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                              SERVICING AGREEMENT


This SERVICING AGREEMENT (the "Servicing Agreement" or the "Agreement") is
entered into as of December 1, 1996, by and between Chevy Chase Bank, F.S.B.
(the "Servicer"), a federal savings bank, and Chevy Chase Preferred Capital
Corporation, a Maryland corporation (the "Purchaser").

WHEREAS, the Purchaser and Chevy Chase Bank, F.S.B. (as "Seller") entered into a
Mortgage Loan Purchase Agreement dated as of December 1, 1996 (the "Purchase
Agreement") pursuant to which the Purchaser agreed to purchase from the Seller
certain conventional, residential, adjustable rate first mortgage loans (the
"Mortgage Loans") to be delivered as whole loans, with the Servicer retaining
servicing rights in connection with the purchase of such Mortgage Loans; and

WHEREAS, the Purchaser desires to have the Servicer service the Mortgage Loans,
the Servicer desires to service and administer the Mortgage Loans on behalf of
the Purchaser, and the parties desire to provide the terms and conditions of
such servicing by the Servicer.

NOW, THEREFORE, in consideration of the mutual promises and agreements set forth
herein and for other good and valuable consideration, the receipt and the
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:

                                   ARTICLE I
                                  DEFINITIONS

SECTION 1.  DEFINITIONS. All capitalized terms not otherwise defined herein have
the respective meanings set forth in the Purchase Agreement. The following terms
are defined as follows:

"ACCEPTED SERVICING PRACTICES" means, with respect to any Mortgage Loan, those
mortgage servicing practices of prudent mortgage lending institutions which
service mortgage loans of the same type as such Mortgage Loan in the
jurisdiction where the related Mortgaged Property is located.

"ANCILLARY INCOME" means all late charges, assumption fees, escrow account
benefits, reinstatement fees, prepayment penalties and other miscellaneous and
similar types of fees arising from or in connection with any Mortgage Loan to
the extent not otherwise payable to the Mortgagor under applicable law or
pursuant to the terms of the related Mortgage Note.

"BESTS" means Best's Key Rating Guide.

"CLOSING DATE" means December 1, 1996, or such other date as is mutually agreed
upon by the parties hereto.

"CUSTODIAL ACCOUNT" means the separate account or accounts created and
maintained pursuant to Section 2.04.

"CUT-OFF DATE" means December 1, 1996.

"CONDEMNATION PROCEEDS" means all awards or settlements in respect of a
Mortgaged Property, whether permanent or temporary, partial or entire, by
exercise of the power of eminent domain or condemnation, to the extent not
required to be released to a Mortgagor in accordance with the terms of the
related Mortgage Loan Documents.

"DETERMINATION DATE" means one (1) Business Day prior to the related Remittance
Date.

"DUE PERIOD" means with respect to each Remittance Date, the period commencing
on the second day of the month preceding the month of the Remittance Date and
ending on the first day of the month of the Remittance Date.

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"ERRORS AND OMISSIONS INSURANCE POLICY" means an errors and omissions insurance
policy to be maintained by the Servicer pursuant to Section 2.12.

"ESCROW ACCOUNT" means the separate account or accounts created and maintained
pursuant to Section 2.06.

"ESCROW PAYMENT" means, with respect to any Mortgage Loan, the amounts
constituting ground rents, taxes, assessments, water rates, sewer rents,
municipal charges, mortgage insurance premiums, fire and hazard insurance
premiums, condominium charges, and any other payments required to be escrowed by
the Mortgagor with the mortgagee pursuant to the Mortgage or any other document.

"EVENT OF DEFAULT" means any one of the conditions or circumstances enumerated
in Section 11.01.

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

"FIDELITY BOND" means a fidelity bond to be maintained by the Servicer pursuant
to Section 2.12.

"FNMA GUIDES" means the FNMA Sellers' Guide and the FNMA Servicers' Guide and
all amendments or additions thereto.

"INSURANCE PROCEEDS" means, with respect to each Mortgage Loan, proceeds of
insurance policies insuring the Mortgage Loan or the related Mortgaged Property.

"LIQUIDATION PROCEEDS" means cash received in connection with the liquidation of
a defaulted Mortgage Loan, whether through the sale or assignment of such
Mortgage Loan, trustee's sale, foreclosure sale or otherwise, or the sale of the
related Mortgaged Property if the Mortgaged Property is acquired in satisfaction
of the Mortgage Loan.

"MONTHLY REMITTANCE ADVICE" means the monthly remittance advice, in the form of
Exhibit 1 annexed hereto, to be provided to the Purchaser pursuant to Section
3.02.

"MORTGAGE IMPAIRMENT INSURANCE POLICY" means a mortgage impairment or blanket
hazard insurance policy as described in Section 2.11.

"NONRECOVERABLE ADVANCE" means any advance of principal and interest previously
made or proposed to be made in respect of a Mortgage Loan which, in the good
faith judgment of the Servicer, will not or, in the case of a proposed advance
of principal and interest, would not, be ultimately recoverable from related
Insurance Proceeds, Liquidation Proceeds or otherwise. The determination by the
Servicer that it has made a Nonrecoverable Advance or that any proposed advance
of principal and interest, if made, would constitute a Nonrecoverable Advance,
shall be evidenced by an Officers' Certificate delivered to the Purchaser.

"OCC" means Office of the Comptroller of the Currency, or any successor thereto.

"OFFICER'S CERTIFICATE" means a certificate signed by the Chairman of the Board,
any Vice Chairman of the Board, the President, any Executive Vice President, any
Senior Vice President, or any Vice President and by the Treasurer, the
Controller, the Secretary, any Assistant Treasurer or any Assistant Secretary of
the Servicer, and delivered to the Purchaser as required by this Agreement.

"PMI POLICY" means a policy of primary mortgage guaranty insurance issued by a
Qualified Insurer, as required by this Agreement with respect to certain
Mortgage Loans.

"PRIME RATE" means the prime rate announced to be in effect from time to time,
as published as the average rate in The Wall Street Journal (Northeast edition).

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"PRINCIPAL PREPAYMENT" means any payment or other recovery of principal on a
Mortgage Loan which is received in advance of its scheduled Due Date, including
any prepayment penalty or premium thereon, and which is not accompanied by an
amount of interest representing scheduled interest due on any date or dates in
any month or months subsequent to the month of prepayment.

"PURCHASE AGREEMENT" means the Mortgage Loan Purchase and Warranties Agreement
between the Purchaser and the Seller related to the purchase of the Mortgage
Loans dated as of December 1, 1996.

"QUALIFIED DEPOSITORY" means a Federal Home Loan Bank or a depository the
accounts of which are insured by the FDIC.

"QUALIFIED INSURER" means an insurance company duly qualified as such under the
laws of the states in which the Mortgaged Properties are located, duly
authorized and licensed in such states to transact the applicable insurance
business and to write the insurance provided, and approved by FNMA as an insurer
with respect to primary mortgage insurance, hazard insurance and flood
insurance.

"REMITTANCE DATE" means the 10th day (or if such 10th day is not a Business Day,
the first Business Day immediately following) of any month, beginning with the
first Remittance Date on December, 10, 1996.

"REO PROPERTY" means a Mortgaged Property acquired by the Servicer on behalf of
the Purchaser through foreclosure or by deed in lieu of foreclosure, as
described in Section 2.17.

"SERVICER EMPLOYEES" has the meaning set forth in Section 2.12.

"SERVICING ADVANCES" means all customary, reasonable and necessary "out of
pocket" costs and expenses (including reasonable attorneys' fees and
disbursements) incurred in the performance by the Servicer of its servicing
obligations, including, but not limited to, the cost of (a) the preservation,
restoration and protection of the Mortgaged Property, (b) any enforcement or
judicial proceedings, including foreclosures, (c) the management and liquidation
of the Mortgaged Property if the Mortgaged Property is acquired in satisfaction
of the Mortgage and (d) compliance with the obligations under Section 2.08
(except with respect to any expenses incurred in connection with procuring or
transferring Tax Service Contracts, as provided therein).

"SERVICING AGREEMENT" means this agreement between the Purchaser and the
Servicer for the servicing and administration of the Mortgage Loans.

"SERVICING FEE" means, with respect to each Mortgage Loan, the amount of the
annual fee the Purchaser shall pay to the servicer, which shall, for a period of
one (1) full month, be equal to one-twelfth of the product of the Servicing Fee
Rate and (2) the Stated Principal Balance of such Mortgage Loan. Such fee shall
be payable monthly, computed on the basis of the same principal amount and
period in respect of which any related interest payment on a Mortgage Loan is
computed and shall be pro rated for any portion of a month during which the
Mortgage Loan is serviced by the Servicer under this Agreement. The obligation
of the Purchaser to pay the Servicing Fee is limited to, and the Servicing Fee
is payable solely from, the interest portion (including recoveries with respect
to interest from Liquidation Proceeds, to the extent permitted by Section 4.03)
of such Monthly Payment collected by the Servicer, or as otherwise provided
under Section 4.03.

"SERVICING FEE RATE" means, with respect to each Mortgage Loan, a rate of 0.375%
per annum or such other rate to which the parties may mutually agree.

"SERVICING FILE" means, with respect to each Mortgage Loan, the file retained by
the Servicer consisting of originals of all documents in the Mortgage File which
are not delivered to the Purchaser and copies (which may be in microfiche form)
of the Mortgage Loan Documents listed on Exhibit A to the Purchase Agreement.

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"TAX SERVICE CONTRACT" means a paid-in-full, life-of-loan tax service contract
with TransAmerica Real Estate Tax Service, Inc. or other tax service vendor, as
described in Section 2.08 hereof.

"TERMINATION FEE" means the amount paid by the Purchaser to the Servicer in the
event of the Servicer's termination, without cause, as servicer. Such fee shall
equal the percentage amount set forth in Section 6.04 hereof of the then current
aggregate unpaid principal balance of the related Mortgage Loans.

                                  ARTICLE II
                                   SERVICING

SECTION 2.01.  DUTIES OF SERVICER. From and after the Closing Date, the
Servicer, as an independent contractor, shall service and administer the
Mortgage Loans and shall have full power and authority, acting alone, to do any
and all things in connection with such servicing and administration which the
Servicer may deem necessary or desirable, consistent with the terms of this
Agreement and with Accepted Servicing Practices. Except as set forth in this
Agreement, the Servicer shall service the Mortgage Loans in strict compliance
with the servicing provisions of the FNMA Guides. In the event of any conflict,
inconsistency or discrepancy between any of the servicing provisions of this
Agreement and any of the servicing provisions of the FNMA Guides, the provisions
of this Agreement shall control and be binding upon the Purchaser and the
Servicer.

Consistent with the terms of this Agreement, the Servicer may waive, modify or
vary any term of any Mortgage Loan or consent to the postponement of strict
compliance with any such term or in any manner grant any forbearance or
indulgence to any Mortgagor if in the Servicer's reasonable and prudent
determination such waiver modification, postponement or indulgence is not
materially adverse to the Purchaser, provided. however, that unless the Servicer
has obtained the prior written consent of the Purchaser, the Servicer shall not
permit any modification with respect to any Mortgage Loan that would change the
Mortgage Interest Rate, defer or forgive the payment of principal or interest,
reduce or increase the outstanding principal balance (except for actual payments
of principal) or change the final maturity date on such Mortgage Loan. In the
event of any such modification which permits the deferral of interest or
principal payments on any Mortgage Loan, the Servicer shall, on the Business Day
immediately preceding the Remittance Date in any month in which any such
principal or interest payment has been deferred, deposit in the Custodial
Account from its own funds, in accordance with Section 2.04, the difference
between (a) such month's principal and one (1) month's interest at the Mortgage
Interest Rate on the unpaid principal balance of such Mortgage Loan and (b) the
amount paid by the Mortgagor. The Servicer shall be entitled to reimbursement
for such advances to the same extent as for all other advances made pursuant to
Section 2.05. Without limiting the generality of the foregoing, the Servicer
shall continue, and is hereby authorized and empowered, to execute and deliver
on behalf of itself and the Purchaser, all instruments of satisfaction or
cancellation, or of partial or full release, discharge and all other comparable
instruments, with respect to the Mortgage Loans and with respect to the
Mortgaged Properties. If reasonably required by the Servicer, the Purchaser
shall furnish the Servicer with any powers of attorney and other documents
necessary or appropriate to enable the Servicer to carry out its servicing and
administrative duties under this Agreement.

In servicing and administering the Mortgage Loans, the Servicer shall employ
procedures (including collection procedures) and exercise the same care that it
customarily employs and exercises in servicing and administering mortgage loans
for its own account, giving due consideration to Accepted Servicing Practices
where such practices do not conflict with the requirements of this Agreement,
the FNMA Guides and the Purchaser's reliance on the Servicer.

The Servicer shall keep at its servicing office books and records in which,
subject to such reasonable regulations as it may prescribe, the Servicer shall
note transfers of Mortgage Loans. No transfer of a Mortgage Loan may be made
unless such transfer is in compliance with the terms hereof. For the purposes of
this Agreement, the Servicer shall be under no obligation to deal with any
Person with respect to this Agreement or the Mortgage Loans unless the Servicer
has been notified of such transfers as provided in this Section 2.01. The
Purchaser may sell and transfer,

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in whole or in part, the Mortgage Loans, provided that no such sale and transfer
shall be binding upon the Servicer unless such transferee shall agree in writing
in the form of the Assignment and Assumption Agreement attached to the Purchase
Agreement as Exhibit G. to be bound by the terms of this Agreement and the
Purchase Agreement, and an executed copy of the same shall have been delivered
to the Servicer. Upon receipt thereof, the Servicer shall mark its books and
records to reflect the ownership of the Mortgage Loans by such assignee, and the
previous Purchaser shall be released from its obligations hereunder. The
Servicer shall be required to remit all amounts required to be remitted to the
Purchaser hereunder to said transferee commencing with the first Remittance Date
falling after receipt of said copy of the related Assignment and Assumption
Agreement provided that the Servicer receives said copy no later than three (3)
Business Days immediately prior to the first day of the month of the related
Remittance Date. This Agreement shall be binding upon and inure to the benefit
of the Purchaser and the Servicer and their permitted successors, assignees and
designees.

The Servicing File retained by the Servicer pursuant to this Agreement shall be
appropriately marked and identified in the Servicer's computer system to clearly
reflect the sale of the related Mortgage Loan to the Purchaser. The Servicer
shall release from its custody the contents of any Servicing File retained by it
only in accordance with this Agreement, except when such release is required in
connection with a repurchase of any such Mortgage Loan pursuant to Section 8.03
of the Purchase Agreement.

The Servicer must have an internal quality control program that is capable of
evaluating and monitoring the overall quality of its servicing activities. The
program is to ensure that the Mortgage Loans are serviced in accordance with
prudent mortgage banking practices and accounting principles; guard against
dishonest, fraudulent, or negligent acts; and guard against errors and omissions
by officers, employees, or other authorized persons.

SECTION 2.02. LIQUIDATION OF MORTGAGE LOANS. In the event that any payment due
under any Mortgage Loan and not postponed pursuant to Section 2.01 is not paid
when the same becomes due and payable, or in the event the Mortgagor fails to
perform any other covenant or obligation under the Mortgage Loan and such
failure continues beyond any applicable grace period, the Servicer shall take
such action as (1) the Servicer would take under similar circumstances with
respect to a similar mortgage loan held for its own account for investment, (2)
shall be consistent with Accepted Servicing Practices, (3) the Servicer shall
determine prudently to be in the best interest of Purchaser, and (4) is
consistent with any related PMI Policy. In the event that any payment due under
any Mortgage Loan is not postponed pursuant to Section 2.01 and remains
delinquent for a period of ninety (90) days or any other default continues for a
period of ninety (90) days beyond the expiration of any grace or cure period (or
such other period as is required by law in the jurisdiction where the related
Mortgaged Property is located), the Servicer shall commence foreclosure
proceedings in accordance with the FNMA Guides, provided that, prior to
commencing foreclosure proceedings, the Servicer shall notify the Purchaser in
writing of the Servicer's intention to do so, and the Servicer shall not
commence foreclosure proceedings if the Purchaser objects to such action within
five (5) Business Days of receiving such notice or, if the provisions of the
next two paragraphs apply, in any event without the prior written consent of
Purchaser. In such connection, the Servicer shall from its own funds make all
necessary and proper Servicing Advances, provided, however, that the Servicer
shall not be required to expend its own funds in connection with any foreclosure
or towards the restoration or preservation of any Mortgaged Property, unless it
shall determine (a) that such preservation, restoration and/or foreclosure will
increase the proceeds of liquidation of the Mortgage Loan to Purchaser after
reimbursement to itself for such expenses and (b) that such expenses will be
recoverable by it either through Liquidation Proceeds (in respect of which it
shall have priority for purposes of withdrawals from the Custodial Account
pursuant to Section 2.05) or through Insurance Proceeds (in respect of which it
shall have similar priority).

Notwithstanding anything to the contrary contained herein, in connection with a
foreclosure, in the event the Servicer has reasonable cause to believe that a
Mortgaged Property is contaminated by hazardous or toxic substances or wastes,
or if the Purchaser otherwise requests an environmental inspection or review of
such Mortgaged Property to be conducted by a qualified inspector, the Servicer
shall cause the Mortgaged Property to be so inspected at the

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expense of the Purchaser. Upon completion of the inspection, the Servicer shall,
upon request, promptly provide the Purchaser with a written report of the
environmental inspection.

After reviewing the environmental inspection report, the Purchaser shall
determine how the Servicer shall proceed with respect to the Mortgaged Property.
In the event (a) the environmental inspection report indicates that the
Mortgaged Property is contaminated by hazardous or toxic substances or wastes
and (b) the Purchaser directs the Servicer to proceed with foreclosure or
acceptance of a deed in lieu of foreclosure, the Servicer shall be reimbursed
for all reasonable costs associated with such foreclosure or acceptance of a
deed in lieu of foreclosure and any related environmental clean up costs, as
applicable, from the related Liquidation Proceeds, or if the Liquidation
Proceeds are insufficient to fully reimburse the Servicer, the Servicer shall be
entitled to be reimbursed from amounts in the Custodial Account pursuant to
Section 2.05 hereof and to the extent amounts in the Custodial Account are
insufficient to fully reimburse the Servicer, the Servicer shall be entitled to
be reimbursed by the Purchaser for such deficiencies (upon presentation of
evidence of such deficiency). In the event the Purchaser directs the Servicer
not to proceed with foreclosure or acceptance of a deed in lieu of foreclosure,
the Servicer shall be reimbursed for all Servicing Advances made with respect to
the related Mortgaged Property from the Custodial Account pursuant to Section
2.05 hereof.

SECTION 2.03. COLLECTION OF MORTGAGE LOAN PAYMENTS. Continuously from the
Closing Date, the Servicer shall proceed diligently to collect all payments due
under each of the Mortgage Loans when the same shall become due and payable and
shall take special care in ascertaining and estimating Escrow Payments and all
other charges that will become due and payable with respect to the Mortgage
Loans and each related Mortgaged Property, to the end that the installments
payable by the Mortgagors will be sufficient to pay such charges if and when
they become due and payable.

SECTION 2.04.  ESTABLISHMENT OF AND DEPOSITS TO CUSTODIAL ACCOUNT. The Servicer
shall segregate and hold all funds collected and received pursuant to the
Mortgage Loans separate and apart from any of its own funds and general assets
and shall establish and maintain one or more Custodial Accounts, in the form of
time deposit or demand accounts, titled "Chevy Chase Bank, F.S.B. in trust for
[named Purchaser], and various Mortgagors". The Custodial Account shall be
established with a Qualified Depository acceptable to the Purchaser. If the
Custodial Account is held at a Qualified Depository the deposit accounts of
which are insured by the FDIC, any funds deposited in the Custodial Account
shall at all times be insured to the full extent permitted under applicable law.
Funds deposited in the Custodial Account may be drawn on by the Servicer in
accordance with Section 2.05. The creation of any Custodial Account shall be
evidenced by a certification in the form of Exhibit 2 hereto, in the case of an
account established with the Servicer, or by a letter agreement in the form of
Exhibit 3 hereto, in the case of an account held by a depository other than the
Servicer. A copy of such certification or letter agreement shall be furnished to
the Purchaser and, upon request, to any subsequent Purchaser.

The Servicer shall deposit in the Custodial Account within one Business Day of
receipt, and retain therein, the following collections received by the Servicer
and payments made by the Servicer after the Cut-off Date, other than payments of
principal and interest due on or before the Cut-off Date, or received by the
Servicer prior to the Cut-off Date but allocable to a period subsequent thereto:

a. all payments on account of principal on the Mortgage Loans, including all
   Principal Prepayments;

b. all payments on account of interest on the Mortgage Loans;

c. all Liquidation Proceeds and any amount received with respect to REO
   Property;

d. all insurance Proceeds including amounts required to be deposited pursuant to
   Section 2.10 (other than proceeds to be held in the Escrow Account and
   applied to the restoration or repair of the Mortgaged Property or released to
   the Mortgagor in accordance with Section 2.14), and Section 2.11;

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e. all Condemnation Proceeds which are not applied to the restoration or repair
   of the Mortgaged Property or released to the Mortgagor in accordance with
   Section 2.14;

f. any amount required to be deposited in the Custodial Account pursuant to
   Section 2.01, 2.09, 2.15, 2.17, 3.01, 3.03 or 4.02;

g. any amounts payable in connection with the repurchase of any Mortgage Loan
   pursuant to Section 8.03 of the Purchase Agreement; and

h. any amounts required to be deposited by the Servicer pursuant to section 2.11
   in connection with the deductible clause in any blanket hazard insurance
   policy.

The foregoing requirements for deposit into the Custodial Account shall be
exclusive, it being understood and agreed that, without limiting the generality
of the foregoing, Servicing Fee Income and Ancillary Income need not be
deposited by the Servicer into the Custodial Account. Any interest paid, or
other income earned, on funds deposited in the Custodial Account by the
depository institution shall accrue to the benefit of the Servicer and the
Servicer shall be entitled to retain and withdraw such interest and other income
earned from the Custodial Account pursuant to Section 2.05.

SECTION 2.05.  PERMITTED WITHDRAWALS FROM CUSTODIAL ACCOUNT. Subject to Section
2.17 hereof, the Servicer shall, from time to time, withdraw funds from the
Custodial Account for the following purposes:

a. to make payments to the Purchaser in the amounts and in the manner provided
   for in Section 3.01;

b. to reimburse itself for unreimbursed Servicing Advances (except to the extent
   reimbursed pursuant to Section 2.07), any accrued but unpaid Servicing Fees
   and for unreimbursed advances of Servicer funds made pursuant to Sections
   2.15 or 2.17, the Servicer's right to reimburse itself pursuant to this
   subclause (b) with respect to any Mortgage Loan being limited to related
   Liquidation Proceeds, Condemnation Proceeds, Insurance proceeds and such
   other amounts as may be collected by the Servicer from the Mortgagor or
   otherwise relating to the Mortgage Loan, it being understood that, in the
   case of any such reimbursement, the Servicer' a right thereto shall be prior
   to the right. of the Purchaser except that, where the Seller or the Servicer
   is required to repurchase a Mortgage Loan pursuant to Section 8.03 of the
   Purchase Agreement or Section 4.02 of this Agreement, respectively, the
   Servicer's right to such reimbursement shall be subsequent to the payment to
   the Purchaser of the Repurchase Price pursuant to such sections and all other
   amounts required to be paid to the Purchaser with respect to such Mortgage
   Loan;

c. to pay itself any interest or other income earned on funds deposited in the
   Custodial Account (all such interest to be withdrawn monthly not later than
   each Remittance Date);

d. to withdraw any amounts deposited in error; and

e.  to clear and terminate the Custodial Account upon the termination of this
    Agreement.

In the event that the Custodial Account is interest bearing, on each Remittance
Date, the Servicer shall withdraw all funds from the Custodial Account except
for those amounts which, pursuant to Section 3.01, the Servicer is not obligated
to remit on such Remittance Date. The Servicer may use such withdrawn funds only
for the purposes described in this Section 2.05.

SECTION 2.06.  ESTABLISHMENT OF AND DEPOSITS TO ESCROW ACCOUNT. The Servicer
shall segregate and hold all funds collected and received pursuant to a Mortgage
Loan constituting Escrow payments separate and apart from any of its own funds
and general assets and shall establish and maintain one or more Escrow

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Accounts, in the form of time deposit or demand accounts. The Escrow Account or
Accounts shall be established with a Qualified Depository.  If the Custodial
Account is held at a Qualified Depository the deposit accounts of which are
insured by the FDIC, any funds deposited in the Custodial Account shall at all
times be insured to the full extent permitted under applicable law.  Funds
deposited in the Escrow Accounts may be drawn on by the Servicer in accordance
with Section 2.07. The creation of any Escrow Account shall be evidenced by a
certification in the form of Exhibit 4 hereto, in the case of an account
established with the Servicer, or by a letter agreement in the form of Exhibit 5
hereto, in the case of an account held by a depository other than the Servicer.
A copy of such certification shall be furnished to the Purchaser and, upon
request, to any subsequent Purchaser.

The Servicer shall deposit in the Escrow Account or Accounts within one Business
Day of receipt, and retain therein:

a. all Escrow payments collected on account of the Mortgage Loans, for the
   purpose of effecting timely payment of any such items as required under the
   terms of this Agreement; and

b. all amounts representing Insurance Proceeds or Condemnation proceeds which
   are to be applied to the restoration or repair of any Mortgaged Property.

The Servicer shall make withdrawals from the Escrow Account only to effect such
payments as are required under this Agreement, as set forth in Section 2.07. The
Servicer shall be entitled to retain any interest paid on, or other income
generated by and paid on, funds deposited in the Escrow Account by the
depository institution, other than interest on escrowed funds required by law or
the Mortgage Loan Documents to be paid to the Mortgagor. To the extent required
by law, the Servicer shall pay from its own funds interest on escrowed funds to
the Mortgagor notwithstanding that the Escrow Account may be noninterest bearing
or that interest paid thereon is insufficient for such purposes.

SECTION 2.07.  PERMITTED WITHDRAWALS FROM ESCROW ACCOUNT. Withdrawals from each
Escrow Account may be made by the Servicer only:

a. to effect timely payments of ground rents, taxes, assessments, water rates,
   mortgage insurance premiums, condominium charges, fire and hazard insurance
   premiums or other items constituting Escrow Payments for the related
   Mortgage;

b. to reimburse the Servicer for any Servicing Advance made by the Servicer
   pursuant to Section 2.08 (except with respect to any expenses incurred in
   procuring or transferring Tax Service Contracts) with respect to a related
   Mortgage Loan, but only from amounts received on the related Mortgage Loan
   which represent late payments or collections of Escrow Payments thereunder;

c. to refund to the related Mortgagor any funds found to be in excess of the
   amounts required under the terms of the related Mortgage Loan or applicable
   federal or state law or judicial or administrative ruling;

d. for transfer to the Custodial Account and application to reduce the principal
   balance of the Mortgage Loan in accordance with the terms of the related
   Mortgage and Mortgage Note;

e. for application to restoration or repair of the related Mortgaged Property in
   accordance with the procedures outlined in Section 2.14;

f. to pay to the Servicer, or any Mortgagor to the extent required by law, any
   interest paid on the funds deposited in the Escrow Account;

g.  to pay to the person entitled thereto any amounts deposited in error; and

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h. to clear and terminate the Escrow Account on the termination of this
   Agreement.

SECTION 2.08.  PAYMENT OF TAXES, INSURANCE AND OTHER CHARGES, TAX CONTRACTS.
With respect to each Mortgage Loan, the Servicer shall maintain accurate records
reflecting the status of ground rents, taxes, assessments, water rates, sewer
rents, and other charges, as applicable, which are or may become a lien upon the
Mortgaged Property and the status of PMI Policy premiums and fire and hazard
insurance coverage and shall obtain, from time to time, all bills for the
payment of such charges (including renewal premiums) and shall effect payment
thereof prior to the applicable penalty or termination date, employing for such
purpose deposits of the Mortgagor in the Escrow Account which shall have been
estimated and accumulated by the Servicer in amounts sufficient for such
purposes, as allowed under the terms of the Mortgage. To the extent that a
Mortgage does not provide for Escrow Payments, the Servicer shall determine that
any such payments relating to taxes or maintaining insurance policies are made
by the Mortgagor at the time they first become due. The Servicer assumes full
responsibility for the timely payment of all such bills to the extent it has or
should have notice of such bills and shall effect timely payment of all such
charges irrespective of each Mortgagor's faithful performance in the payment of
same or the making of the Escrow Payments, and the Servicer shall make advances
from its own funds to effect such payments, such advances to be reimbursable to
the same extent as Servicing Advances.

The Servicer shall ensure that each of the Mortgage Loans shall be covered by a
Tax Service Contract.  In the event Purchaser terminates this Agreement pursuant
to Section 6.04 hereof, such Tax Service Contracts shall be assigned to the
Purchaser at the Purchaser's expense.  If this Agreement is terminated for any
other reason, such Tax Service Contracts shall be assigned to the Purchaser at
the Servicer's expense.  To the extent that a Mortgage Loan does not have a Tax
Service Contract, the Purchaser shall procure a Tax Service Contract for such
Mortgage Loan and the Servicer shall reimburse the Purchaser upon request for
reasonable expenses incurred in connection therewith.

SECTION 2.09.  PROTECTION OF ACCOUNTS. The Servicer may transfer the Custodial
Account or the Escrow Account to a different Qualified Depository from time to
time. Such transfer shall be made only upon obtaining the consent of the
Purchaser, which consent shall not be withheld unreasonably.  The Servicer shall
bear any expenses, losses or damages sustained by the Purchaser because the
Custodial Account and/or the Escrow Account are not demand deposit accounts.

SECTION 2.10.  MAINTENANCE OF HAZARD INSURANCE. The Servicer shall cause to be
maintained for each Mortgage Loan, hazard insurance such that all buildings upon
the Mortgaged Property are insured against loss by fire, hazards of extended
coverage and such other hazards as are required to be insured pursuant to the
FNMA Guides in an amount which does not exceed FNMA guidelines.

If required by applicable law, each Mortgage Loan is covered by a flood
insurance policy meeting the requirements of all current federal guidelines in
an amount representing coverage not less than the lesser of (i) the outstanding
principal balance of the related Mortgage Loan and (ii) the maximum amount of
insurance which is available under the Flood Disaster Protection Act of 1973, as
amended. If at any time during the term of the Mortgage Loan, the Servicer
determines in accordance with applicable law and pursuant to the FNMA Guides
that a Mortgaged Property is located in a special flood hazard area and is not
covered by flood insurance or is covered in an amount less than the amount
required by the Flood Disaster Protection Act of 1973, as amended, the Servicer
shall notify the related Mortgagor that the Mortgagor must obtain such flood
insurance coverage, and if said Mortgagor fails to obtain the required flood
insurance coverage within forty five (45) days after such notification, the
Servicer shall immediately purchase the required flood insurance on the
Mortgagor's behalf.

If a Mortgage is secured by a unit in a condominium project, the Servicer shall
verify that a Master Certificate indicating the existence of insurance coverage
for such project (including hazard, flood, liability, and fidelity coverage),
was obtained by the originating lender at the time the Mortgage Loan was
originated. If Servicer at any time receives notice of any cancellation,
reduction in amount or material change in such insurance coverage, Servicer
shall use its best efforts to obtain replacement coverage that is substantially
similar to the original.  Failure of

                                       9
<PAGE>

Servicer to obtain satisfactory replacement coverage within sixty (60) days
after receiving notice of any cancellation, reduction in amount or material
change in such insurance coverage will permit Purchaser to request repurchase of
any affected Mortgage Loan pursuant to Section 8.03 of the Purchase Agreement.

The Servicer shall cause to be maintained on each Mortgaged Property such other
or additional insurance as may be required pursuant to such applicable laws and
regulations as shall at any time be in force and as shall require such
additional insurance, or pursuant to the requirements of any primary mortgage
guaranty insurer.  All policies required hereunder shall name the Servicer and
its successors and assigns as mortgagee and shall provide for at least thirty
(30) days' prior written notice of any cancellation, reduction in amount or
material change in coverage.

The Servicer shall not interfere with the Mortgagor's freedom of choice in
selecting either his insurance carrier or agent, provided, however, that the
Servicer shall not accept any such insurance policies from insurance companies
which do not meet or exceed applicable FNMA guidelines.  The Servicer shall
determine that such policies provide sufficient risk coverage and amounts as
required pursuant to the FNMA Guides, that they insure the property owner, and
that they properly describe the property address. To the extent reasonably
possible the Servicer shall furnish to the Mortgagor a formal notice of
expiration of any such insurance in sufficient time for the Mortgagor to arrange
for renewal coverage by the expiration date; provided, however, that in the
event that no such notice is furnished by the Servicer, the Servicer shall
ensure that replacement insurance policies are in place in the required
coverages and the Servicer shall be solely liable for any losses in the event
such coverage is not provided.

Pursuant to Section 2.04, any amounts collected by the Servicer under any such
policies (other than amounts to be deposited in the Escrow Account and applied
to the restoration or repair of the related Mortgaged Property, or property
acquired in liquidation of the Mortgage Loan, or to be released to the
Mortgagor, in accordance with the Servicer's normal servicing procedures as
specified in Section 2.14) shall be deposited in the Custodial Account subject
to withdrawal pursuant to Section 2.05.

SECTION 2.11.  MAINTENANCE OF MORTGAGE IMPAIRMENT INSURANCE. In the event that
the Servicer shall obtain and maintain a blanket policy insuring against losses
arising from fire and hazards covered under extended coverage on all of the
Mortgage Loans, then, to the extent such policy provides coverage in an amount
equal to the amount required pursuant to Section 2.10 and otherwise complies
with all other requirements of Section 2.10, it shall conclusively be deemed to
have satisfied its obligations as set forth in Section 2.10. Any amounts
collected by the Servicer under any such policy relating to a Mortgage Loan
shall be deposited in the Custodial Account subject to withdrawal pursuant to
Section 2.05. Such policy may contain a deductible clause, in which case, in the
event that there shall not have been maintained on the related Mortgaged
Property a policy complying with Section 2.10, and there shall have been a loss
which would have been covered by such policy, the Servicer shall deposit in the
Custodial Account at the time of such loss the amount not otherwise payable
under the blanket policy because of such deductible clause, such amount to be
deposited from the Servicer's funds, without reimbursement therefor. Upon
request of the Purchaser, the Servicer shall cause to be delivered to the
Purchaser a certified true copy of such policy and a statement from the insurer
thereunder that such policy shall in no event be terminated or materially
modified without thirty (30) days' prior written notice to the Purchaser.

SECTION 2.12.  MAINTENANCE OF FIDELITY BOND AND ERRORS AND OMISSIONS INSURANCE.
The Servicer shall maintain with responsible companies, at its own expense, a
blanket Fidelity Bond and an Errors and Omissions Insurance Policy, with broad
coverage on all officers, employees or other persons acting in any capacity
requiring such persons to handle funds, money, documents or papers relating to
the Mortgage Loans ("Servicer Employees"). Any such Fidelity Bond and Errors and
Omissions Insurance Policy shall be in the form of the Mortgage Banker's Blanket
Bond and shall protect and insure the Servicer against losses, including
forgery, theft, embezzlement, fraud, errors and omissions and negligent acts of
such Servicer Employees. Such Fidelity Bond and Errors and Omissions Insurance
Policy also shall protect and insure the Servicer against losses in connection
with the release or satisfaction of a Mortgage Loan without having obtained
payment in full of the indebtedness secured thereby. No provision of this
Section 2.12 requiring such Fidelity Bond and Errors and Omissions Insurance

                                       10
<PAGE>

Policy shall diminish or relieve the Servicer from its duties and obligations as
set forth in this Agreement. The minimum coverage under any such Fidelity Bond
and Errors and Omissions Insurance Policy shall be at least equal to the
corresponding amounts required in the FNMA Guides.  Upon the request of the
Purchaser, the Servicer shall cause to be delivered to the Purchaser a certified
true copy of such Fidelity Bond and Errors and Omissions Insurance Policy and a
statement from the surety and the insurer that such Fidelity Bond and Errors and
Omissions Insurance Policy shall in no event be terminated or materially
modified without thirty (30) days' prior written notice to the Purchaser. In the
event that the surety or insurer charges the Servicer a fee for providing such
evidence, the Purchaser shall reimburse the Servicer for the reasonable expense
incurred by the Servicer in furnishing such evidence.

SECTION 2.13.  INSPECTIONS. The Servicer shall inspect the Mortgaged Property as
often as deemed necessary by the Servicer to assure itself that the value of the
Mortgaged Property is being preserved. In addition, if any Mortgage Loan is more
than sixty (60) days delinquent, the Servicer promptly shall inspect the
Mortgaged Property and shall conduct subsequent inspections in accordance with
Accepted Servicing Practices or as may be required by the primary mortgage
guaranty insurer. The Servicer shall keep a written report of each such
inspection.

SECTION 2.14.  RESTORATION OF MORTGAGED PROPERTY. The Servicer need not obtain
the approval of the Purchaser prior to releasing any Insurance Proceeds or
Condemnation Proceeds to the Mortgagor to be applied to the restoration or
repair of the Mortgaged Property if such release is in accordance with Accepted
Servicing Practices and the terms of this Agreement. At a minimum, the Servicer
shall comply with the following conditions in connection with any such release
of Insurance Proceeds or Condemnation Proceeds:

a. the Servicer shall receive satisfactory independent verification of
   completion of repairs and issuance of any required approvals with respect
   thereto;

b. the Servicer shall take all steps necessary to preserve the priority of the
   lien of the Mortgage, including, but not limited to requiring waivers with
   respect to mechanics' and materialmen's liens;

c. the Servicer shall verify that the Mortgage Loan is not in default; and

d. pending repairs or restoration, the Servicer shall place the Insurance
   Proceeds or Condemnation Proceeds in the Escrow Account.

If the Purchaser is named as an additional mortgagee, the Servicer is hereby
empowered to endorse any loss draft issued in respect of such a claim in the
name of the Purchaser.

SECTION 2.15.  MAINTENANCE OF PMI POLICY, CLAIMS.  With respect to each Mortgage
Loan with an LTV in excess of 80%, Servicer shall, without any cost to the
Purchaser, maintain or cause the Mortgagor to maintain in full force and effect
a PMI Policy which insures that portion of the Mortgage Loan in excess of 75% of
value and is otherwise in accordance with Servicer's ordinary policies.
Servicer shall pay or shall cause the Mortgagor to pay the PMI Policy premium on
a timely basis until such Policy is cancelled in accordance with Servicer's
ordinary practices.  In the event that such PMI Policy is terminated for any
reason other than routine cancellation, the Servicer shall obtain from another
Qualified Insurer a comparable replacement policy, with a total coverage equal
to the remaining coverage of such terminated PMI Policy. If the insurer shall
cease to be a Qualified Insurer, the Servicer shall determine whether recoveries
under the PMI Policy are jeopardized for reasons related to the financial
condition of such insurer, it being understood that the Servicer shall in no
event have any responsibility or liability for any failure to recover under the
PMI Policy for such reason. If the Servicer determines that recoveries are so
jeopardized, it shall notify the Purchaser and the Mortgagor, if required, and
obtain from another Qualified Insurer a replacement insurance policy. The
Servicer shall not take any action which would result in noncoverage under any
applicable PMI Policy of any loss which, but for the actions of the Servicer,
would have been covered thereunder. In connection with any assumption or
substitution agreement entered into or to be entered

                                       11
<PAGE>

into pursuant to Section 4.01, the Servicer shall promptly notify the insurer
under the related PMI Policy, if any, of such assumption or substitution of
liability in accordance with the terms of such PMI Policy and shall take all
actions which may be required by such insurer as a condition to the continuation
of coverage under such PMI Policy. If such PMI Policy is terminated as a result
of such assumption or substitution of liability, the Servicer shall obtain a
replacement PMI Policy as provided above.

In connection with its activities as servicer, the Servicer agrees to prepare
and present, on behalf of itself and the Purchaser, claims to the insurer under
any PMI Policy in a timely fashion in accordance with the terms of such PMI
Policy and, in this regard, to take such action as shall be necessary to permit
recovery under any PMI Policy with respect to a defaulted Mortgage Loan.
Pursuant to Section 2.04, any amounts collected by the Servicer under any PMI
Policy shall be deposited in the Custodial Account, subject to withdrawal
pursuant to Section 2.05.

SECTION 2.16.  DETERIORATING MORTGAGE LOANS. If, in the course of carrying out
its obligations under this Agreement, the Servicer discovers that a Mortgage
Loan (or an interest therein) (i) is or has been, at any time during the
preceding twelve months, (a) classified, (b) in nonaccrual status or (c)
renegotiated due to the financial deterioration of the Mortgagor or (ii) has
been, more than once during the preceding twelve months, more than 30 days past
due in the payment of principal and interest, the Servicer shall notify the
Purchaser as soon as possible and cooperate with the Purchaser in the
disposition of any such Mortgage Loan as soon as possible.

SECTION 2.17.  TITLE, MANAGEMENT AND DISPOSITION OF REO PROPERTY. In the event
that title to any Mortgaged Property is acquired in foreclosure or by deed in
lieu of foreclosure, the deed or certificate of sale shall be taken in the name
of the Servicer as nominee for Purchaser.

The Servicer shall manage, conserve, protect and operate each REO Property for
the Purchaser solely for the purpose of its prompt disposition and sale. The
Servicer, either itself or through an agent selected by the Servicer and
reasonably acceptable to the Purchaser, shall manage, conserve, protect and
operate the REO Property in the same manner that it manages, conserves, protects
and operates other foreclosed property for its own account, and in the same
manner that similar property in the same locality as the REO Property is
managed. The Servicer shall attempt to sell the same (and may temporarily rent
the same for a period not greater than one (1) year, except as otherwise
provided below) on such terms and conditions as the Servicer deems to be in the
best interest of the Purchaser.

The Servicer shall use its best efforts to dispose of the REO Property as soon
as possible and shall sell such REO Property in any event within one year after
title has been taken to such REO Property, unless the Servicer determines, and
gives an appropriate notice to the Purchaser to such effect, that a longer
period is necessary for the orderly liquidation of such REO Property. If a
period longer than one (1) year is permitted under the foregoing sentence and is
necessary to sell any REO Property, the Servicer shall report monthly to the
Purchaser as to the progress being made in selling such REO Property.

The Servicer shall also maintain on each REO Property fire and hazard insurance
with extended coverage in an amount which is at least equal to the maximum
insurable value of the improvements which are a part of such property, liability
insurance and, to the extent required and available under the Flood Disaster
Protection Act of 1973, as amended, flood insurance in the amount required
above.

The disposition of REO Property shall be carried out by the Servicer at such
price, and upon such terms and conditions, as the Servicer deems to be in the
best interests of the Purchaser. The proceeds of sale of the REO Property shall
be promptly deposited in the Custodial Account. As soon as practical thereafter
the expenses of such sale shall be paid and the Servicer shall reimburse itself
pursuant to Section 2.05(iii) or 2.05(iv) hereof, as applicable, for any related
unreimbursed Servicing Advances, unpaid Servicing Fees and unreimbursed advances
made pursuant to this Section, and on the Remittance Date immediately following
the Due Period in which such sale proceeds are received the net cash proceeds of
such sale remaining in the Custodial Account shall be distributed to the
Purchaser;

                                       12
<PAGE>

provided that such distribution shall, in any event, be made within ninety (90)
days from and after the closing of the sale of such REO Property.

In addition to the Servicer's obligations set forth in this Section 2.17, the
Servicer shall deliver written notice to the Purchaser whenever title to any
Mortgaged Property is acquired in foreclosure or by deed in lieu of foreclosure
together with a copy of the drive-by appraisal of the related Mortgaged Property
obtained by the Servicer on or prior to the date of such acquisition.
Notwithstanding anything to the contrary contained herein, the Purchaser may, at
the Purchaser's sole option, terminate the Servicer as servicer of any such REO
Property without payment of any Termination Fee with respect thereto, provided
that (i) the Purchaser gives the Servicer notice of such termination within ten
(10) Business Days of receipt of said written notice from the Servicer which
termination shall be effective no more than fifteen (15) Business Days from and
after the date of said notice from the Purchaser and (ii) the Servicer shall on
the date said termination takes effect be reimbursed by Purchaser for any
unreimbursed advances of the Servicer's funds made pursuant to section 3.02 and
any unreimbursed Servicing Advances in each case relating to the Mortgage Loan
underlying such REO Property. In the event of any such termination, the
provisions of Section 8.06 hereof shall apply to said termination and the
transfer of servicing responsibilities with respect to such REO Property to the
Purchaser.

With respect to each REO Property, the Servicer shall deposit all funds
collected and received in connection with the operation of the REO Property in
the Custodial Account. The Servicer shall cause to be deposited on a daily basis
upon the receipt thereof in the Custodial Account all revenues received with
respect to the conservation and disposition of the related REO Property.

SECTION 2.18.  PERMITTED WITHDRAWALS WITH RESPECT TO REO PROPERTY. For so long
as the Servicer is acting as servicer of any Mortgage Loan relating to any REO
Property, the Servicer shall withdraw funds on deposit in the Custodial Account
with respect to each related REO Property necessary for the proper operation,
management and maintenance of the REO Property, including the cost of
maintaining any hazard insurance pursuant to Section 2.10 and the fees of any
managing agent acting on behalf of the Servicer. The Servicer shall make monthly
distributions on each Remittance Date to the Purchaser of the net cash flow from
the REO Property (which shall equal the revenues from such REO Property net of
the expenses described in Section 2.17 and of any reserves reasonably required
from time to time to be maintained to satisfy anticipated liabilities for such
expenses).

SECTION 2.19.  REAL ESTATE OWNED REPORTS. For so long as the Servicer is acting
as servicer of any Mortgage Loan relating to any REO Property, the Servicer
shall furnish to the Purchaser on or before the 15th day of each month a
statement with respect to any REO Property covering the operation of such REO
Property for the previous month and the Servicer's efforts in connection with
the sale of such REO Property and any rental of such REO Property incidental to
the sale thereof for the previous month. That statement shall be accompanied by
such other information as the Purchaser shall reasonably request.

SECTION 2.20.  LIQUIDATION REPORTS. For so long as the Servicer is acting as
servicer of any Mortgage Loan relating to any REO Property, upon the foreclosure
sale of any Mortgaged Property or the acquisition thereof by the Purchaser
pursuant to a deed in lieu of foreclosure, the Servicer shall submit to the
Purchaser a liquidation report with respect to such Mortgaged Property.

SECTION 2.21.  REPORTS OF FORECLOSURES AND ABANDONMENTS. For so long as the
Servicer is acting as servicer of any Mortgage Loan relating to any REO
Property, following the foreclosure sale or abandonment of any Mortgaged
Property, the Servicer shall report such foreclosure or abandonment as required
pursuant to Section 6050J of the Code.

SECTION 2.22.  NOTIFICATION OF ADJUSTMENTS. With respect to each ARM Loan, the
Servicer shall adjust the Mortgage Interest Rate on the related Interest Rate
Adjustment Date and shall adjust the Monthly Payment accordingly in compliance
with the requirements of applicable law and the related Mortgage and Mortgage
Note.

                                       13
<PAGE>

If, pursuant to the terms of the Mortgage Note, another index is selected for
determining the Mortgage Interest Rate, the same index will be used with respect
to each Mortgage Note which requires a new index to be selected, provided that
such selection does not conflict with the terms of the related Mortgage Note.
The Servicer shall execute and deliver any and all necessary notices required
under applicable law and the terms of the related Mortgage Note and Mortgage
regarding the Mortgage Interest Rate and the Monthly Payment adjustments. The
Servicer shall promptly upon written request therefor, deliver to the Purchaser
such notifications and any additional applicable data regarding such adjustments
and the methods used to calculate and implement such adjustments. Upon the
discovery by the Servicer or the Purchaser that the Servicer has failed to
adjust a Mortgage Interest Rate or a Monthly Payment pursuant to the terms of
the related Mortgage Note and Mortgage, the Servicer shall immediately deposit
in the Custodial Account from its own funds the amount of any interest loss
caused the Purchaser thereby.

SECTION 2.23.  NOTIFICATION OF MATURITY DATE. With respect to each Fixed Rate
Mortgage Loan, the Purchaser shall execute and deliver to the Mortgagor any and
all necessary notices required under applicable law and the terms of the related
Mortgage Note and Mortgage regarding the maturity date if required under
applicable law.

                                  ARTICLE III
                             PAYMENTS TO PURCHASER

SECTION 3.01.  REMITTANCES. On each Remittance Date the Servicer shall remit by
wire transfer of immediately available funds to the Purchaser (a) all amounts
deposited in the Custodial Account as of the close of business on the
Determination Date, minus (b) any amounts payable to Servicer under Article II
of this Agreement.

With respect to any remittance received by the Purchaser after the second
Business Day following the Business Day on which such payment was due, the
Servicer shall pay to the Purchaser interest on any such late payment at an
annual rate equal to the Prime Rate, adjusted as of the date of each change,
plus one (1) percentage point, but in no event greater than the maximum amount
permitted by applicable law. Such interest shall be deposited in the Custodial
Account by the Servicer on the date such late payment is made and shall cover
the period commencing with and including the day following such second Business
Day and ending with the Business Day on which such payment is made, exclusive of
such Business Day; provided, however, that in the event that the Servicer remits
such amounts after 1:00 P.M. Eastern time on any day, such period shall include
such day. Such interest shall be remitted along with the distribution payable on
the next succeeding Remittance Date. The payment by the Servicer of any such
interest shall not be deemed an extension of time for payment or a waiver of any
Event of Default by the Servicer.

SECTION 3.02.  STATEMENTS TO PURCHASER. Not later than the twentieth day of each
month, the Servicer shall furnish to Purchaser in a mutually-acceptable format a
listing of the outstanding Mortgage Loans, including with respect to each
Mortgage Loan: the Mortgage Loan number, the actual balance, the actual paid-
through dates and the Mortgage Interest Rate and principal and interest payment,
and with respect to ARM Loans, the next Interest Rate Adjustment Date, the
Mortgage Interest Rate and the principal and interest payment effective as of
the next Interest Rate Adjustment Date (if available), and shall furnish to the
Purchaser manually a Monthly Remittance Advice, with a trial balance report
attached thereto, in the form of Exhibit 1 annexed hereto as to the preceding
remittance and the period ending on the preceding Determination Date.

In addition, the Servicer shall furnish to Purchaser an annual statement in
accordance with the requirements of applicable federal income tax law as to the
aggregate of remittances for the applicable portion of such year.  Such
obligation of the Servicer shall be deemed to have been satisfied to the extent
that substantially comparable information shall be provided by the Servicer
pursuant to any requirements of the Code as from time to time are in force.

                                       14
<PAGE>

The Servicer shall prepare and file, with respect to each Mortgage Loan, any and
all tax returns, information statements or other filings required to be
delivered to any governmental taxing authority or to the Purchaser pursuant to
any applicable law with respect to the Mortgage Loans and the transactions
contemplated hereby. In addition, the Servicer shall provide the Purchaser with
such information concerning the Mortgage Loans as is necessary for the Purchaser
to prepare its federal income tax return as the Purchaser may reasonably request
from time to time.

SECTION 3.03.  RESERVED.


                                  ARTICLE IV
                         GENERAL SERVICING PROCEDURES

SECTION 4.01.  TRANSFERS OF MORTGAGED PROPERTY. The Servicer shall be required
to enforce any "due-on-sale" provision contained in any Mortgage or Mortgage
Note and to deny assumption by the person to whom the Mortgaged Property has
been or is about to be sold whether by absolute conveyance or by contract of
sale, whether or not the Mortgagor remains liable on the Mortgage and the
Mortgage Note. When the Mortgaged Property has been conveyed by the Mortgagor,
the Servicer shall, to the extent it has knowledge of such conveyance, exercise
its rights to accelerate the maturity of such Mortgage Loan under the "due-on-
sale" clause applicable thereto, provided, however, that the Servicer shall not
exercise such rights if prohibited by law from doing so or if the exercise of
such rights would impair or threaten to impair any recovery under the related
PMI Policy, if any.

If the Servicer reasonably believes it is unable under applicable law to enforce
such "due-on-sale" clause, the Servicer, in the Purchaser's name, shall, to the
extent permitted by applicable law, enter into (i) an assumption and
modification agreement with the person to whom such property has been conveyed,
pursuant to which such person becomes liable under the Mortgage Note and the
original Mortgagor remains liable thereon or (ii) in the event the Servicer is
unable under applicable law to require that the original Mortgagor remain liable
under the Mortgage Note and the Servicer has the prior consent of the primary
mortgagee guaranty insurer, a substitution of liability agreement with the
purchaser of the Mortgaged Property pursuant to which the original Mortgagor is
released from liability and the purchaser of the Mortgaged Property is
substituted as Mortgagor and becomes liable under the Mortgage Note. In
connection with any such assumption, neither the Mortgage Interest Rate borne by
the related Mortgage Note, the term of the Mortgage Loan nor the outstanding
principal amount of the Mortgage Loan shall be changed.

To the extent that any Mortgage Loan is assumable, the Servicer shall inquire
diligently into the creditworthiness of the proposed transferee, and shall use
the underwriting criteria for approving the credit of the proposed transferee
which are used by FNMA with respect to underwriting mortgage loans of the same
type as the Mortgage Loans. For Mortgage Loans which are not eligible for
purchase by FNMA (commonly referred to as "non-conforming"), Servicer shall use
underwriting criteria which would be used by a prudent lender in underwriting
non-conforming loans for its own portfolio.  If the credit of the proposed
transferee does not meet such underwriting criteria, the Servicer diligently
shall, to the extent permitted by the Mortgage or the Mortgage Note and by
applicable law, accelerate the maturity of the Mortgage Loan.

SECTION 4.02.  SATISFACTION OF MORTGAGES AND RELEASE OF MORTGAGE FILES. Upon the
payment in full of any Mortgage Loan, or the receipt by the Servicer of a
notification that payment in full will be escrowed in a manner customary for
such purposes, the Servicer shall notify the Purchaser in the Monthly Remittance
Advice as provided in Section 3.02, and may request the release of any Mortgage
Loan Documents from the Purchaser in accordance with this Section 4.02 hereof.
The Servicer shall obtain discharge of the related Mortgage Loan as of record
within any related time limit required by applicable law.

If the Servicer satisfies or releases a Mortgage without first having obtained
payment in full of the indebtedness secured by the Mortgage or should the
Servicer otherwise prejudice any rights the Purchaser may have under the
mortgage instruments, upon written demand of the Purchaser, the Servicer shall
repurchase the related Mortgage Loan

                                       15
<PAGE>

at the Repurchase Price by deposit thereof in the Custodial Account within two
(2) Business Days of receipt of such demand by the Purchaser. Upon such
repurchase, all funds maintained in the Escrow Account with respect to such
repurchased Mortgage Loan shall be transferred to the Servicer. The Servicer
shall maintain the Fidelity Bond and Errors and Omissions Insurance Policy as
provided for in Section 2.12 insuring the Servicer against any loss it may
sustain with respect to any Mortgage Loan not satisfied in accordance with the
procedures set forth herein.

SECTION 4.03.  SERVICING COMPENSATION. As consideration for servicing the
Mortgage Loans hereunder, the Servicer shall deduct the Servicing Fee with
respect to each Mortgage Loan from payments as received from Mortgagors, and
shall remit the net balance into the Custodial Account.  The Servicing Fee shall
be pro-rated when servicing is for less than one month. The obligation of the
Purchaser to pay, and the Servicer's right to withdraw, the Servicing Fee is
limited to, and the Servicing Fee is payable solely from, the interest portion
(including recoveries with respect to interest from Liquidation Proceeds, to the
extent permitted by Section 2.05), of such Monthly Payment collected by the
Servicer, or as otherwise provided under Section 2.05.

Additional servicing compensation in the form of Ancillary Income shall be
retained by the Servicer as and when collected. The Servicer shall be required
to pay all expenses incurred by it in connection with its servicing activities
hereunder and shall not be entitled to reimbursement thereof except as
specifically provided for herein.

SECTION 4.04.  ANNUAL STATEMENT AS TO COMPLIANCE. The Servicer shall deliver to
the Purchaser: on or before December 31 each year beginning December 31, 1997,
an Officer's Certificate, stating that (i) a review of the activities of the
Servicer during its preceding fiscal year (October 1 through September 30) and
of performance under this Agreement has been made under such officer's
supervision, and (ii) the Servicer has complied in all material respects with
the provisions of Article II and Article IV, and (iii) to the best of such
officer's knowledge, based on such review, the Servicer has fulfilled all its
obligations under this Agreement throughout such year or part thereof, or, if
there has been a default in the fulfillment of any such obligation, specifying
each such default known to such officer and the nature and status thereof and
the action being taken by the Servicer to cure such default.

SECTION 4.05.  ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORT. On or
before December 31 of each year, beginning with December 31, 1997, the Servicer
at its expense shall cause a firm of independent public accountants (who may
also render other services to the Servicer or any affiliate thereof) which is a
member of the American Institute of Certified Public Accountants to furnish a
statement to the Purchaser to the effect that such firm has, as part of their
examination of the financial statements of the Servicer, performed tests
embracing the records and documents relating to mortgage loans serviced by the
Servicer in accordance with the requirements of the Uniform Single Audit Program
for Mortgage Bankers and that their examination disclosed no exceptions that, in
their opinion, were material, relating to mortgage loans serviced by the
Servicer.

SECTION 4.06.  RIGHT TO EXAMINE SERVICER RECORDS. The Purchaser, upon reasonable
notice, shall have the right to examine and audit any and all of the books,
records, or other information of the Servicer, whether held by the Servicer or
by another on its behalf, with respect to or concerning this Agreement or the
Mortgage Loans, during business hours or at such other times as may be
reasonable under applicable circumstances, upon reasonable advance notice.

                                   ARTICLE V
                             SERVICER TO COOPERATE

SECTION 5.01.  PROVISION OF INFORMATION. During the term of this Agreement, the
Servicer shall furnish to the Purchaser such periodic, special, or other reports
or information, whether or not provided for herein, as shall be necessary,
reasonable, or appropriate with respect to the Purchaser or the purposes of this
Agreement. All such reports or information shall be provided by and in
accordance with all reasonable instructions and directions which the Purchaser
may give.  The Servicer shall execute and deliver all such instruments and take
all such action as the

                                       16
<PAGE>

Purchaser may reasonably request from time to time, in order to effectuate the
purposes and to carry out the terms of this Agreement.

SECTION 5.02.  FINANCIAL STATEMENTS; SERVICING FACILITIES. In connection with
disposition of Mortgage Loans, the Purchaser may make available to a prospective
purchaser audited financial statements of the Servicer for the most recently
completed two (2) fiscal years for which such statements are available, as well
as a Consolidated Statement of Condition at the end of the last two (2) fiscal
years covered by any Consolidated Statement of Operations. If it has not already
done so, the Servicer shall furnish promptly to the Purchaser or a prospective
purchaser copies of the statements specified above; provided, however, that
prior to furnishing such statements or information to any prospective purchaser,
the Servicer may require such prospective purchaser to execute a confidentiality
agreement in form reasonably satisfactory to it.

The Servicer shall make available to the Purchaser or any prospective Purchaser
a knowledgeable financial or accounting officer for the purpose of answering
questions with respect to recent developments affecting the Servicer or the
financial statements of the Servicer, and to permit any prospective purchaser to
inspect the Servicer's servicing facilities for the purpose of satisfying such
prospective purchaser that the Servicer has the ability to service the Mortgage
Loans as provided in this Agreement.

                                  ARTICLE VI
                                  TERMINATION

SECTION 6.01.  AGENCY SUSPENSION. Should the Servicer at any time during the
term of this Agreement have its right to service temporarily or permanently
suspended by FNMA or otherwise cease to be an approved seller/servicer of
conventional residential mortgage loans for FNMA, then the Purchaser may
immediately terminate this Agreement without assessment of any termination fee
and accelerate performance of the provisions of the Purchase Agreement to
require immediate transfer of the Servicing Rights.

SECTION 6.02.  DAMAGES. The Purchaser shall have the right at any time to seek
and recover from the Servicer any damages or losses suffered by it as a result
of any failure by the Servicer to observe or perform any duties, obligations,
covenants or agreements herein contained, or as a result of a party's failure to
remain an approved FNMA mortgage servicer.

SECTION 6.03.  TERMINATION. The respective obligations and responsibilities of
the Servicer shall terminate upon: (i) the later of the final payment or other
liquidation (or any advance with respect thereto) of the last Mortgage Loan
serviced by the Servicer or the disposition of all REO Property serviced by the
Servicer and the remittance of all funds due hereunder; or (ii) by mutual
consent of the Servicer and the Purchaser in writing, unless earlier terminated
pursuant to this Agreement.

SECTION 6.04.  TERMINATION WITHOUT CAUSE. The Purchaser may, at its sole option,
upon not less than thirty (30) days' prior written notice to the Servicer
terminate any rights the Servicer may have hereunder with respect to any or all
of the Mortgage Loans, without cause, upon written notice, provided that the
Servicer shall have an additional period of not more than sixty (60) days from
and after the date of said notice from the Purchaser within which to effect the
related transfer of servicing. Any such notice of termination shall be in
writing and delivered to the Servicer as provided in Section 12.01 of this
Agreement. In the event of such termination, the Servicer shall be entitled to a
Termination Fee, equal to 2.0% of the then current aggregate unpaid principal
balance of the related Mortgage Loans; provided, however, that the successor
servicer is not an Affiliate of the Servicer.

                                       17
<PAGE>

                                  ARTICLE VII
                               BOOKS AND RECORDS

SECTION 7.01.  POSSESSION OF SERVICING FILES. The contents of each Servicing
File are and shall be held in trust by the Servicer for the benefit of the
Purchaser as the owner thereof. The Servicer shall maintain in the Servicing
File a copy (which may be in microfiche form) of the contents of each Mortgage
File and the originals of the required documents in each Mortgage File not
delivered to the Purchaser.  The possession of the Servicing File by the
Servicer is at the will of the Purchaser for the sole purpose of servicing the
related Mortgage Loan, pursuant to this Agreement, and such retention and
possession by the Servicer is in its capacity as Servicer only and at the
election of the Purchaser. The Servicer shall release its custody of the
contents of any Servicing File only in accordance with written instructions from
the Purchaser or other termination of the Servicer with respect to the related
Mortgage Loans, unless such release is required as incidental to the Servicer's
servicing of the Mortgage Loans pursuant to this Agreement, or is in connection
with a repurchase of any Mortgage Loan pursuant to Section 8.03 of the Purchase
Agreement or Section 4.02 of this Agreement.

The Servicer shall be responsible for maintaining, and shall maintain, a
complete set of books and records for each Mortgage Loan which shall be marked
clearly to reflect the ownership of each Mortgage Loan by the Purchaser. In
particular, the Servicer shall maintain in its possession, available for
inspection by the Purchaser during normal business hours, and shall deliver to
the Purchaser upon reasonable notice, evidence of compliance with all federal,
state and local laws, rules and regulations, and requirements of FNMA including
but not limited to documentation as to the method used in determining the
applicability of the provisions of the Flood Disaster Protection Act of 1973, as
amended, to the Mortgaged Property, documentation evidencing insurance coverage
and eligibility of any condominium project for approval by FNMA and periodic
inspection reports as required by Section 2.13 and the FNMA Guides.

To the extent that original documents are not required for purposes of
realization of Liquidation Proceeds or Insurance Proceeds, documents maintained
by the Servicer may be in the form of microfilm or microfiche so long as the
Servicer complies with the requirements of the FNMA Guides.

The Servicer shall keep at its servicing office books and records in which,
subject to such reasonable regulations as it may prescribe, the Servicer shall
note transfers of Mortgage Loans. No transfer of a Mortgage Loan may be made
unless such transfer is in compliance with the terms hereof. For the purposes of
this Agreement, the Servicer shall be under no obligation to deal with any
person with respect to this Agreement or the Mortgage Loans unless the books and
records show such person as the owner of the Mortgage Loan. The Purchaser may,
subject to the terms of this Agreement, sell or transfer one or more of the
Mortgage Loans. The Purchaser also shall advise the Servicer of the transfer.
Upon receipt of notice of the transfer, the Servicer shall mark its books and
records to reflect the ownership of the Mortgage Loans of such assignee, and
shall release the Purchaser from its obligations hereunder with respect to the
Mortgage Loans sold or transferred.

                                  ARTICLE VIII
                         INDEMNIFICATION AND ASSIGNMENT

SECTION 8.01.  INDEMNIFICATION. The Servicer agrees to indemnify and hold the
Purchaser harmless from any liability, claim, loss or damage (including, without
limitation, any reasonable legal fees, judgments or expenses relating to such
liability, claim, loss or damage) to the Purchaser directly or indirectly
resulting from the Servicer's failure to observe and perform any or all of
Servicer's duties, obligations, covenants, agreements, warranties or
representations contained in this Agreement or in the Purchase Agreement or the
Servicer's failure to comply with all applicable requirements with respect to
the transfer of Servicing Rights as set forth herein.

                                       18
<PAGE>

The Servicer shall notify the Purchaser as soon as reasonably possible if a
claim is made by a third party with respect to this Agreement.

SECTION 8.02.  LIMITATION ON LIABILITY OF SERVICER AND OTHERS. Neither the
Servicer nor any of the directors, officers, employees or agents of the Servicer
shall be under any liability to the Purchaser for any action taken or for
refraining from the taking of any action in good faith pursuant to this
Agreement, or for errors in judgment, provided, however, that this provision
shall not protect the Servicer or any such person against any breach of
warranties or representations made herein, or failure to perform its obligations
in material compliance with any standard of care set forth in this Agreement, or
any liability which would otherwise be imposed by reason of any breach of the
terms and conditions of this Agreement. The Servicer and any director, officer,
employee or agent of the Servicer may rely in good faith on any document of any
kind prima facie properly executed and submitted by any Person with respect to
any matter arising hereunder. The Servicer shall not be under any obligation to
appear in, prosecute or defend any legal action which is not incidental to its
duties to service the Mortgage Loans in accordance with this Agreement and which
in its opinion may involve it in any expense or liability, provided, however,
that the Servicer may, with the prior written consent of the Purchaser,
undertake any such action which it may deem necessary or desirable in respect to
this Agreement and the rights and duties of the parties hereto. In such event,
the Servicer shall be entitled to reimbursement from the Purchaser of the
reasonable legal expenses and costs of such action.

SECTION 8.03.  LIMITATION ON REGISTRATION AND ASSIGNMENT BY SERVICER. The
Purchaser has entered into this Agreement with the Servicer in reliance upon the
independent status of the Servicer, and the representations as to the adequacy
of its servicing facilities, plant, personnel, records and procedures, its
integrity, reputation and financial standing, and the continuance thereof.
Therefore, the Servicer shall not (i) assign this Agreement or the servicing
hereunder or (ii) delegate any substantial part of its rights or duties
hereunder without the prior written consent of the Purchaser, which consent
shall not be unreasonably withheld or conditioned provided that (a) any
delegation of such rights or duties shall not release the Servicer from its
obligations hereunder and the Servicer shall remain responsible hereunder for
all acts and omissions of any delegee as if such acts or omissions were those of
the Servicer and (b) any such assignee or designee shall satisfy the
requirements for a successor or surviving Person set forth in Section 8.05 and
Section 8.06 hereof. The Servicer shall notify the Purchaser in writing at least
30 days prior to selling or otherwise disposing of all or substantially all of
its assets and receipt of such notice shall entitle the Purchaser to terminate
this Agreement, without payment of any termination fee,  except as set forth in
Section 8.05 hereof.

The Servicer shall not resign from the obligations and duties hereby imposed on
it except by mutual consent of the Servicer and the Purchaser or upon the
determination that its duties hereunder are no longer permissible under
applicable law and such incapacity cannot be cured by the Servicer. Any such
determination permitting the resignation of the Servicer shall be evidenced by
an Opinion of Counsel to such effect delivered to the Purchaser which Opinion of
Counsel shall be in form and substance acceptable to the Purchaser. No such
resignation shall become effective until a successor shall have assumed the
Servicer's responsibilities and obligations hereunder in the manner provided in
Section 8.06.

Without in any way limiting the generality of this Section 8.03, in the event
that the Servicer either shall assign this Agreement or the servicing
responsibilities hereunder or delegate its duties hereunder or any portion
thereof without (i) satisfying the requirements set forth herein or (ii) the
prior written consent of the Purchaser, then the Purchaser shall have the right
to terminate this Agreement as set forth in Section 6.04, without any payment of
any penalty or damages and without any liability whatsoever to the Servicer
(other than with respect to accrued but unpaid Servicing Fees and Servicing
Advances remaining unpaid) or any third party.

SECTION 8.04.  ASSIGNMENT BY PURCHASER. The Purchaser shall have the right
without the consent of the Servicer, to assign, in whole or in part, its
interest under this Agreement with respect to some or all of the Mortgage Loans
and designate any person to exercise any rights of the Purchaser hereunder, by
executing an

                                       19
<PAGE>

Assignment and Assumption Agreement substantially in the form of Exhibit G to
the Purchase Agreement and the assignee or designee shall accede to the rights
and obligations hereunder of the Purchaser with respect to such Mortgage Loans.
All references to the Purchaser in this Agreement shall be deemed to include its
assignee or designee.

SECTION 8.05.  MERGER OR CONSOLIDATION OF THE SERVICER. The Servicer will keep
in full effect its existence, rights and franchises as a corporation under the
laws of the state of its incorporation except as permitted herein, and will
obtain and preserve its qualification to do business as a foreign corporation in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Agreement, or any of the
Mortgage Loans and to perform its duties under this Agreement.

Any Person into which the Servicer may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be the successor of the Servicer hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding; provided,
however, that the successor or surviving Person shall be an institution whose
deposits are insured by FDIC or a company whose business includes the
origination and servicing of mortgage loans; shall be a FNMA-approved servicer
in good standing; and shall have a tangible net worth of not less than
$30,000,000.

SECTION 8.06.  SUCCESSOR TO THE SERVICER. Prior to termination of Servicer's
responsibilities and duties under this Agreement pursuant to Sections 2.17,
6.01, 6.04, 8.03 or 11.01, the Purchaser shall (i) succeed to and assume all of
the Servicer's responsibilities, rights, duties and obligations under this
Agreement, or (ii) appoint a successor which shall succeed to all rights and
assume all of the responsibilities, duties and liabilities of the Servicer under
this Agreement.  In connection with such appointment and assumption, the
Purchaser may make such arrangements for the compensation of such successor out
of payments on Mortgage Loans as it and such successor shall agree. In the event
that the Servicer's duties, responsibilities and liabilities under this
Agreement should be terminated pursuant to the aforementioned sections, the
Servicer shall discharge such duties and responsibilities during the period from
the date it acquires knowledge of such termination until the effective date
thereof with the same degree of diligence and prudence which it is obligated to
exercise under this Agreement, and shall take no action whatsoever that might
impair or prejudice the rights or financial condition of its successor. The
resignation or removal of Servicer pursuant to the aforementioned Sections shall
not become effective until a successor shall be appointed pursuant to Article X
hereof this Section and shall in no event relieve the Servicer of the
representations, warranties and covenants made pursuant to and the remedies
available to the Purchaser with respect thereto, it being understood and agreed
that the provisions of such Article X shall be applicable to the Servicer
notwithstanding any such resignation or termination of the Servicer, or the
termination of this Agreement.

Any successor appointed as provided herein shall execute, acknowledge and
deliver to the Servicer and to the Purchaser, an instrument accepting such
appointment, whereupon such successor shall become fully vested with all the
rights, powers, duties, responsibilities, obligations and liabilities of the
Servicer, with like effect as if originally named as a party to this Agreement.
Any termination of this Agreement pursuant to Section 2.17, 6.01, 6.04, 8.03 or
11.01 shall not affect any claims that the Purchaser may have against the
Servicer arising prior to any such termination or resignation.

The Servicer shall timely deliver to the successor the funds in the Custodial
Account and the Escrow Account and the Mortgage Files and related documents and
statements held by it hereunder and the Servicer shall account for all funds.
The Servicer shall execute and deliver such instruments and do such other things
all as may reasonably be required to more fully and definitely vest and confirm
in the successor all such rights, powers, duties, responsibilities, obligations
and liabilities of the Servicer. The successor shall make arrangements as it may
deem appropriate to reimburse the Servicer for amounts the Servicer actually
expended pursuant to this Agreement which the successor is entitled to retain
hereunder and which would otherwise have been recovered by the Servicer pursuant
to this Agreement but for the appointment of the successor servicer.

                                       20
<PAGE>

Upon a successor's acceptance of appointment as such, the Servicer shall notify
by mail the Purchaser of such appointment.

                                  ARTICLE IX
            REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER

As of the Closing Date, the Purchaser warrants and represents to, and covenants
and agrees with, the Servicer as follows:

SECTION 9.01.  DUE ORGANIZATION AND AUTHORITY. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Maryland.  The Purchaser has the full corporate power and authority to
execute and deliver this Agreement and to perform in accordance herewith; the
execution, delivery and performance of this Agreement by the Purchaser and the
consummation of the transactions contemplated hereby have been duly and validly
authorized; this Agreement evidences the valid, binding and enforceable
obligation of the Purchaser; and all requisite corporate action has been taken
by the Purchaser to make this Agreement valid and binding upon the Purchaser in
accordance with its terms;

SECTION 9.02.  NO CONFLICTS. Neither the execution and delivery of this
Agreement, nor the fulfillment of or compliance with the terms and conditions of
this Agreement, will conflict with or result in a breach of any of the terms,
conditions or provisions of the Purchaser's charter or by-laws or any legal
restriction or any agreement or instrument to which the Purchaser is now a party
or by which it is bound, or constitute a default or result in an acceleration
under any of the foregoing, or result in the violation of any law, rule,
regulation, order, judgment or decree to which the Purchaser or its property is
subject;

SECTION 9.03.  ABILITY TO PERFORM. The Purchaser does not believe, nor does it
have any reason or cause to believe, that it cannot perform each and every
covenant made by it in this Agreement.

SECTION 9.04.  NO LITIGATION PENDING. There is no action, suit, proceeding or
investigation pending or threatened against the Purchaser, before any court,
administrative agency or other tribunal asserting the invalidity of this
Agreement, seeking to prevent the consummation of any of the transactions
contemplated by this Agreement or which, either in any one instance or in the
aggregate, may result in any material adverse change in the business,
operations, financial condition, properties or assets of the Purchaser, or in
any material impairment of the right or ability of the Purchaser to carry on its
business substantially as now conducted, or in any material liability on the
part of the Purchaser, or which would draw into question the validity of this
Agreement or of any action taken or to be taken in connection with the
obligations of the Purchaser contemplated herein.

SECTION 9.05.  NO CONSENT REQUIRED. No consent, approval, authorization or order
of any court or governmental agency or body is required for the execution,
delivery and performance by the Purchaser of, or compliance by the Purchaser
with, this Agreement as evidenced by the consummation of the transactions
contemplated by this Agreement, or if required, such approval has been obtained
prior to the Closing Date.

SECTION 9.06.  ASSISTANCE. To the extent reasonably possible, the Purchaser
shall cooperate with and assist the Servicer as requested by the Servicer, in
carrying out Servicer's covenants, agreements, duties and responsibilities under
the Purchase Agreement and in connection therewith shall execute and deliver all
such papers, documents and instruments as nay be necessary and appropriate in
furtherance thereof.

                                   ARTICLE X
                  REPRESENTATIONS AND WARRANTIES OF SERVICER

As of the Closing Date, the Servicer warrants and represents to, and covenants
and agrees with, the Purchaser as follows:

                                       21
<PAGE>

SECTION 10.01.  DUE ORGANIZATION AND AUTHORITY.  The Servicer is a federal
savings bank duly organized, validly existing and in good standing under the
laws of the United States, and is licensed, qualified and in good standing in
each state where a mortgaged property is located if applicable laws require
licensing or qualification in order to conduct business of the type conducted by
the Servicer, and in any event the Servicer is in compliance with the laws of
any such state to the extent necessary to ensure the enforceability of the
related mortgage loan in accordance with the terms of this Agreement; the
Servicer has the full corporate power and authority to execute and deliver this
Agreement and to perform in accordance herewith; the execution, delivery and
performance of this Agreement (including all instruments of transfer to be
delivered pursuant to this Agreement) by the Servicer and the consummation of
the transactions contemplated hereby have been duly and validly authorized; this
Agreement evidences the valid, legal, binding and enforceable obligation of the
Servicer subject to bankruptcy laws and other similar laws of general
application affecting rights of creditors and subject to the application of the
rules of equity, including those respecting the availability of specific
performance, none of which will materially interfere with the realization of the
benefits provided thereunder, regardless of whether such enforcement is sought
in a proceeding in equity or at law; and all requisite corporate action has been
taken by the Servicer to make this Agreement valid and binding upon the Servicer
in accordance with its terms.

SECTION 10.02.  ORDINARY COURSE OF BUSINESS. The consummation of the
transactions contemplated by this Agreement are in the ordinary course of
business of the Servicer.

SECTION 10.03.  NO CONFLICTS. Neither the execution and delivery of this
Agreement, nor the fulfillment of or compliance with the terms and conditions of
this Agreement, will conflict with or result in a breach of any of the terms,
conditions or provisions of the Servicer's charter or by-laws or any legal
restriction or any agreement or instrument to which the Servicer is now a party
or by which it is bound, or constitute a default or result in an acceleration
under any of the foregoing, or result in the violation of any law, rule,
regulation, order, judgment or decree to which the Servicer or its property is
subject, or impair the ability of the Purchaser to realize on the Mortgage
Loans, impair the value of the Mortgage Loans, or impair the ability of the
Purchaser to realize the full amount of any mortgage insurance benefits accruing
pursuant to this Agreement.

SECTION 10.04.  ABILITY TO SERVICE. The Servicer is an approved seller/servicer
of conventional residential mortgage loans for FNMA, with the facilities,
procedures, and experienced personnel necessary for the sound servicing of
mortgage loans of the same type as the Mortgage Loans. The Servicer is duly
qualified, licensed, registered and otherwise authorized under all applicable
federal, state and local laws, and regulations, if applicable, meets the minimum
capital requirements set forth by the OTS, the OCC or the FDIC, and is in good
standing to enforce, originate, sell mortgage loans to, and service mortgage
loans in the jurisdiction wherein the Mortgaged Properties are located for,
either FNMA, and no event has occurred, including but not limited to a change in
insurance coverage, which would make the Servicer unable to comply with either
FNMA eligibility requirements or which would require notification to FNMA.

SECTION 10.05.  ABILITY TO PERFORM. The Servicer does not believe, nor does it
have any reason or cause to believe, that it cannot perform each and every
covenant contained in this Agreement.

SECTION 10.06.  NO LITIGATION PENDING. There is no action, suit, proceeding or
investigation pending or threatened against the Servicer, before any court,
administrative agency or other tribunal asserting the invalidity of this
Agreement, seeking to prevent the consummation of any of the transactions
contemplated by this Agreement or which, either in any one instance or in the
aggregate, may result in any material adverse change in the business,
operations, financial condition, properties or assets of the Servicer, or in any
material impairment of the right or ability of the Servicer to carry on its
business substantially as now conducted, or in any material liability on the
part of the Servicer, or which would draw into question the validity of this
Agreement or the Mortgage Loans or of any action taken or to be taken in
connection with the obligations of the Servicer contemplated herein, or which
would be likely to impair materially the ability of the Servicer to perform
under the terms of this Agreement.

                                       22
<PAGE>

SECTION 10.07.  NO CONSENT REQUIRED. No consent, approval, authorization or
order of any court or governmental agency or body is required for the execution,
delivery and performance by the Servicer of or compliance by the Servicer with
this Agreement or the servicing of the Mortgage Loans as evidenced by the
consummation of the transactions contemplated by this Agreement, or if required,
such approval has been obtained prior to the Closing Date.

SECTION 10.08.  NO UNTRUE INFORMATION. Neither this Agreement nor any statement,
tape, diskette, form, report or other document furnished or to be furnished
pursuant to this Agreement or in connection with the transactions contemplated
hereby contains any untrue statement of fact or omits to state a fact necessary
to make the statements contained therein not misleading.

SECTION 10.09.  REASONABLE SERVICING FEE. The Servicer acknowledges and agrees
that the Servicing Fee represents reasonable compensation for performing such
services and that the entire Servicing Fee shall be treated by the Servicer, for
accounting and tax purposes, as compensation for the servicing and
administration of the Mortgage Loans pursuant to this Agreement.

SECTION 10.10.  FINANCIAL STATEMENTS. The Servicer has delivered to the
Purchaser financial statements as to its last two complete fiscal years. All
such financial statements fairly present the pertinent results of operations and
changes in financial position for each of such periods and the financial
position at the end of each such period of the Servicer and its subsidiaries and
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as set forth in the
notes thereto. There has been no change in the business, operations, financial
condition, properties or assets of the Servicer since the date of the Servicer's
financial statements that would have a material adverse effect on its ability to
perform its obligations under this Agreement.

SECTION 10.11.  CONFLICT OF INTEREST. The Servicer agrees that it shall service
the Mortgage Loans hereunder solely with a view toward the interests of the
Purchaser, and without regard to the interests of the Seller or its other
affiliates.

                                  ARTICLE XI
                                    DEFAULT

SECTION 11.01.  EVENTS OF DEFAULT. The following shall constitute an Event of
Default under this Agreement on the part of the Servicer:

a. any failure by the Servicer to remit to the Purchaser any payment required to
   be made under the terms of this Agreement which continues unremedied for a
   period of five (5) Business Days after the date upon which written notice of
   such failure, requiring the same to be remedied, shall have been given to the
   Servicer by the Purchaser; or

b. the failure by the Servicer duly to observe or perform in any material
   respect any other of the covenants or agreements on the part of the Servicer
   set forth in this Agreement which continues unremedied for a period of thirty
   (30) days (except that such number of days shall be fifteen (15) in the case
   of a failure to pay any premium for any insurance policy required to be
   maintained under this Agreement) after the date on which written notice of
   such failure, requiring the same to be remedied, shall have been given to the
   Servicer by the Purchaser; or

c. a decree or order of a court or agency or supervisory authority having
   jurisdiction for the appointment of a conservator or receiver or liquidator
   in any insolvency, bankruptcy, readjustment of debt, marshaling of assets and
   liabilities or similar proceedings, or for the winding-up or liquidation of
   its affairs, shall have been entered

                                       23
<PAGE>

   against the Servicer and such decree or order shall have remained in force
   undischarged or unstayed for a period of sixty (60) days; or

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

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

f. the Servicer ceases to meet the qualifications of a FNMA seller/servicer
   which continues unremedied for a period of thirty (30) days after the date of
   such cessation, or the right of the Servicer to service conventional
   residential mortgage loans is temporarily or permanently suspended by FNMA;
   or

g. the Servicer, without the consent of the Purchaser (other than as permitted
   by Sections 8.03 or 8.05 hereof), attempts to assign this Agreement or the
   servicing responsibilities hereunder or to delegate any substantial part of
   its duties hereunder or any portion thereof; or

h. the Servicer fails to maintain its license to do business or service
   residential mortgage loans in any jurisdiction where the Mortgaged Properties
   are located and such failure results in a material adverse effect on the
   Mortgage Loans, the servicing of the Mortgage Loans, or the Purchaser's
   rights with respect to the Mortgage Loans; or

In each and every such case, so long as an Event of Default shall not have been
remedied, in addition to whatsoever rights the Purchaser may have at law or
equity to damages, including injunctive relief and specific performance, the
Purchaser, by notice in writing to the Servicer, may terminate without
compensation or reimbursement (other than Servicing Fees previously earned but
remaining unpaid and Servicing Advances remaining unreimbursed) all the rights
and obligations of the Servicer under this Agreement and in and to the Mortgage
Loans and the proceeds thereof.

Upon receipt by the Servicer of such written notice, all authority and power of
the Servicer under this Agreement, whether with respect to the Mortgage Loans or
otherwise, shall pass to and be vested in the successor appointed pursuant to
Section 8.06. Upon written request from the Purchaser, the Servicer shall
prepare, execute and deliver any and all documents and other instruments
reasonably requested by the Purchaser, place in such successor's possession all
Mortgage Files (to the extent not properly delivered to the Purchaser by the
Servicer previously), and do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement or assignment of the Mortgage Loans and
related documents, or otherwise, at the Servicer's sole expense. The Servicer
agrees to reasonably cooperate with the Purchaser and such successor in
effecting the termination of the Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to such successor for
administration by it of all cash amounts which shall at the time be credited by
the Servicer to the custodial Account or Escrow Account or thereafter received
with respect to the Mortgage Loans.

SECTION 11.02.  WAIVER OF DEFAULTS. The Purchaser may waive any default by the
Servicer in the performance of its obligations hereunder and its consequences.
Upon any such waiver of a past default, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been remedied for
every purpose of this Agreement. No such waiver shall extend to any subsequent
or other default or impair any right consequent thereon except to the extent
expressly so waived.

                                       24
<PAGE>

                                  ARTICLE XII
                           MISCELLANEOUS PROVISIONS

SECTION 12.01.  NOTICES. All notices, requests, demands and other communications
which are required or permitted to be given under this Agreement shall be in
writing and shall be deemed to have been duly given upon the delivery or mailing
thereof, as the case may be, sent by registered or certified mail, return
receipt requested:

a.  If to Purchaser to:     Chevy Chase Preferred Capital Corporation
                            8401 Connecticut Avenue
                            Chevy Chase, Maryland 20815
                            Attention: Stephen R. Halpin, Jr.

b.  If to Servicer to:      Chevy Chase Bank, F.S.B.
                            6151 Chevy Chase Drive
                            Laurel, Maryland 20707
                            Attention: Vicki L. Parry

SECTION 12.02.  WAIVERS. Either the Servicer or the Purchaser may upon consent
of all parties, by written notice to the others: (a) waive compliance with any
of the terms, conditions or covenants required to be complied with by the others
hereunder; and (b) waive or modify performance of any of the obligations of the
others hereunder. The waiver by any party hereto of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any other
subsequent breach.

SECTION 12.03.  ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Purchase
Agreement constitute the entire agreement between the parties with respect to
servicing of the Mortgage Loans. This Agreement may be amended and any provision
hereof waived, but, only in writing signed by the party against whom such
enforcement is sought.

SECTION 12.04.  EXECUTION; BINDING EFFECT. This Agreement may be executed in one
or more counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed to be an
original; such counterparts, together, shall constitute one and the same
agreement. Subject to Sections 8.03 and 8.04, this Agreement shall inure to the
benefit of and be binding upon the Servicer and the Purchaser and their
respective successors and assigns.

SECTION 12.05.  HEADINGS. Headings of the Articles and Sections in this
Agreement are for reference purposes only and shall not be deemed to have any
substantive effect.

SECTION 12.06.  APPLICABLE LAW. This Agreement shall be construed in accordance
with the laws of the State of Maryland and the obligations, rights and remedies
hereunder shall be determined in accordance with the substantive laws of the
State of Maryland (without regard to conflicts of laws principles), except to
the extent preempted by Federal law.

SECTION 12.07.  RELATIONSHIP OF PARTIES. Nothing herein contained shall be
deemed or construed to create a partnership or joint venture between the
parties. The duties and responsibilities of the Servicer shall be rendered by it
as an independent contractor and not as an agent of the Purchaser. The Servicer
shall have full control of all of its acts, doings, proceedings, relating to or
requisite in connection with the discharge of its duties and responsibilities
under this Agreement.

SECTION 12.08.  SEVERABILITY OF PROVISIONS. If any one or more of the covenants,
agreements, provisions or terms of this Agreement shall be held invalid for any
reason whatsoever, then such covenants, agreements, provisions or terms shall be
deemed severable from the remaining covenants, agreements, provisions

                                       25
<PAGE>

or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.

SECTION 12.09.  RECORDATION OF ASSIGNMENTS OF MORTGAGE.  Each of the Assignments
of Mortgage is in a form acceptable for recordation in all appropriate public
offices for real property records in all the counties or other comparable
jurisdictions in which any or all of the Mortgaged Properties are situated, and
in any other appropriate public recording office or elsewhere.  Recordation may
be effected by the Purchaser at the appropriate public recording office or, in
upon Servicer's request, through MERS (a privately owned and operated Mortgage
Electronic Recording System), but in any event, at the Servicer's expense for a
single recordation relating to each Assignment of Mortgage in the event
recordation is either necessary under applicable law or requested by the
Purchaser at its sole option.

SECTION 12.10.  EXHIBITS. The exhibits to this Agreement are hereby incorporated
and made a part hereof and are integral parts of this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.


  CHEVY CHASE PREFERRED CAPITAL CORPORATION


By:  Stephen Halpin

Name:  Stephen Halpin

Title:      Executive Vice President, Chief Financial Officer and Treasurer


  CHEVY CHASE BANK, F.S.B.


By:  Joel A. Friedman

Name:  Joel A. Friedman

Title:      Senior Vice President and Controller

                                       26
<PAGE>

                                   EXHIBIT 1
                           MONTHLY REMITTANCE ADVICE

                                       27
<PAGE>

                                   EXHIBIT 2
                        CUSTODIAL ACCOUNT CERTIFICATION



_____________________________________, 1996




Chevy Chase Bank, F.S.B. hereby certifies that it has established the account
described below as a Custodial Account pursuant to Section 2.04 of the Servicing
Agreement, dated as of December 1, 1996.

Title of Account:   Chevy Chase Bank, F.S.B., in trust for [named Purchaser],
                    and various Mortgagors

Account Number:____________________________________________

Address of office or branch of the Servicer at which Account is maintained:


_______________________________________________________________________________

_______________________________________________________________________________



  CHEVY CHASE BANK, F.S.B.


By:    ___________________________________________________________________

Name:  ________________________________________________________________

Title: ________________________________________________________________

                                       28
<PAGE>

                                   EXHIBIT 3
                      CUSTODIAL ACCOUNT LETTER AGREEMENT


_________________________________, 1996


To: _____________________________________________ (the "Depository")

As Servicer under the Servicing Agreement dated as of December 1, 1996 (the
"Agreement"), we hereby authorize and request you to establish an account, as a
Custodial Account pursuant to Section 2.04 of the Agreement, to be designated as
"Chevy Chase Bank, F.S.B., in trust for [named Purchaser] and various
Mortgagors." All deposits in the account shall be subject to withdrawal
therefrom by order signed by Chevy Chase Bank, F.S.B.   This letter is submitted
to you in duplicate. Please execute and return one original to us.


  CHEVY CHASE BANK, F.S.B.


By:    ________________________________________________________________

Name:  ________________________________________________________________

Title: ________________________________________________________________


The undersigned, as Depository, hereby certifies that the above described
account has been established under Account Number
_______________________________________, at the office of the Depository
indicated above, and agrees to honor withdrawals on such account as provided
above.



  DEPOSITORY


By:    ________________________________________________________________

Name:  ________________________________________________________________

Title: _________________________________________________________________

                                       29
<PAGE>

                                   EXHIBIT 4
                         ESCROW ACCOUNT CERTIFICATION



______________________________________, 1996


Chevy Chase Bank, F.S.B. hereby certifies that it has established the account
described below as an Escrow Account pursuant to Section 2.06 of the Servicing
Agreement, dated as of December 1, 1996.

Title of Account:   Chevy Chase Bank, F.S.B., in trust for [named Purchaser],
                    and various Mortgagors

Account Number: _______________________________________________________

Address of office or branch of the Servicer at which Account is maintained:

________________________________________________________________________________

________________________________________________________________________________


  CHEVY CHASE BANK, F.S.B.


By:    ________________________________________________________________

Name:  ________________________________________________________________

Title: _________________________________________________________________

                                       30
<PAGE>

                                   EXHIBIT 5
                        ESCROW ACCOUNT LETTER AGREEMENT

 ______________________________________, 1996

To:  ___________________________________________, (the "Depository")

As Servicer under the Servicing Agreement, dated as of December 1, 1996 (the
"Agreement'), we hereby authorize and request you to establish an account, as an
Escrow Account pursuant to Section 2.06 of the Agreement, to be designated as
"Chevy Chase Bank, F.S.B., in trust for [named Purchaser] and various
Mortgagors." All deposits in the account shall be subject to withdrawal
therefrom by order signed by Chevy Chase Bank, F.S.B., the Servicer. This letter
is submitted to you in duplicate. Please execute and return one original to us.


  CHEVY CHASE BANK, F.S.B.


By:    ________________________________________________________________

Name:  ________________________________________________________________

Title: ________________________________________________________________


The undersigned, as Depository, hereby certifies that the above described
account has been established under Account Number
_______________________________________, at the office of the Depository
indicated above, and agrees to honor withdrawals on such account as provided
above.



  DEPOSITORY


By:    ________________________________________________________________

Name:  ________________________________________________________________

Title: _________________________________________________________________

                                       31