Servicer and AutoBond in accordance
         with the terms of this Agreement;

                         (v)  upon  the  request  of  the  Servicer,   providing
         information reasonably within its possession and within reasonable time
         constraints  regarding  servicing,   repossession  and  insurance  with
         respect to the Auto Loans to the Servicer;

                        (vi)    providing   the    collateral    agent   report,
         substantially  in form of  Exhibit C hereto,  with  respect to the Auto
         Loans on or before the  fifteenth  (15th) day of each month (or if such
         fifteenth day is not a Business Day, the next succeeding business day),
         except in the case where the seventh  (7th)  Business Day of such month
         falls on or after the eleventh  (11th) day of the month, in which case,
         the  collateral  agent  report  shall  be  provided  on or  before  the
         seventeenth (17th) day of such month (or if such seventeenth day is not
         a Business Day, on the next succeeding Business Day); and

                       (vii)  providing  to the  Borrower  and the  Servicer,  a
         monthly report  summarizing  each application for title with respect to
         any Automobile  securing a Specified Auto Loan for which the Collateral
         Agent has not  received a new title  certificate  from the  appropriate
         state agency;

                  (b)  The Collateral Agent covenants and agrees that it will:

                       (i) not directly or indirectly create,  incur,  assume or
         suffer to exist any Lien  against the  Collateral  or any part  thereof
         other than as set forth herein;

                       (ii) upon  receipt of written  notice  from the  Servicer
         that an Auto Loan has been  paid in full (to the  extent  such  amounts
         have been deposited in the Collection  Account),  execute and return to
         the Servicer  documents  prepared and furnished to the Collateral Agent
         by the  Servicer  as shall be  necessary  to release  the lien over the
         related Automobile;

                       (iii) upon receipt pursuant to the Servicing Agreement of
         the Servicer Report,  annual financial statements or monthly compliance
         statements, promptly forward a copy of such documents to the Lender;

                                       22





<PAGE>



                        (iv) upon the  written  direction  of a Lender,  request
         from  the  Servicer  certification  evidencing  the  fidelity  bond and
         insurance coverage required by the Servicing Agreement and upon receipt
         shall forward such certification to the Lender and the Borrower;

                         (v) upon receipt from the Servicer of a written  notice
         of  cancellation  or  modification  of the fidelity  bond and insurance
         coverage required by the Servicing  Agreement,  promptly forward a copy
         of such notice to the Lender and the Borrower;

                        (vi) upon the  written  direction  of the Lender (or, if
         multiple  Lenders,  the Lenders in respect of a majority  in  aggregate
         principal amount of the Advances  outstanding),  consent to a change in
         business,  merger,  consolidation  or  disposition  of  assets  of  the
         Servicer;

                       (vii)  upon  a  Responsible   Officer   obtaining  actual
         knowledge  of  the   occurrence  of  a  change  in  business,   merger,
         consolidation  or disposition of assets by the Servicer,  promptly give
         notice of such event to the Lender and the Borrower and, if directed to
         do so by the Lender (or, if multiple Lenders, the Lenders in respect of
         a majority in aggregate principal amount of the Advances  outstanding),
         terminate the responsibilities of the Servicer,  in accordance with the
         Servicing Agreement;

                      (viii)  upon  a  Responsible   Officer   obtaining  actual
         knowledge of the occurrence of an Event of Servicing  Termination or an
         Event of Default,  promptly  give notice to the Lender and the Borrower
         of such occurrence;

                        (ix) upon the  written  direction  of the Lender (or, if
         multiple  Lenders,  the Lenders in respect of a majority  in  aggregate
         principal  amount of the Advances  outstanding),  deliver notice to the
         Servicer  stating that an Event of Servicing  Termination  has occurred
         and thereby  terminate the  responsibilities  of the Servicer under the
         Servicing Agreement; and

                         (x)  upon  a  Responsible   Officer   obtaining  actual
         knowledge  of the  occurrence  of an  event  the  occurrence  of  which
         together with notice to the appropriate party would constitute an Event
         of Servicing Termination,  Event of Purchase Termination or an Event of
         Default,  promptly  give notice of the  occurrence of such event to the
         Lender and the Borrower.

                  8.09. Annual Report and Quarterly Certificate.  The Collateral
Agent shall deliver to the Lender as soon as available,  but in any event within
120  days  after  the  end of each  of its  fiscal  years,  a  consolidated  and
consolidating balance sheet of it or its parent and its subsidiaries, if any, as
at such last day of the fiscal year, consolidated statements of income and

                                       23





<PAGE>



retained  earnings and statements of cash flow, for each such fiscal year,  each
prepared  in  accordance  with  generally  accepted  accounting  principles,  in
reasonable  detail,  and as to the consolidated  statements,  certified  without
qualification  by an independent  public  accountant,  who may also render other
services to the Collateral Agent or any of its affiliates.

                  8.10. Delivery of Documents.  On or before the Initial Closing
Date, the  Collateral  Agent shall have delivered to the Borrower and the Lender
the  following,  in form and  substance  satisfactory  to the  Borrower  and the
Lender:

                  (a) a certificate of an assistant  secretary of the Collateral
         Agent certifying as to certain corporate matters in a format acceptable
         to the Lender; and

                  (b) a certificate of an officer of the Collateral  Agent as to
         the establishment of the Loan Purchase Account,  the Collection Account
         and the Reserve Account.

                  8.11.  Instructions  of the Lender.  Whenever  the  Collateral
Agent is  required  to consent to any action  hereunder  or under the  Servicing
Agreement,  the  Collateral  Agent  shall so notify the Lenders and shall act in
accordance  with the  written  instructions  of Lenders  holding 51% of Advances
outstanding.

         SECTION 9. AMENDMENTS AND WAIVERS.

                  With the written  consent of AutoBond  (such consent not to be
unreasonably  withheld)  and the Lenders in respect of a majority  in  aggregate
principal amount of Advances outstanding,  the Collateral Agent and the Borrower
may,  from  time  to  time,  enter  into  written  amendments,   supplements  or
modifications  hereto for the purpose of adding any  provision to this  Security
Agreement  or changing in any manner the rights of the  Collateral  Agent or the
Borrower  hereunder,  and,  with the  written  consent of (a) on or prior to the
Initial  Closing Date,  the Lender and (b) after the Initial  Closing Date,  the
Lenders in respect of at least 66-2/3% in aggregate principal amount of Advances
outstanding,  the Collateral  Agent on behalf of the Secured Parties may execute
and  deliver to the  Borrower a written  instrument  waiving,  on such terms and
conditions as may be specified in such  instrument,  any of the  requirements of
this  Security  Agreement;  provided,  however,  that no such waiver and no such
amendment,  supplement or modification shall (a) amend the definition of Secured
Parties  or amend,  modify or waive any  provision  of  Section 6 hereof or this
Section 9 without the written  consent of each Secured  Party whose rights under
this Security Agreement would be affected thereby, or (b) amend, modify or waive
any provision of Section 8 or otherwise alter the duties,  rights or obligations
of the Collateral  Agent without the written consent of all the Secured Parties.
Any such waiver and any such amendment,  supplement or modification  shall apply
equally to each

                                       24





<PAGE>



of the  Secured  Parties  and shall be binding  upon the  Borrower,  the Secured
Parties and the Collateral Agent.

                  In executing any supplement, amendment or modification of this
Security Agreement,  the Collateral Agent shall be entitled to receive and shall
be fully  protected  in relying  upon an opinion  of  counsel  stating  that the
execution  of such  supplement,  amendment  or  modification  is  authorized  or
permitted  by this  Section  9. The  Collateral  Agent  may,  but  shall  not be
obligated to, enter into any such  supplement,  amendment or  modification  that
affects  the  Collateral  Agent's own rights,  duties or  immunities  under this
Security Agreement or otherwise.

                  The Borrower and the Secured  Parties agree not to execute any
supplement,  amendment  or  modification  to any  Program  Document to which the
Collateral  Agent is not a party,  without  the  prior  written  consent  of the
Collateral  Agent, if the effect of such  supplement,  amendment or modification
would be to affect the Collateral  Agent's rights,  duties,  or immunities under
this Security  Agreement,  and they agree to promptly  forward to the Collateral
Agent any such supplement, amendment or modification.

         SECTION 10. NOTICES.

                  Unless  otherwise  expressly  provided  herein,  all  notices,
requests and demands to or upon the  respective  parties  hereto to be effective
shall be in writing and, unless otherwise  expressly  provided herein,  shall be
deemed to have been duly given or made when delivered by hand, or when deposited
in the  mail,  postage  prepaid,  or in the  case of  telegraphic  notice,  when
delivered to the telegraph  company,  or, in the case of facsimile notice,  when
sent, confirmation received, addressed as follows, or to such other addresses as
may be hereafter notified by the respective parties hereto:

         The Borrower:

                           AutoBond Funding Corporation II
                           300 South Fourth Street
                           Suite 620
                           Las Vegas, Nevada 89101

                                       25





<PAGE>



         AutoBond:

                           AutoBond Acceptance Corporation
                           301 Congress Avenue
                           Austin, Texas 78701

                           Attention: Eric Alt
                           Telecopy: (512) 472-1548

         The Collateral Agent:

                           Norwest Bank Minnesota, National Association
                           Sixth Street and Marquette Avenue
                           Minneapolis, Minnesota 55479-0070

                         Attention:  Corporate Trust Services - Asset Backed
                                     Administration

                         Facsimile Number:           (612) 667-3539
                         Telephone Number:           (612) 667-1117

To the  Lenders  at the  address as the  Lenders  shall  have  furnished  to the
Borrower (with a copy to the Collateral Agent) in writing;

provided,  that any notice to or upon the Borrower  shall be deemed to have been
duly given or made as aforesaid when so given or made to the Borrower whether or
not any other party  indicated  above as the  recipient of a copy thereof  shall
have received a copy of each notice.

         SECTION 11. LIMITATION ON COLLATERAL AGENT'S DUTY IN RESPECT OF
                     COLLATERAL.

                  Except  as set  forth  herein  and  beyond  the  safe  custody
thereof,  the  Collateral  Agent shall not have any duty as to any Collateral in
its  possession or control or the  possession or control of any agent or nominee
of it or any income  thereof or as to the  preservation  of rights against prior
parties or any other rights pertaining thereto.

                                       26





<PAGE>



         SECTION 12. SEVERABILITY.

                  Any provision of this Security  Agreement  which is prohibited
or  unenforceable  in  any  jurisdiction   shall  as  to  such  jurisdiction  be
ineffective  to the  extent  of such  prohibition  or  unenforceability  without
invalidation  of the remaining  provisions  hereof and any such  prohibition  or
unenforceability   in  any   jurisdiction   shall  not   invalidate   or  render
unenforceable such provision in any other jurisdiction.

         SECTION 13. NO WAIVER; CUMULATIVE REMEDIES.

                  Neither the Collateral  Agent nor the Secured Parties shall by
any act,  delay,  omission or  otherwise  be deemed to have waived any of its or
their  rights  or  remedies  hereunder  and no waiver  shall be valid  unless in
writing,  signed by the Collateral Agent on behalf of the Secured  Parties,  and
then only to the extent therein set forth.  A waiver by the Collateral  Agent of
any right or remedy  hereunder on any one  occasion  shall not be construed as a
bar to any right or remedy  which the  Collateral  Agent or the Secured  Parties
would otherwise have had on any future occasion.  No failure to exercise nor any
delay in exercising on the part of the Collateral  Agent or the Secured  Parties
any right, power or privilege  hereunder shall operate as a waiver thereof,  nor
shall any single or partial exercise of any right, power or privilege  hereunder
preclude  any other or future  exercise  thereof  or the  exercise  of any other
right,  power or  privilege.  The rights and  remedies  hereunder  provided  are
cumulative and may be exercised  singly or concurrently and are not exclusive of
any rights and remedies provided by law.

         SECTION 14. PAYMENT OF EXPENSES AND TAXES.

                  (a) The Borrower hereby agrees to pay to the Collateral  Agent
a fee for its services  hereunder  equal to the Collateral  Agent Fee.  AutoBond
agrees to pay,  indemnify,  and to hold the Collateral  Agent harmless from, any
and all recording and filing fees and any and all  liabilities  with respect to,
or resulting from any delay in paying,  stamp and other similar  taxes,  if any,
which  may be  payable  or  determined  to be  payable  in  connection  with the
execution  and  delivery  of,  or  consummation  of  any  of  the   transactions
contemplated by, or any amendment,  supplement or modification of, or any waiver
or consent under or in respect of, this Security  Agreement,  and any such other
documents,  and to  pay,  indemnify,  and  hold  the  Collateral  Agent  and its
officers,  directors,   shareholders,   employees,  agents  and  representatives
harmless from and against any and all other  liabilities,  obligations,  losses,
damages, penalties,  actions, judgments, suits, costs, expenses or disbursements
of any kind or  nature  whatsoever  with  respect  to the  execution,  delivery,
enforcement,  performance and  administration of this Security Agreement and any
such other  documents  (including,  but not  limited to,  those  incurred by any
negligent  act or negligent  omission to act of the  Collateral  Agent) (all the
foregoing, collectively, the "indemnified liabilities"); provided, that AutoBond
shall not be liable to the

                                       27





<PAGE>



Collateral Agent for any (i) losses incurred by the Collateral Agent as a result
of the fraudulent actions, misrepresentations,  negligence or willful misconduct
of the  Collateral  Agent  or (ii)  losses,  claims,  damages,  liabilities  and
expenses  arising out of the  imposition by any taxing  authority of any federal
income,  state or local income or franchise taxes, or any other taxes imposed on
or measured by gross or net income,  gross or net receipts,  capital,  net worth
and similar items  (including any interest,  penalties or additions with respect
thereto) upon the Collateral Agent with respect to its receipt of the Collateral
Agent Fee hereunder  (including any liabilities,  costs or expenses with respect
thereto).  The  obligations  of AutoBond under this Section 14 shall survive the
termination  of  this  Security   Agreement  and  the  discharge  of  the  other
obligations  of AutoBond  hereunder  and also shall survive the  resignation  or
removal of the Collateral Agent hereunder.

                  (b) Promptly after receipt by the  Collateral  Agent of notice
of the  commencement of any action,  such Collateral  Agent shall, if a claim in
respect  thereof is to be made against  AutoBond  under this Section 14,  notify
AutoBond in writing of the commencement  thereof;  but the omission so to notify
AutoBond will not relieve  AutoBond from any liability  which it may have to the
Collateral  Agent except to the extent AutoBond is prejudiced  thereby.  In case
any action is brought against the Collateral  Agent, and it notifies AutoBond of
the  commencement  thereof,   AutoBond  will  be  entitled  to  appoint  counsel
satisfactory  to  AutoBond  (who  shall  not,  except  with the  consent  of the
Collateral  Agent,  be counsel to the Borrower or  AutoBond)  to  represent  the
Collateral Agent in such action;  provided,  however, that, if the defendants in
any action  include both the  Collateral  Agent and AutoBond and the  Collateral
Agent shall have reasonably concluded that there may be legal defenses available
to it which are different from or additional to those available to AutoBond, the
Collateral  Agent shall have the right to select separate counsel to defend such
action on behalf of it. Upon receipt of notice from  AutoBond to the  Collateral
Agent of its  election so to appoint  counsel to defend such action and approval
by the  Collateral  Agent of such  counsel,  AutoBond  will not be liable to the
Collateral  Agent  under  this  Section  14 for  any  legal  or  other  expenses
subsequently  incurred by the  Collateral  Agent in connection  with the defense
thereof unless (i) the Collateral Agent shall have employed  separate counsel in
accordance with the proviso to the next preceding sentence,  (ii) AutoBond shall
not have employed counsel  satisfactory to the Collateral Agent to represent the
Collateral  Agent within a reasonable  time after notice of  commencement of the
action or (iii)  AutoBond  has  authorized  the  employment  of counsel  for the
Collateral  Agent at the expense of AutoBond;  and except that, if clause (i) or
(iii) is  applicable,  such  liability  shall be only in respect of the  counsel
referred to in such clause (i) or (iii).

                  (c) If the indemnification  provided for in this Section 14 is
unavailable  or  insufficient  to  hold  harmless  the  Collateral  Agent  under
subsection (a) or (b) above,  then AutoBond shall  contribute to the amount paid
or payable by the Collateral Agent as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative  benefits received by AutoBond on the one
hand

                                       28





<PAGE>



and the Collateral Agent on the other from the transactions contemplated by this
Agreement  or (ii)  if the  allocation  provided  by  clause  (i)  above  is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault  of  AutoBond  on the one hand and the  Collateral  Agent on the  other in
connection with the actions or omissions which resulted in such losses,  claims,
damages or liabilities as well as any other relevant  equitable  considerations.
The Collateral  Agent and AutoBond agree that it would not be just and equitable
if  contributions  pursuant to this  subsection (c) were to be determined by pro
rata  allocation or by any other method of allocation that does not take account
of the  equitable  considerations  referred  to in the  first  sentence  of this
subsection  (c).  The amount  payable  by  AutoBond  as a result of the  losses,
claims,  damages  or  liabilities  referred  to in the  first  sentence  of this
subsection (c) shall be deemed to include any legal or other expenses reasonably
incurred by the Collateral  Agent in connection with  investigating or defending
any action or claim which is the subject of this subsection (c). No person found
guilty of fraudulent  misrepresentation  (within the meaning of Section 11(f) of
the Securities  Act) shall be entitled to  contribution  from any person who was
not guilty of such fraudulent misrepresentation.

                  (d)  The  obligations  of  the  Borrower,   AutoBond  and  the
Collateral  Agent under this  Section 14 shall be in  addition to any  liability
which each of them may otherwise have.

                  (e) The  agreement,  indemnities  and other  statements of the
parties  hereto in or made pursuant to this Section 14 will remain in full force
and effect,  regardless  of any  investigation,  or  statement as to the results
thereof,  made  by or on  behalf  of  any  other  parties  hereto  or any of the
officers,  directors or controlling  persons referred to in this Section 14. The
provisions of this Section 14 shall survive the  termination or  cancellation of
this Agreement.

         SECTION 15. SUCCESSORS AND ASSIGNS; GOVERNING LAW.

                  This Security  Agreement and all  obligations  of the Borrower
hereunder shall be binding upon the successors and assigns of the Borrower,  and
shall,  together with the rights and remedies of the Collateral Agent hereunder,
inure to the benefit of the  Collateral  Agent,  the  Secured  Parties and their
respective successors and assigns.

                  THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND BE CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

                                       29





<PAGE>



         SECTION 16. ENFORCEMENT RIGHTS OF LENDERS.

                  Unless the Collateral Agent shall fail to take action required
to be taken by it under the terms of this  Agreement,  no Lender  shall have any
right  directly  to enforce  the  security  interests  granted by this  Security
Agreement.  No Lender  shall have any right to require the  Collateral  Agent to
take or fail to take  any  action  under  this  Security  Agreement,  except  as
otherwise provided in this Security Agreement.

         SECTION 17. BANKRUPTCY PETITION AGAINST THE BORROWER.

                  The Collateral  Agent hereby  covenants and agrees that, until
the  expiration of the later of (a) the date which is one year and one day after
the payment in full of all outstanding  Advances,  and (b) the date which is one
year and one day after the payment in full of all investor certificates or other
securities  outstanding  and  issued  pursuant  to a  Disposition,  it will  not
institute against, or join any other Person in instituting against, the Borrower
any   bankruptcy,   reorganization,   arrangement,   insolvency  or  liquidation
proceeding  or other similar  proceeding  under the laws of the United States or
any state of the United States.

         SECTION 18. MISAPPLICATION OF FUNDS.

                  The Collateral Agent agrees that any funds incorrectly paid to
it by the Borrower  shall be promptly  returned to the Borrower  upon receipt of
written  notice from the Borrower that such funds were  incorrectly  paid to the
Collateral  Agent  prior to the  Collateral  Agent's  transfer  of such funds in
accordance  with  this  Agreement.  The  Collateral  Agent  shall be  completely
protected  against any liability  for  returning  such funds in reliance on such
written notice that funds were incorrectly paid.

         SECTION 19. COUNTERPART SIGNATURES.

                  This   Agreement   may  be  executed  and   delivered  to  you
simultaneously in two (2) or more counterparts, each of which shall be deemed an
original,  but all such counterparts  shall together  constitute but one and the
same instrument.

         SECTION 20. THIRD PARTY BENEFICIARY.

                  For all purposes of this Agreement,  each of the Lenders shall
be a third party  beneficiary of the agreements and covenants  herein  contained
and the Servicer  shall be a third party  beneficiary  of the provisions of this
Agreement which specify the amount and priority of payment of the Servicer Fee.

                                       30





<PAGE>




         SECTION 21. STATUS OF COLLATERAL AGENT.

                  The parties hereto  acknowledge and agree that upon payment in
full of all  amounts  owing  under the Credit  Agreement  and the release of the
Secured  Parties'  security  interest  in  the  Collateral,  the  rights  of the
Collateral Agent to  indemnification  and payment of its fees and expenses under
this Agreement shall continue.

         SECTION 22. ACTS OF LENDERS.

                  (a) Any request,  demand,  authorization,  direction,  notice,
consent,  waiver or other action provided by this Agreement to be given or taken
by the Lender may be embodied in and  evidenced  by one or more  instruments  of
substantially  similar  tenor  signed by the Lender in person or by agents  duly
appointed in writing;  and except as herein  otherwise  expressly  provided such
action shall become  effective  when such  instrument or  instruments  is or are
delivered to the Collateral Agent.  Proof of execution of any such instrument or
of a writing  appointing  any such agent shall be sufficient  for any purpose of
this Agreement if made in the manner provided in this Section 22.

                  (b) The fact and date of the  execution  by any  person of any
such instrument or writing may be proved in any manner that the Collateral Agent
deems sufficient.

                  (c) Any request,  demand,  authorization,  direction,  notice,
consent,  waiver or other  action by the Lender shall bind the Lender in respect
of anything  done,  omitted or suffered  to be done by the  Collateral  Agent in
reliance thereon, whether or not notation of such action is made upon the Note.

                                       31





<PAGE>



                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Security  Agreement to be executed by their duly  authorized  officers as of the
date first set forth above.

                                           AUTOBOND FUNDING CORPORATION II

                                           By: /s/ Adrian Katz
                                               ---------------------------------
                                               Name:  Adrian Katz
                                               Title: Vice President

                                           AUTOBOND ACCEPTANCE CORPORATION

                                           By: /s/ John S. Winsauer
                                               ---------------------------------
                                               Name:  John S. Winsauer
                                               Title: Secretary

                                           NORWEST BANK MINNESOTA, NATIONAL
                                           ASSOCIATION, as Collateral Agent

                                           By: /s/ Stephen P. Seitz
                                               ---------------------------------
                                               Name:  Stephen P. Seitz
                                               Title: Corporate Trust Officer

                                       32





<PAGE>




                                                                       EXHIBIT A

                         [FORM OF COLLATERAL ASSIGNMENT]

         COLLATERAL  ASSIGNMENT,  dated as of  __________,  199_ among  AutoBond
Funding  Corporation  II  (the  "Borrower"),   AutoBond  Acceptance  Corporation
("AutoBond")  and Norwest Bank Minnesota,  National  Association,  as Collateral
Agent (the "Collateral Agent").

         1. We refer to the Security Agreement (the "Security Agreement"), dated
as of  February  1,  1997,  by  and  among  the  Borrower,  AutoBond  Acceptance
Corporation and  acknowledged by Daiwa Finance  Corporation,  as Initial Lender.
All provisions of such Security  Agreement are  incorporated  by reference.  All
capitalized terms shall have the meanings set forth in the Security Agreement.

         2. As security for the prompt,  complete and unconditional  payment and
performance of all  obligations of the Borrower in respect of the Advances,  the
Borrower hereby pledges, assigns, transfers and delivers to the Collateral Agent
for the benefit of the Secured  Parties,  and grants to the Collateral Agent for
the benefit of the Secured  Parties,  a continuing  first lien on, and first and
prior security  interest in, all of the Borrower's title and interest in, to and
under following:

                        (i) each  Specified  Auto  Loan  listed  on  Schedule  1
         hereto,   including   without   limitation,   all  rights  to  payments
         thereunder, purchased by or otherwise conveyed to or established by the
         Borrower pursuant to the Loan Acquisition Agreement;

                        (ii) each Financed  Vehicle and all other Property,  now
         or hereafter  acquired,  securing or evidenced by, each such  Specified
         Auto Loan,  including,  without  limitation,  the  certificate of title
         relating to each Automobile, any insurance proceeds with respect to any
         such Financed  Vehicle or such Specified Auto Loan, the proceeds of any
         repossession  and  liquidation  of any such Financed  Vehicles,  rights
         under  judgments  with  respect  to  defaulted   obligors,   rights  to
         deficiency  judgments  with  respect to  defaulted  obligors and rights
         under any service contracts with respect to any such Financed Vehicle;

                        (iii) any proceeds of any insurance  policy purchased by
         the Borrower in respect of each such Specified Auto Loan;

                        (iv) the Loan Files; and

                                       A-1



<PAGE>



                        (v) all Proceeds of any of the foregoing.

         3.  Each of AutoBond and the Borrower does hereby certify:

                      (i) the representations and warranties of the Borrower set
                  forth in Sections 2.1 and 2.3(a) of the Credit  Agreement  and
                  AutoBond in Sections  2.2 and 2.3(a) of the Credit  Agreement,
                  are true and correct on and as of the date hereof,  before and
                  after giving  effect to the transfer  evidenced  hereby and to
                  the application of the proceeds  therefrom,  as though made on
                  and as of such date;

                      (ii) no event  has  occurred,  or would  result  from such
                  assignment or from the application of the proceeds  therefrom,
                  which constitutes an Event of Default or a Funding Termination
                  Event or would  constitute  an Event of  Default  or a Funding
                  Termination Event but for the requirement that notice be given
                  or time elapse or both;

                      (iii) each of AutoBond and the  Borrower is in  compliance
                  with each of its covenants  set forth in the Credit  Agreement
                  and the Security Agreement; and

                      (iv)  the  aggregate  Unpaid  Principal   Balance  of  the
                  Specified  Auto  Loans  listed  on  Schedule  1  hereto  to be
                  transferred  by  the  Borrower  pursuant  to  this  Collateral
                  Assignment is $__________.

                  IN WITNESS  WHEREOF,  the parties have caused this  Collateral
Assignment  to  be  executed  by  their  respective   officers   thereunto  duly
authorized, as of the date first above written.

                                    AUTOBOND FUNDING CORPORATION II, as
                                    Borrower

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

                                    AUTOBOND ACCEPTANCE CORPORATION

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

                                       A-2



<PAGE>



Accepted:

NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Collateral Agent

By:
   ---------------------------------

                                       A-3



<PAGE>



                                   Schedule 1

                                       to

                 Collateral Assignment dated _____________, 1997


                                       A-4


<PAGE>

                                                                       EXHIBIT B

                                  TRUST RECEIPT

                                                                [DATE]

AutoBond Funding Corporation II                     Norwest Bank Minnesota, N.A.
300 South Fourth Street                             Sixth and Marquette Avenue
Suite 620                                           Minneapolis, MN 55479-0070
Las Vegas, Nevada 89101

                       Re: Servicing Agreement, dated as of
                           January 31, 1997 (the "Servicing Agreement")
                           among AutoBond Funding Corporation II,
                           AutoBond Acceptance Corporation, CSC Logic/
                           MSA L.L.P. and Norwest Bank Minnesota,
                           National Association

Ladies and Gentlemen:

                  In accordance  with Section 2.07 of the  Servicing  Agreement,
the undersigned  hereby  certifies that it has taken possession of the items set
forth on Annex I hereto with  respect to the Auto Loans  identified  below.  The
undersigned  (i)  confirms  that it holds such items in trust for the benefit of
the Lender and (ii) agrees to promptly return such items to the Collateral Agent
after its need for  possession  of them  ceases,  except for title and  security
instruments  which the undersigned is required under applicable law to otherwise
deal with in furtherance of its duties under the Servicing Agreement.

                  Auto Loans:

                                             [CSC LOGIC/MSA L.L.P. or
                                             AutoBond Acceptance Corporation]

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


                                       B-1



<PAGE>

                                                                       EXHIBIT C

                         FORM OF COLLATERAL AGENT REPORT

         The  undersigned,  a duly  authorized  representative  of Norwest  Bank
Minnesota,  National  Association,  as collateral agent pursuant to the Security
Agreement,  dated as of February  1, 1997 (the  "Security  Agreement"),  between
AutoBond  Funding  Corporation II, AutoBond  Acceptance  Corporation and Norwest
Bank Minnesota, National Association, does hereby certify as follows:


<TABLE>

         <S>   <C>                                                                                <C>
         1.    Aggregate amount on deposit in the Loan Purchase Account
               as of the end of the most recent Collection Period.................................$_______________.

         2.    Aggregate amount on deposit in the Collection Account
               as of the end of the most recent Collection Period.................................$_______________.

         3.    Aggregate amount on deposit in the Reserve Account
               as of the end of the most recent Collection Period.................................$_______________.

         4.    The Reserve Account Required Balance as reported in
               the most recent Servicer's Report..................................................$_______________.
</TABLE>


         Capitalized  terms used in this  Certificate  have their  meanings  set
forth in the Security  Agreement.  This  Certificate  is  delivered  pursuant to
Section 8.08 of the Security Agreement.

         IN WITNESS WHEREOF,  the undersigned has duly executed this Certificate
this ____ day of __________, ____.

                                                   NORWEST BANK MINNESOTA,
                                                   NATIONAL ASSOCIATION
                                                    as Collateral Agent

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

                                       C-1