UNITED STATES
                   SECURITIES AND EXCHANGE COMMISSION

                         Washington, D.C. 20549

                                FORM 10-Q


           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                   THE SECURITIES EXCHANGE ACT OF 1934

              For the quarterly period ended JUNE 30, 1998

                    Commission File Number: 0-19822


                    LITCHFIELD FINANCIAL CORPORATION
         (Exact name of registrant as specified in its charter)


     MASSACHUSETTS                                   04-3023928
(State or other jurisdiction            (I.R.S. Employer Identification No.)
of incorporation or organization)


430 MAIN STREET, WILLIAMSTOWN, MA               01267
(Address of principal executive offices)      (Zip Code)


   Registrant's telephone number, including area code: (413) 458-1000


          (Former name, former address and former fiscal year,
                      if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                Yes X No


     As of August 12,  1998,  there  were  6,669,751  shares of common  stock of
Litchfield Financial Corporation outstanding.




                                    FORM 10-Q

                                    1

                    LITCHFIELD FINANCIAL CORPORATION
                                FORM 10-Q

                       QUARTER ENDED JUNE 30, 1998

                                  INDEX

                                                              PAGE
PART I - FINANCIAL INFORMATION

     Item 1. Financial Statements                                      3

     Item 2. Management's Discussion and Analysis of
             Financial Condition and Results of Operations            14


PART II - OTHER INFORMATION

     Item 1. Legal Proceedings                                        20

     Item 2. Changes in Securities                                    20

     Item 3. Defaults Upon Senior Securities                          20

     Item 4. Submission of Matters to a Vote of Security Holders      20

     Item 5. Other Information                                        21

     Item 6. Exhibits and Reports on Form 8-K                         35


SIGNATURES                                                            36



<PAGE>


                     PART I - FINANCIAL INFORMATION
                      Item 1. Financial Statements

                    LITCHFIELD FINANCIAL CORPORATION
                       Consolidated Balance Sheets
           (In thousands, except share and per share amounts)
<TABLE>
<S>                                               <C>          <C> 
                                                   June 30,    December 31,
                                                    1998           1997
                                                  ---------        ----
                                                 (unaudited)
                                  ASSETS
Cash and cash equivalents......................   $  14,568    $ 19,295
Restricted cash................................      27,472      23,496
Loans held for sale, net of allowance for loan
losses of
   $942 in 1998 and $1,388 in 1997.............      13,546      16,366
Other loans, net of allowance for loan losses of
   $2,459 in 1998 and $2,044 in 1997...........     137,147      86,307
Retained interests in loan sales, net of             31,007      30,299
allowance for loan loses of
   $3,062 in 1998 and $2,445 in 1997...........
Other..........................................      12,941      11,027
                                                     ------      ------
      Total assets.............................    $233,681    $186,790
                                                   ========    ========

                   LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Lines of credit.............................   $  22,601    $    177
   Term note payable...........................       3,717       5,210
   Accounts payable and accrued liabilities....       9,671       6,479
   Dealer/developer reserves...................      10,444      10,655
   Deferred income taxes.......................       8,178       6,851
                                                     ------      ------
                                                     54,611      29,372

   9.3% Notes..................................      20,000      20,000
   8.45% Notes due 2002........................      51,750      51,750
   8.875% Notes due 2003.......................      15,066      15,317
   10% Notes due 2004..........................      18,240      18,280
                                                     ------      ------
                                                     105,056     105,347

Stockholders' equity
   Preferred stock, $.01 par value; authorized
1,000,000 shares, none
      issued and outstanding...................         ---         ---
   Common stock, $.01 par value; authorized
12,000,000 shares,                             
      6,669,751 shares issued and outstanding in
1998 and 5,656,609
      shares issued and outstanding in 1997....          66          56
   Additional paid in capital..................      54,575      36,681
   Accumulated other comprehensive income......       1,251       1,071
   Retained earnings...........................      18,122      14,263
                                                     ------      ------
      Total stockholders' equity...............      74,014      52,071
                                                     ------      ------
      Total liabilities and stockholders' equity   $233,681    $186,790
                                                   ========    ========
</TABLE>





 See accompanying notes to unaudited consolidated financial statements.


<PAGE>

<TABLE>

                    LITCHFIELD FINANCIAL CORPORATION
                    Consolidated Statements of Income
           (In thousands, except share and per share amounts)
                                Unaudited

<S>                                                  <C>         <C>
                                                  Three Months Ended June 30,
                                                   1997            1998
Revenues:
   Interest and fees on loans...................     $6,055      $4,783
   Gain on sale loans..........................       3,452       2,563
   Servicing and other fee income...............        466         345
                                                      9,973       7,691

Expenses:
   Interest expense............................      3,695       2,648
   Salaries and employee benefits..............      1,147         833 
   Other operating expenses....................        916         853
   Provision for loan losses...................        460         300
                                                     6,218       4,634

Income before income taxes....................       3,755       3,057
Provision for income taxes....................       1,446       1,177
Net income....................................      $2,309      $1,880


Earnings per common share:
   Basic......................................      $  .40      $  .34       
   Diluted....................................      $  .38      $  .32

Weighted average number of shares:
   Basic......................................    5,754,018       5,560,167
   Diluted....................................    6,117,832       5,857,176


</TABLE>
















 See accompanying notes to unaudited consolidated financial statements.


<PAGE>

<TABLE>


                    LITCHFIELD FINANCIAL CORPORATION

                    Consolidated Statements of Income
           (In thousands, except share and per share amounts)
                                Unaudited
<S>                                                  <C>          <C>

                                                   Six Months Ended June 30,
                                                        1998        1997
Revenues:
   Interest and fees on loans...................      $11,288      $9,329
   Gain on sale of loans........................        5,679       4,067
   Servicing and other fee income...............          959         702
                                                       17,926      14,098

Expenses:
   Interest expense.............................        6,692       5,042 
   Salaries and employee benefits...............        2,280       1,646
   Other operating expenses.....................        1,869       1,756
   Provision for loan losses....................          810         735
                                                       11,651       9,179

Income before income taxes......................        6,275       4,919
Provision for income taxes......................        2,416       1,894
Net income......................................       $3,859      $3,025  


Earnings per common share:
   Basic........................................       $  .68      $  .55
   Diluted......................................       $  .64      $  .52

Weighted average number of shares:
   Basic........................................    5,706,887   5,503,736
   Diluted......................................    6,069,164   5,824,947

</TABLE>
















 See accompanying notes to unaudited consolidated financial statements.




<TABLE>


                    LITCHFIELD FINANCIAL CORPORATION
             Consolidated Statements of Comprehensive Income
                             (In thousands)
                                Unaudited



<S>                                                <C>            <C>



                                                  Three Months Ended June 30,
                                                     1998           1997

Net income.....................................     $2,309         $1,880
Other comprehensive income, net of tax:
 Net unrealized gain on retained interests in      
 loan sales.....................................       204            288

Comprehensive income                                $2,513         $2,168

</TABLE>




<TABLE>

<S>                                                  <C>            <C>

                                                   Six Months Ended June 30,
                                                        1998          1997         
                                                       ------        ------

Net income.......................................      $3,859        $3,025
Other comprehensive income, net of tax:
   Net unrealized gain on retained interests in      
   loan sales.....................................        180           523

Comprehensive income..............................     $4,039        $3,548

</TABLE>










 See accompanying notes to unaudited consolidated financial statements.



<TABLE>


                    LITCHFIELD FINANCIAL CORPORATION
             Consolidated Statement of Stockholders' Equity
                  (In thousands, except share amounts)
                                Unaudited













<S>                         <C>      <C>         <C>        <C>      <C>
                                               Accumulated
                                    Additional   Other
                            Common   Paid In  Comprehensive Retained
                             Stock   Capital     Income     Earnings    Total

Balance, December 31, 1997.   $56     $36,681     $1,071    $14,263   $52,071
                                                                 
Issuance of 1,013,142 
  shares of common stock...    10      17,855        ---        ---    17,865
                           
Accumulated other
  comprehensive income.....    --         ---        180        ---       180 
  
Tax benefit from
  stock options exercised..    --          39        ---        ---        39
                            
Net income.................    --         ---        ---      3,859     3,859
                              ---         ---        ---      -----     -----
Balance, June 30, 1998.....   $66     $54,575    $1,251     $18,122   $74,014
                              ===     =======    ======     =======    =======

</TABLE>














 See accompanying notes to unaudited consolidated financial statements.

<PAGE>

<TABLE>


                    LITCHFIELD FINANCIAL CORPORATION

                  Consolidated Statements of Cash Flows
                             (In thousands)
                                Unaudited
<S>                                                  <C>           <C>

                                                    Six Months Ended June 30,
                                                        1998         1997
                                                        ----         ----
Cash flows from operating activities:
     Net income.....................................    3,859       $3,025
     Adjustments to reconcile net income to net cash 
     provided by (used in) operating activities:
         Gain on sale of loans......................   (5,679)      (4,067)
         Amortization and depreciation..............      484          332
         Amortization of retained interests in loan
         sales......................................    2,905        2,061
         Provision for loan losses..................      810          735
         Deferred income taxes......................    1,327          955
         Net changes in operating assets and
         liabilities:
             Restricted cash........................   (3,976)      (2,441)
             Loans held for sale....................    3,879       (8,300)
             Retained interests in loan sales.......     (872)         470
             Dealer/developer reserves..............     (211)          (2)
             Net change in other assets and liabilities 1,723           753
                                                        -----         -----
    Net cash provided by (used in) operating activities 4,249       (6,479)
                                                        -----        ------
                                                
Cash flows from investing activities:
   Net originations, purchases and principal payments
   on other loans.................................... (73,114)     (27,379)
   Other loans sold..................................  25,159       15,325
   Collections on retained interests in loan sales...   1,866        2,534
   Capital expenditures and other assets.............  (1,157)        (447)
   Purchase of investmet.............................    (235)         ---
       Net cash used in investing activities          (47,481)      (9,967)

Cash flows from financing activities:
   Net borrowings (payments) on lines of credit.....   22,424       (2,012)
   Proceeds from issuance of 9.3% Notes.............      ---       20,000
   Retirement of long-term Notes....................     (291)        (613)
Payments on term note...............................   (1,493)      (1,032)
Net proceeds from issuance of common stock..........   17,865        1,607
Net cash provided by financing activities...........   38,505       17,950

Net (decrease) increase in cash and cash equivalents   (4,727)       1,504
Cash and cash equivalents, beginning of period......   19,295        5,557
Cash and cash equivalents, end of period............  $14,568      $ 7,061

Supplemental Schedule on Noncash Financing and
Investing Activities:
    Exchange of loans for retained interests in     
    loan sales......................................  $   529      $   364  
    Transfers from loans to real estate acquired
    through foreclosure.............................. $ 1,005      $   516

Supplemental Cash Flow Information:
    Interest paid                                       6,053        4,339
    Income taxes paid                                     239          937


 See accompanying notes to unaudited consolidated financial statements.
</TABLE>

<PAGE>



                                    FORM 10-Q

                    LITCHFIELD FINANCIAL CORPORATION
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               Unaudited

A. Basis of Presentation


     The accompanying  unaudited consolidated interim financial statements as of
June 30,  1998 and for the three and six month  periods  ended June 30, 1998 and
1997,  have been  prepared in  accordance  with  generally  accepted  accounting
principles for interim  financial  information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X.  Accordingly,  they do not include all of
the  information  and  footnotes  required  by  generally  accepted   accounting
principles for complete financial statements. In the opinion of management,  all
adjustments  (consisting  of normal  accruals)  considered  necessary for a fair
presentation  have been included.  Operating results for the three and six month
periods  ended June 30,  1998,  are not  necessarily  indicative  of the results
expected for the year ending December 31, 1998. For further  information,  refer
to the  consolidated  financial  statements  and footnotes  thereto  included in
Litchfield Financial Corporation's annual report on Form 10-K for the year ended
December 31, 1997.

     In 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standard No. 130, "Reporting  Comprehensive  Income." The
Company adopted the  requirements  of this Statement in the first quarter.  This
Statement  established  standards  for  reporting  comprehensive  income and its
components and requires this  disclosure be added as a new item in the financial
statements.


B.  Gain on Sale of  Loans and Retained Interests in Loan Sales


     Gains on sales of loans are based on the  difference  between the allocated
cost basis of the assets sold and the proceeds received, which includes the fair
value of any  assets or  liabilities  that are newly  created as a result of the
transaction.  Newly created interests,  which consist primarily of interest only
strips and  recourse  obligations,  are  initially  recorded at fair value.  The
previous  carrying amount is allocated  between the assets sold and any retained
interests based on their relative fair values at the date of transfer.  Retained
interests in transferred assets consist primarily of subordinate portions of the
principal balance of transferred assets and interest only strips.

     The Company estimates fair value using discounted cash flow analysis (using
discount  rates  commensurate  with the risks  involved),  because quoted market
prices  are  not  readily  available.   The  Company's   analysis   incorporates
assumptions that market participants would be expected to use in their estimates
of future cash flows, including assumptions about return on investment, defaults
and prepayment  rates. The Company considers  retained  interests in loan sales,
such as  subordinated  pass-through  certificates  and interest only strips,  as
available for sale.

     There is  generally no  servicing  asset or  liability  because the Company
estimates  that the  benefits  of  servicing  are  offset by the  related  costs
associated with its servicing responsibilities.

      Since its inception,  the Company has sold  $417,081,000  of loans at face
value  ($348,198,000  through December 31, 1997). The principal amount remaining
on the loans sold was $219,809,000 at June 30, 1998 and $179,790,000 at December
31, 1997. In connection with certain loan sales, the

<PAGE>



                                    FORM 10-Q

                    LITCHFIELD FINANCIAL CORPORATION
        NOTES  TO  CONSOLIDATED   FINANCIAL  STATEMENTS  -  (Continued)  Company
guarantees,  through  replacement  or  repayment,  loans  that  default  up to a
specified  percentage  of loans  sold.  Dealer/developer  guaranteed  loans  are
secured  by  repurchase  or  replacement  guarantees  in  addition  to,  in most
instances, dealer/developer reserves.

     The Company's exposure to loss on loans sold in the event of nonperformance
by the  consumer,  default by the  dealer/developer  on its  guarantee,  and the
determination  that the  collateral is of no value was  $10,570,000  at June 30,
1998  ($9,238,000 at December 31, 1997).  Such amounts have not been discounted.
The  Company  repurchased  $26,000  and  $119,000  of loans  under the  recourse
provisions  of loan sales  during the three months ended June 30, 1998 and 1997.
Loans purchased during the six months ended June 30, 1998 and 1997 were $144,000
and  $454,000,  respectively,  and $740,000  during the year ended  December 31,
1997. In addition, when the Company sells loans through securitization programs,
the  Company  commits  either to  replace  or  repurchase  any loans that do not
conform to the requirements thereof in the operative loan sale documents.  As of
June 30,  1998,  $25,830,000  of the  Company's  cash was  restricted  as credit
enhancements in connection with certain  securitization  programs.  To date, the
Company has  participated  $8,568,000 of A&D and Other Loans without recourse to
the Company ($6,936,000 through December 31, 1997).

     The  Company's  Serviced  Portfolio  is  geographically   diversified  with
collateral and consumers located in 46 and 50 states, respectively. The Serviced
Portfolio  consists of the principal amount of loans serviced by or on behalf of
the Company,  except loans participated without recourse to the Company. At June
30, 1998, 16.6% of the Serviced Portfolio by collateral  location was located in
Texas  (19.1% at  December  31,  1997),  and  18.9%  and  16.3% of the  Serviced
Portfolio by borrower location was located in Florida and Texas (12.9% and 19.1%
at December 31,  1997),  respectively.  No other state  accounted  for more than
11.0% of the total by either collateral or borrower location.


C. Allowance for loan losses and recourse obligations
<TABLE>

The total allowance for loan losses consists of the following:
<S>                                           <C>          <C>
                                               June 30,    December 31,
                                                 1998          1997
  Allowance for losses on loans held for sale  $942,000     $1,388,000
  Allowance for losses on other loans........ 2,459,000      2,044,000
  Recourse obligation on retained interests
  in loan sales.............................. 3,062,000      2,445,000
                                             $6,463,000     $5,877,000

</TABLE>


D.  Debt

     In January 1997, the Company amended a line of credit,  secured by consumer
receivables  and other secured  loans,  to increase the line from  $5,000,000 to
$8,000,000.  This  line  of  credit  matures  in  January  1999.  There  were no
outstanding borrowings at June 30, 1998 or December 31, 1997.


     In March 1997, the Company entered into an additional  $25,000,000  secured
line of credit. The outstanding borrowings under this line of credit at June 30,
1998 were  $5,738,000 and there were no  outstanding  borrowings at December 31,
1997.  The  facility is secured by loans to  developers  of  vacation  ownership
interest resorts ("VOI resorts"),  popularly known as timeshare resorts, for the
acquisition  and  development  of VOI  resorts  ("Facility  A") and the  related
financing of consumer  purchases of VOIs  ("Facility  B").  Although the maximum
amount that can be  borrowed on each  facility  is  $15,000,000,  the  aggregate
outstanding borrowings cannot exceed $25,000,000. This facility expires in March
2000.

     In May 1997, the Company renewed and amended an additional  secured line of
credit to  increase  the line from  $30,000,000  to  $50,000,000  and extend the
maturity to April 2000. The outstanding  borrowings under this line of credit at
June 30, 1998 were $6,427,000.  There were no outstanding borrowings at December
31,  1997.  This line of credit is secured  by  consumer  receivables  and other
secured loans.

     In December  1997,  the  Company  amended an  additional  line of credit to
increase the line from $20,000,000 to $30,000,000.  Outstanding borrowings under
this line of credit at June 30, 1998, were $8,850,000. There were no outstanding
borrowings at December 31, 1997.  This  facility is secured by certain  retained
interests in loan sales,  cash  collateral  accounts and certain other loans and
matures in September 1999.

     In March 1998, the Company renewed an additional $3,000,000 line of credit,
which is secured by consumer  receivables and other secured loans.  This line of
credit matures in March 1999.  There were no outstanding  borrowings  under this
line of credit at June 30, 1998 and December 31, 1997.

     In March 1998, the Company  amended the $1,500,000  construction  mortgage,
secured by certain  assets of the Company,  extending the maturity date to March
2009.  Outstanding  borrowings under this construction  mortgage were $1,500,000
and $8,000 at June 30, 1998 and December 31, 1997, respectively.

     Interest  rates on the above lines of credit range from the  Eurodollar  or
LIBOR rates plus 2% to the prime rate plus 1.25%. The Company is not required to
maintain  compensating  balances or forward sales commitments under the terms of
these lines of credit.

     As of June 30, 1998 and  December  31,  1997,  the Company had no unsecured
lines of credit.

     The Company has a revolving  line of credit and sale facility as part of an
asset backed  commercial  paper  facility with a multi-seller  commercial  paper
issuer ("Conduit A"). In June 1998, the Company amended the facility to increase
the  facility to  $150,000,000,  subject to certain  terms and  conditions.  The
facility expires in June 2001.

     In  connection  with  the  facility,  the  Company  formed  a  wholly-owned
subsidiary,   Litchfield  Mortgage  Securities  Corporation  1994  ("LMSC"),  to
purchase  loans from the Company.  LMSC either  pledges the loans on a revolving
line of credit with  Conduit A or sells the loans to Conduit A. Conduit A issues
commercial  paper or other  indebtedness to fund the purchase or pledge of loans
from LMSC. Conduit A is not affiliated with the Company or its affiliates. As of
June 30, 1998 and  December  31, 1997,  the  outstanding  balance of the sold or
pledged  loans  securing  this  facility  was  $124,447,000  and   $108,625,000,
respectively.  Outstanding  borrowings under the line of credit at June 30, 1998
and  December  31, 1997 were  $86,000 and  $169,000,  respectively.  Interest is
payable on the line of credit at an  interest  rate based on certain  commercial
paper rates.

     In March 1997,  the Company  closed an additional  revolving line of credit
and sale facility of $25,000,000  with another  multi-seller of commercial paper
conduit ("Conduit B"). The facility,  which expires in March 2000, is subject to
certain  terms  and  conditions,   credit  enhancement   requirements  and  loan
eligibility criteria. The outstanding aggregate balance of the loans pledged and
sold under the facility at any time cannot exceed $25,000,000.

     In  connection  with  the  facility,  the  Company  formed  a  wholly-owned
subsidiary,  Litchfield Capital Corporation 1996 ("LCC"), to purchase loans from
the  Company.  LCC either  pledges the loans on a revolving  line of credit with
Conduit B or sells the loans to Conduit B. Conduit B issues  commercial paper or
other  indebtedness to fund the purchase or pledge of loans from LCC.  Conduit B
is not affiliated  with the Company or its  affiliates.  As of June 30, 1998 and
December 31, 1997, the outstanding aggregate balance of the loans sold under the
facility  was  $12,267,000  and   $12,517,000,   respectively.   There  were  no
outstanding  borrowings under the line of credit as of June 30, 1998 or December
31, 1997. Interest is payable on the line of credit at an interest rate based on
certain commercial paper rates.

     The term note is payable  monthly based on collections  from the underlying
collateral.  The note is  currently  redeemable  only with the  approval  of the
noteholder.  The note is  collateralized  by certain of the  Company's  retained
interests  in loan  sales  and cash.  The  balance  outstanding  on the note was
$3,717,000 and $5,210,000 at June 30, 1998 and December 31, 1997, respectively.

     In April 1997, the Company issued unsecured notes with an initial principal
balance of $20,000,000. Interest is payable at 9.3% semiannually in arrears. The
notes require  principal  reductions of $7,500,000,  $6,000,000,  $6,000,000 and
$500,000 in March 2001, 2002, 2003 and 2004, respectively.

     In November 1997, the Company completed a public offering of $51,750,000 of
8.45% Notes due 2002 ("1997  Notes"),  which are  unsecured  obligations  of the
Company.  The proceeds were used to repay the outstanding  balance on certain of
the  Company's  lines of credit and to retire  the 10% Notes due 2002.  The 1997
Notes allow for a maximum annual  redemption at the election of the  noteholders
of $2,588,000  and contain  certain  restrictions  regarding the payment of cash
dividends and require the maintenance of certain financial ratios.

     Previously,  the Company  completed public debt offerings of $17,570,000 in
May 1993 ("1993 Notes") and $18,400,000 in March 1995 ("1995  Notes").  The 1993
Notes and the 1995 Notes bear interest at 8 7/8% and 10%, respectively,  and are
due 2003 and 2004, respectively. The 1993 Notes and the 1995 Notes are unsecured
obligations  of the Company and each such issuance  allows for a maximum  annual
redemption by noteholders of 5% of the original  principal  amount  thereof.  In
June 1997, the noteholders  redeemed,  and the Company paid $613,000 of the 1993
Notes. In April of 1998, the noteholders redeemed,  and the Company paid $40,000
of the 1995 Notes.  In June of 1998, the noteholders  redeemed,  and the Company
paid $251,000 of the 1993 Notes.


E. Derivative financial instruments held for purposes other than
trading


     The Company's  objective in managing interest rate exposure is to match its
proportion  of fixed  versus  variable  rate assets,  liabilities  and loan sale
facilities.  In June 1997,  the  Company  entered  into two  interest  rate swap
agreements.  The  swap  agreements  involve  the  payment  of  interest  to  the
counterparty  at the prime rate on a  notional  amount of  $110,000,000  and the
receipt of  interest  at the  commercial  paper rate plus a spread and the LIBOR
rate  plus  a  spread  on  notional  amounts  of  $80,000,000  and  $30,000,000,
respectively.  The swap agreements expire in June, 2000. There is no exchange of
the notional amounts upon which the interest payments are based.

     The differential to be paid or received as interest rates change is accrued
and  recognized  as an  adjustment  to interest  income or expense  (the accrual
accounting  method.)  The  related  amount  receivable  from or  payable  to the
counterparty is included in other assets or other  liabilities.  The fair values
of the swap  agreements  are not  recognized  in the financial  statements.  The
Company intends to keep the contracts in effect until they mature in June 2000.

     In June, 1994, the Company entered into an interest rate cap agreement with
a bank in order to manage its exposure to certain  increases in interest  rates.
The interest  rate cap  entitles  the Company to receive an amount,  based on an
amortizing  notional  amount,  which  at June  30,  1998  was  $4,057,000,  when
commercial paper rates exceed 8%. If payments were to be received as a result of
the cap agreement, they would be accrued as a reduction of interest expense.
This agreement expires in July 2003.

     The  Company is exposed to credit loss in the event of  non-performance  by
the swap counterparty or cap provider.


<PAGE>



                                    FORM 10-Q

                                   1
Item 2.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION
AND RESULTS OF OPERATIONS

Forward-looking Statements

    Except for the historical information contained or incorporated by reference
in this Form 10-Q, the matters discussed or incorporated by reference herein are
forward-looking  statements.  Such forward-looking  statements involve known and
unknown  risks,  uncertainties  and other  factors  that may  cause  the  actual
results,  performance or achievements of the Company, or industry results, to be
materially  different  from any  future  results,  performance  or  achievements
expressed or implied by such forward-looking  statements.  Such factors include,
among  others,  the risk  factors set forth under "Risk  Factors" as well as the
following: general economic and business conditions; industry trends; changes in
business strategy or development plans;  availability and quality of management;
and availability,  terms and deployment of capital.  Special attention should be
paid  to  such  forward-looking   statements  including,  but  not  limited  to,
statements  relating  to  (i)  the  Company's  ability  to  execute  its  growth
strategies and to realize its growth  objectives and (ii) the Company's  ability
to obtain sufficient  resources to finance its working capital needs and provide
for its  known  obligations.  Refer to form 10-K for the year  ended  1997 for a
complete list of factors as discussed under "Risk Factors".


Overview

     Litchfield  Financial  Corporation (the "Company") is a diversified finance
company  that  provides  financing  to  creditworthy  borrowers  for  assets not
typically  financed by banks.  The Company provides such financing by purchasing
consumer loans and by making loans to businesses secured by consumer receivables
or other assets.

     The Company  purchases  consumer loans (the "Purchased  Loans")  consisting
primarily of loans to purchasers of rural and vacation properties ("Land Loans")
and vacation ownership  interests  popularly known as timeshare  interests ("VOI
Loans").  The Company also provides  financing to rural land dealers,  timeshare
resort   developers   and  other  finance   companies   secured  by  receivables
("Hypothecation  Loans") and to dealers and developers for the  acquisition  and
development of rural land and timeshare resorts ("A&D Loans"). In addition,  the
Company  purchases other loans,  such as consumer home equity loans and consumer
construction  loans,  and  provides  financing  to other  businesses  secured by
receivables or other assets ("Other Loans").

     Land Loans are typically secured by one to twenty acre rural parcels.  Land
Loans are  secured  by  property  located  in 35  states,  predominantly  in the
southern United States.  VOI Loans  typically  finance the purchase of ownership
interests  in fully  furnished  vacation  properties.  VOI Loans are  secured by
property  located  in  18  states,  predominantly  in  California,  Florida  and
Pennsylvania.  The Company requires most dealers or developers from whom it buys
loans to guarantee repayment or replacement of any loan in default.  Ordinarily,
the Company  retains a percentage  of the purchase  price as a reserve until the
loan is repaid.

     The Company extends Hypothecation Loans to land dealers,  resort developers
and  other  finance  companies  secured  by  receivables.   Hypothecation  Loans
typically have advance rates of 75% to 90% of the current balance of the pledged
receivables and variable interest rates based on the prime rate plus 2% to 4%.
     The Company also makes A&D Loans to land dealers and resort  developers for
the acquisition and development of rural land and timeshare  resorts in order to
finance  additional  receivables  generated  by the A&D  Loans.  At the time the
Company makes A&D Loans, it typically receives an exclusive right to purchase or
finance the related consumer receivables generated by the sale of the subdivided
land or timeshare  interests.  A&D Loans  typically have loan to value ratios of
60% to 80% and variable interest rates based on the prime rate plus 2% to 4%.

     The principal  sources of the Company's  revenues are (i) interest and fees
on loans, (ii) gains on sales of loans and (iii) servicing and other fee income.
Gains on sales of loans are based on the  difference  between the allocated cost
basis of the assets sold and the  proceeds  received,  which  includes  the fair
value of any  assets or  liabilities  that are newly  created as a result of the
transaction.  Because  a  significant  portion  of  the  Company's  revenues  is
comprised of gains realized upon sales of loans,  the timing of such sales has a
significant effect on the Company's results of operations.



Results of Operations

     The following  table sets forth the  percentage  relationship  to revenues,
unless  otherwise  indicated,   of  certain  items  included  in  the  Company's
statements of income.
<TABLE>
<S>                                  <C>     <C>     <C>       <C>
                                     Three Months   Six Months Ended
                                         Ended
                                       June 30,        June, 30
                                      1998    1997    1998    1997
                                     ------  ------   ----    ----
     Revenue
         Interest and fees on loans   60.7%   62.2%   63.0%    66.2%
         Gain on sale of loans....    34.6    33.3    31.7     28.8
         Servicing and other fee       4.7     4.5     5.3      5.0
                                      ----    ----    ----     ----
     income
                                      100.0   100.0   100.0    100.0
                                      -----   -----   -----    -----
     Expenses
         Interest expense.........    37.0    34.4    37.4     35.8
         Salaries and employee        11.5    10.9    12.7     11.7
     benefits.....................
         Other operating expenses.     9.2    11.1    10.4     12.4
         Provision for loan losses     4.6     3.9     4.5      5.2
                                      ----    ----    ----     ----
                                      62.3    60.3    65.0     65.1
                                      ----    ----    ----     ----

     Income before income taxes...    37.7    39.7    35.0     34.9
     Provision for income taxes...    14.5    15.3    13.5     13.4
                                      ----    ----    ----     ----
     Net income...................    23.2    24.4    21.5     21.5
                                      ====    ====    ====     ====
</TABLE>

     Revenues  increased  29.7% and 27.2% to $9,973,000 and  $17,926,000 for the
three and six months ended June 30, 1998,  from  $7,691,000 and  $14,098,000 for
the same periods in 1997. Net income for the three and six months ended June 30,
1998  increased  22.8%  and  27.6% to  $2,309,000  and  $3,859,000  compared  to
$1,880,000 and $3,025,000 for the same periods in 1997. Loan  originations  grew
100.2% and 95.7% to $95,585,000  and  $163,078,000  for the three and six months
ended June 30, 1998 from  $47,249,000  and  $83,311,000  for the same periods in
1997. The Serviced  Portfolio  increased  36.4% to $384,663,000 at June 30, 1998
from $281,965,000 at June 30, 1997.


     Interest  and fees on loans  increased  26.6% and 21.0% to  $6,055,000  and
$11,288,000 for the three and six months ended June 30, 1998 from $4,783,000 and
$9,329,000  for the same periods in 1997,  primarily as the result of the higher
average  balance of other loans during the 1998 period.  The average rate earned
on the Serviced Portfolio decreased to 12.2% at June 30, 1998 from 12.4% at June
30, 1997,  primarily due to the effect of the growth in Hypothecation Loans as a
percentage  of the  portfolio.  Hypothecation  Loan yields are usually less than
Land Loan or VOI Loan yields,  but  Hypothecation  Loan servicing costs and loan
losses are generally less as well.

     Gain on the sale of loans  increased  34.7%  and  39.6% to  $3,452,000  and
$5,679,000 for the three and six months ended June 30, 1998 from  $2,563,000 and
$4,067,000 in the same periods in 1997. The volume of loans sold increased 83.5%
and 74.4% to $50,380,000 and $68,882,000 for the three and six months ended June
30, 1998 from $27,458,000 and $39,501,000  during the  corresponding  periods in
1997 primarily due to the growth in originations. The percentage increase in the
gain on sale of loans was less than the percentage  increase in the volume
of loans  sold  primarily  due to the  increase  in  Hypothecation  Loans  sold.
Hypothecation Loan sales typically yield less than Land Loans or VOI Loans.

     Servicing  and other fee income  increased  35.1% and 36.6% to $466,000 and
$959,000  for the three and six months ended June 30,  1998,  from  $345,000 and
$702,000  for the same  periods in 1997 mostly due to the  increase in the other
fee income  including  certain  processing fees and a prepayment  penalty from a
Hypothecation  Loan.  Although  loans  serviced  for others  increased  58.4% to
$219,809,000 as of June 30, 1998 from  $138,771,000 at June 30, 1997,  servicing
income remained  relatively  constant due to an increase in Hypothecation  Loans
serviced for others and a decrease in the average servicing fee per loan.

     Interest  expense  increased  39.5% and 32.7% to $3,695,000  and $6,692,000
during  the  three and six  months  ended  June 30,  1998  from  $2,648,000  and
$5,042,000  for the same  periods in 1997.  The  increase  in  interest  expense
primarily  reflects an increase in average  borrowings  which was only partially
offset by lower  rates.  During  the three and six months  ended June 30,  1998,
borrowings averaged $158,531,000 and $139,503,000 at an average rate of 8.7% and
8.8%,  respectively,  as compared to $107,934,000 and $103,551,000 at an average
rate of 9.0% and 9.1% during the same periods in 1997. Interest expense includes
the amortization of deferred debt issuance costs.

     Salaries and employee benefits  increased 37.7% and 38.5% to $1,147,000 and
$2,280,000  for the three and six months  ended June 30, 1998 from  $833,000 and
$1,646,000  for the same periods in 1997 because of an increase in the number of
employees in 1998 and, to a lesser  extent,  an increase in salaries.  Personnel
costs as a percentage of revenues increased to 11.5% and 12.7% for the three and
six months ended June 30, 1998  compared to 10.8% and 11.7% for the same periods
in 1997. As a percentage of the Serviced  Portfolio,  personnel  costs  remained
constant  at 1.2% for both the three and six months  ended June 30, 1998 and for
the same periods in 1997.

     Other operating expenses increased 7.4% and 6.4% to $916,000 and $1,869,000
for the three and six months ended June 30, 1998 from  $853,000  and  $1,756,000
for the same periods in 1997.  As a  percentage  of  revenues,  other  operating
expenses decreased to 9.2% and 10.4% for the three and six months ended June 30,
1998  compared to 11.1% and 12.4% for the  corresponding  periods in 1997.  As a
percentage of the Serviced Portfolio, other operating expenses decreased to 1.0%
for both the three and six months ended June 30, 1998 from 1.2% and 1.3% for the
same periods in 1997.

     During the three and six months ended June 30, 1998, the provision for loan
losses  increased  53.3% and 10.2% to $460,000  and $810,000  from  $300,000 and
$735,000  for the  same  periods  in 1997  primarily  due to the  growth  of the
Serviced Portfolio.


Liquidity and Capital Resources

     The Company's  business  requires  continued  access to short and long-term
sources of debt  financing  and equity  capital.  The Company's  principal  cash
requirements  arise  from  loan  originations,  repayment  of debt on  maturity,
payments of operating and interest expenses and loan repurchases.  The Company's
primary sources of liquidity are loan sales, short-term borrowings under secured
lines of  credit,  long-term  debt and  equity  offerings  and cash  flows  from
operations.

     Since its  inception,  the Company has sold  $417,081,000  of loans at face
value  ($348,198,000  through December 31, 1997). The principal amount remaining
on the loans sold was $219,809,000 at June 30, 1998 and $179,790,000 at December
31,  1997.  In  connection  with  certain  loan sales,  the  Company  commits to
repurchase  from  investors any loans that become 90 days or more past due. This
obligation  is subject  to  various  terms and  conditions,  including,  in some
instances,  a  limitation  on the  amount of loans  that may be  required  to be
repurchased.  There were  approximately  $10,570,000  of loans at June 30,  1998
which the  Company  could be required to  repurchase  in the future  should such
loans  become 90 days or more past due.  The  Company  repurchased  $26,000  and
$144,000 as compared to $119,000  and  $454,000 of such loans under the recourse
provisions of loan sales during the three and six months ended June 30, 1998 and
1997,  respectively.  As of June 30, 1998, $25,830,000 of the Company's cash was
restricted as credit enhancement for certain  securitization  programs. To date,
the Company has participated  $8,568,000 of A&D and Other Loans without recourse
to the Company ($6,936,000 through December 31, 1997).

     The Company funds its loan purchases in part with borrowings  under various
lines of credit. Lines are paid down when the Company receives the proceeds from
the sale of the loans or when cash is otherwise available. These lines of credit
totaled  $116,000,000  at June  30,  1998 and  December  31,  1997.  Outstanding
borrowings on the lines of credit were  $21,015,000  at June 30, 1998.  Interest
rates on these lines of credit range from the  Eurodollar  or LIBOR rate plus 2%
to the  prime  rate  plus  1.25%.  The  Company  is  not  required  to  maintain
compensating  balances  or forward  sales  commitments  under the terms of these
lines of credit.  At June 30, 1998 and December  31, 1997,  lines of credit also
included outstanding borrowings of $1,500,000 and $8,000,  respectively,  on the
$1,500,000 construction mortgage.

     The Company also finances its loan  purchases  with two  revolving  line of
credit and sale facilities as part of asset backed  commercial  paper facilities
with multi-seller commercial paper issuers. Such facilities totaled $175,000,000
at June 30, 1998 and  $150,000,000 at December 31, 1997. As of June 30, 1998 and
December 31, 1997, the outstanding balances of loans sold or pledged under these
facilities  were  $136,714,000  and  $121,142,000,   respectively.   Outstanding
borrowings  under  these  lines of  credit  were  $86,000  at June 30,  1998 and
$169,000  at  December  31,  1997.  Interest is payable on these lines of credit
based on certain commercial paper rates.

     In June 1998,  the Company issued  1,000,000  shares of common stock at $19
per share.  The net proceeds of the offering were  $17,695,000  and were used to
pay down certain lines of credit. In connection with the underwriters' option to
purchase  additional  shares to cover over  allotments,  the  Company  issued an
additional  166,500  shares in July 1998.  Net proceeds of these shares  totaled
$2,990,000 and were also used to pay down certain lines of credit.

     The  Company  also  finances  its  liquidity  needs  with  long-term  debt.
Long-term  debt  totaled  $105,056,000  at June  30,  1998 and  $105,347,000  at
December 31, 1997.

     The Company also has a term note payable monthly based on the collection of
the underlying collateral.  The note is redeemable only with the approval of the
noteholder.  The note is  collateralized  by certain of the  Company's  retained
interests  in loan  sales  and cash.  The  balance  outstanding  on the note was
$3,717,000 and $5,210,000 at June 30, 1998 and December 31, 1997, respectively.

     In June 1997, the Company  entered into two interest rate swap  agreements.
The swap agreements  involve the payment of interest to the  counterparty at the
prime rate on a notional amount of  $110,000,000  and the receipt of interest at
the  commercial  paper  rate plus a spread  and the LIBOR  rate plus a spread on
notional  amounts  of  $80,000,000  and  $30,000,000,   respectively.  The  swap
agreements  expire in June 2000.  There is no exchange of the  notional  amounts
upon which interest payments are based.

     In June, 1994, the Company entered into an interest rate cap agreement with
a bank in order to manage its exposure to certain  increases in interest  rates.
The interest  rate cap  entitles  the Company to receive an amount,  based on an
amortizing  notional  amount,  which  at June  30,  1998  was  $4,057,000,  when
commercial paper rates exceed 8%. If payments were to be received as a result of
the cap agreement, they would be accrued as a reduction of interest expense.
This agreement expires in July 2003.

     Historically,  the Company has not required major capital  expenditures  to
support its operations.


Credit Quality and Allowances for Loan Losses

     The Company maintains  allowances for loan losses and recourse  obligations
on  retained  interests  in loan  sales  at  levels  which,  in the  opinion  of
management,  provide  adequately for current and estimated future losses on such
assets.  Past-due loans (loans 30 days or more past due which are not covered by
dealer/developer  reserves  and  guarantees)  as a  percentage  of the  Serviced
Portfolio  as of June 30,  1998,  decreased  to 1.10% from 1.20% at December 31,
1997.  Management  evaluates the adequacy of the allowances on a quarterly basis
by examining current  delinquencies,  the  characteristics of the accounts,  the
value of the underlying collateral,  and general economic conditions and trends.
Management  also  evaluates  the extent to which  dealer/developer  reserves and
guarantees  can be  expected to absorb loan  losses.  When the Company  does not
receive guarantees on loan portfolios  purchased,  it adjusts its purchase price
to reflect  anticipated losses and its required yield. This purchase  adjustment
is recorded as an increase in the allowance for loan losses and is used only for
the respective  portfolio.  A provision for loan losses is recorded in an amount
deemed  sufficient by management to maintain the allowances at adequate  levels.
Total allowances for loan losses and recourse  obligations on retained interests
in loan sales increased to $6,463,000 at June 30, 1998 compared to $5,877,000 at
December 31, 1997. The allowance  ratio (the  allowances for loan losses divided
by the amount of the  Serviced  Portfolio)  at June 30, 1998  decreased to 1.68%
from  1.93% at  December  31,  1997  primarily  as a result of the  increase  in
Hypothecation Loans as a percentage of the Serviced Portfolio.

     As part of the Company's  financing of Purchased  Loans,  arrangements  are
entered  into  with  dealers  and  resort   developers,   whereby  reserves  are
established to protect the Company from potential  losses  associated  with such
loans.  As  part  of  the  Company's  agreement  with  the  dealers  and  resort
developers,  a portion of the amount payable to each dealer and resort developer
for a Purchased  Loan is retained by the Company and is available to the Company
to absorb loan losses for those loans. The Company  negotiates the amount of the
reserves with the dealers and  developers  based upon various  criteria,  two of
which are the  financial  strength  of the dealer or  developer  and credit risk
associated with the loans being purchased. Dealer/developer reserves amounted to
$10,444,000   and   $10,655,000   at  June  30,  1998  and  December  31,  1997,
respectively.   The  Company  generally  returns  any  excess  reserves  to  the
dealer/developer  on a  quarterly  basis as the  related  loans  are  repaid  by
borrowers.


Impact of Year 2000

     As the year 2000  approaches,  an issue impacting all companies has emerged
regarding how existing  application  software programs and operating systems can
accommodate  this  date  value.  Substantially  all of the  Company's  operating
systems are already  year 2000  compliant.  The Company does not expect to incur
any significant  additional costs to make its remaining  applications  year 2000
compliant.

     However,  there can be no assurance  the Company's  operations  will not be
affected  by Year 2000  problems  incurred  by  entities  with which the Company
conducts business such as servicers, vendors or other financial institutions.


Inflation

     Inflation  has not had a  significant  effect  on the  Company's  operating
results to date.




















PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

        None

Item 2.  Changes in Securities

        None

Item 3.  Defaults Upon Senior Securities

        None

Item 4.  Submission of Matters to a Vote of Security Holders

        None






























<TABLE>

Item 5.  Other Information
                    SUMMARY CONSOLIDATED FINANCIAL INFORMATION
                          (Dollars in thousands, except per share data)
<S>                 <C>     <C>    <C>     <C>         <C>      <C>     <C>
                                                            Six Months Ended
                       Year Ended December 31,                   June 30,
Statement of Income                                     
                     ---------------------------    --------------------------
Data (1):            1993   1994    1995    1996        1997     1997     1998
                     -----  -----   -----   ----       -----    -----    -----
Revenues:
  Interest and fees
  on loans......... $4,330 $5,669  $11,392 $14,789     $19,374  $9,329   $11,288
  Gain on sale of     
  loans............. 4,550  4,847    5,161   7,331       8,564   4,067     5,679
  Servicing and      
  other fee income..   501    459      908   1,576       1,753     702       959
                     ------ ------   ------ ------      ------   ------   ------

   Total revenues... 9,381 10,975  17,461   23,696      29,691   14,098   17,926
                      ----- ------  ------  ------      ------   ------   ------
Expenses:
 Interest expense... 2,717  3,158  6,138     7,197      10,675    5,042    6,692
  Salaries and        
  employee benefits. 1,350  1,776  2,798     2,824       3,399    1,646    2,280
  Other operating     
  expenses.......    1,017  1,164  2,120     3,147       3,480    1,756    1,869
  Provision for         
  loan losses......    620    559    890     1,954       1,400      735      810
                     ------ ------  ------  ------      ------   ------   ------
    Total expenses.. 5,704  6,657 11,946    15,122      18,954    9,179   11,651
                     ----- ------ ------    ------      ------   ------   ------
Income before
income taxes and      
  extraordinary item.3,677  4,318  5,515    8,574       10,737    4,919    6,275
Provision for         
income taxes........ 1,426  1,619  2,066    3,301        4,134    1,894    2,416
                     ------ ------ ------  ------       ------   ------   ------
Income before         
extraordinary item...2,251  2,699  3,449    5,273        6,603    3,025    3,859
Extraordinary item   
(2)...................  --   (126)    --       --         (220)      --       --
                     ------ ------ ------  ------       -------  ------   ------
    Net income..... $2,251 $2,573 $3,449   $5,273       $6,383   $3,025   $3,859
                    ====== ====== ======   ======       ======   ======   ======
Basic per common share amounts:
 Income before       
 extraordinary item..$ .55 $ .66  $  .80  $  .97        $  1.19  $  .52   $  .68
 Extraordinary item...  --  (.03)     --      --           (.04)     --       --
                       ---- ------- ------  ------      -------- ------   ------
  Net income per     
share................$ .55 $ .63  $  .80  $  .97        $  1.15  $  .52   $  .68
                     ====== ====== ====== =======       ======== =======  ======
Basic weighted
 average number      
  of shares
 outstanding.....4,065,688 4,116,684 4,315,469 5,441,636 5,572,465 5,840,526 5,706,887
Diluted per common
share amounts:
  Income before     
  extraordinary item...$ .53 $ .63   $.76    $.93 $ 1.12 $  .52  $  .64

  Extraordinary item...   --  (.03)    --     --    (.04)    --      --
                        ---- ------- ------  ---- ------  ------  ------
  Net income per     
  share..............  $ .53 $ .60   $.76    $.93 $ 1.08 $  .52  $  .64
                     ======= ======= ======= ==== ====== ======= =======

Diluted weighted
average number       
  of shares
outstanding.....4,216,151 4,282,884 4,524,607 5,682,152 5,909,432 5,861,180 6,069,164
Cash dividends
 declared per        
 common  share........$ .02 $  .03   $ .04   $ .05 $  .06 $  --   $   --


Other Statement of
Income Data:
Income before
 extraordinary item     
 as a percentage
 of  revenues........ 24.0%  24.6%   19.8%   22.3%   22.3%    21.5%    21.5%

Ratio of EBITDA to
 interest   expense     
 (3)...................2.81   3.31    2.44    2.90    2.17     2.88     2.13

Ratio of earnings       
to fixed charges(4)....2.35   2.37    1.90    2.19    2.01     1.98     1.94

Return on average        
assets (5).............5.0%   4.6%    3.7%    4.0%    3.8%     3.7%     3.6%

Return on average       
equity (5)............17.0%  17.2%   16.6%   13.3%   14.1%    13.4%    13.8%
</TABLE>

----------

(1) Certain  amounts in the 1993 through 1996  financial  information  have been
restated  to conform to the 1997 and 1998  presentation.  (2)  Reflects  loss on
early  extinguishment of a portion of the 1992 Notes (as defined herein), net of
applicable  tax benefit of $76,000,  for 1994 and of the  remainder  of the 1992
Notes,  net of applicable  tax benefit of $138,000,  for 1997.  (3) The ratio of
EBITDA to interest  expense is required to be  calculated  for the twelve  month
period immediately preceding each calculation date, pursuant to the terms of the
indentures to which the Company is subject. EBITDA is defined as earnings before
deduction of taxes, depreciation,  amortization, and interest expense (but after
deduction for any extraordinary item). (4) For purposes of calculating the ratio
of earnings to fixed charges, earnings consist of income before income taxes and
extraordinary items and fixed charges. Fixed charges consist of interest charges
and the  amortization  of debt  expense.  (5) The return on  average  assets and
average equity for the six month periods are calculated on an annualized  basis.
Calculations are based on income before extraordinary item.
<TABLE>


        SUMMARY CONSOLIDATED FINANCIAL INFORMATION - (Continued)
              (Dollars in thousands, except per share data)
<S>                        <C>         <C>            <C>         <C>         <C>          <C>
                                     December 31,                                          June 30,
Balance Sheet Data(6):       1993         1994          1995         1996       1997         1998
                             ----         ----          ----         ----       ----         ----
Total assets..........     $54,444      $63,487      $112,459     $152,689    $186,790     $233,681
Loans held for sale(7)       5,931       11,094        14,380       12,260      16,366       13,546
Other loans (7).......      10,306       15,790        33,613       79,996      86,307      137,147
Retained interests in  
loan sales (7)........      11,764       11,996        22,594       28,912      30,299       31,007
Secured debt..........          --        5,823         9,836       43,727       5,387       26,318
Unsecured debt........      32,302       29,896        47,401       46,995     105,347      105,056
Stockholders' equity..      14,722       16,610        37,396       42,448      52,071       74,014


                                       Six
                                     Months
                                      Ended
                               Year Ended, December 31,                                       June
                                                                                               30,
Other Financial Data:        1993         1994          1995          1996        1997        1998
                            ------       ------       -------       -------     -------       -----
Loans purchased and    
originated (8)........     $42,410      $59,798      $121,046     $133,750   $ 184,660     $163,078
Loans sold (8)........      28,099       40,116        65,115       54,936      98,747       68,882
Loans participated (8)          --           --            --           --       6,936        1,631
Serviced Portfolio (9)      84,360      105,013       176,650      242,445     304,102      384,663
Loans serviced for     
others................      59,720       72,731       111,117      129,619     179,790      219,809
Dealer/developer        
reserves..............       4,926        6,575         9,644       10,628      10,655       10,444

Allowance for loan      
losses (10)...........       1,064        1,264         3,715        4,528       5,877        6,463
Allowance ratio (11)..       1.26%        1.20%          2.10%        1.87%      1.93%         1.68%
Delinquency ratio (12)        .61%         .93%          1.73%        1.34%      1.20%         1.10%
Net charge-off ratio      
(8)(13)...............        .69%         .38%           .67%         .94%       .74%          .56%
Non-performing asset      
ratio (14)............       1.48%        1.02%          1.35%        1.57%      1.03%          .78%
</TABLE>

----------

(6) In 1997 the Company adopted Statement of Financial  Accounting Standards No.
    125,  "Accounting  for  Transfers  and  Servicing  of  Financial  Assets and
    Extinguishments of Liabilities."  Consequently,  certain amounts included in
    the 1993 through 1996 financial statements have been reclassified to conform
    with the 1997 and 1998 presentation: "Subordinated pass through certificates
    held to maturity,"  "Excess  servicing asset" and "Allowance for loans sold"
    have been  reclassified as "Retained  interests in loan sales." In addition,
    "Loans held for investment" have been reclassified as "Other loans."
(7) Amount  indicated is net of allowance for losses and recourse  obligation on
    retained interests in loan sales.
(8) During the relevant period.
(9) The Serviced Portfolio consists of the principal amount of loans serviced by
    or on behalf of the Company,  except loans participated  without recourse to
    the Company.
(10)The  allowance  for loan  losses  includes  allowance  for losses  under the
    recourse provisions of loans sold. See Note C to financial statements.
(11)The allowance  ratio is the allowances for loan losses divided by the amount
    of the Serviced Portfolio.
(12)The  delinquency  ratio is the  amount of  delinquent  loans  divided by the
    amount of the Serviced  Portfolio.  Delinquent  loans are those which are 30
    days or more past due which are not covered by dealer/developer  reserves or
    guarantees and not included in other real estate owned.
(13)The net  charge-off  ratio is  determined  by  dividing  the  amount  of net
    charge-offs for the period by the average Serviced Portfolio for the period.
    The June 30, 1998 amount is calculated on an annualized basis.
(14)The  non-performing  asset ratio is  determined  by dividing  the sum of the
    amount of those  loans  which  are 90 days or more  past due and other  real
    estate owned by the amount of the Serviced Portfolio.


<PAGE>



                                BUSINESS


Overview


     Litchfield  Financial  Corporation (the "Company") is a diversified finance
company  that  provides  financing  to  creditworthy  borrowers  for  assets not
typically  financed by banks.  The Company provides such financing by purchasing
consumer loans and by making loans to businesses secured by consumer receivables
or other assets.

     The Company  purchases  consumer loans (the "Purchased  Loans")  consisting
primarily of loans to purchasers of rural and vacation properties ("Land Loans")
and vacation ownership  interests  popularly known as timeshare  interests ("VOI
Loans").  The Company also provides  financing to rural land dealers,  timeshare
resort   developers   and  other  finance   companies   secured  by  receivables
("Hypothecation  Loans") and to dealers and developers for the  acquisition  and
development of rural land and timeshare resorts ("A&D Loans"). In addition,  the
Company  purchases other loans,  such as consumer home equity loans and consumer
construction  loans,  and  provides  financing  to other  businesses  secured by
receivables or other assets ("Other Loans").

     The principal  sources of the Company's  revenues are (i) interest and fees
on loans, (ii) gains on sales of loans and (iii) servicing and other fee income.
Gains on sales of loans are based on the  difference  between the allocated cost
basis of the assets sold and the  proceeds  received,  which  includes  the fair
value of any  assets or  liabilities  that are newly  created as a result of the
transaction.  Because  a  significant  portion  of  the  Company's  revenues  is
comprised of gains realized upon sales of loans,  the timing of such sales has a
significant effect on the Company's results of operations.



Characteristics of the Serviced Portfolio, Loan Purchases and
Originations


    The  following  table  shows the  growth in the  diversity  of the  Serviced
Portfolio  from  primarily   Purchased  Loans  to  a  mix  of  Purchased  Loans,
Hypothecation Loans, A&D Loans and Other Loans:

<TABLE>
<S>                     <C>      <C>     <C>    <C>    <C>       <C>
                                    December 31,                  June
                                                                   30,
                         1993    1994    1995   1996    1997      1998
                        ------  ------  ------ ------  ------    -----
Purchased Loans..........89.0%   85.3%   81.6%  67.1%   56.6%    46.8%
Hypothecation Loans.......5.0     9.0    12.5   20.7    26.9     29.8
A&D Loans.................4.3     3.3     3.1    8.7    13.7     12.6
Other Loans...............1.7     2.4     2.8    3.5     2.8     10.8
                          ---   -----   -----  -----   -----      ----
          Total.........100.0%  100.0%  100.0% 100.0%  100.0%   100.0%
                        =====   =====   =====  =====   =====    =====
</TABLE>




     The  following  table shows the growth in the  diversity  of the  Company's
originations  from  primarily  Purchased  Loans  to a mix  of  Purchased  Loans,
Hypothecation Loans, A&D Loans and Other Loans:
<TABLE>
<S>                   <C>    <C>   <C>    <C>     <C>    <C>      <C>
                                                         Six Months
                             Year Ended December 31,         Ended
                                                           June 30,
                      1993   1994   1995   1996   1997    1997    1998
                      ----   ----   ----   ----   ----    ----    ----
Purchased Loans.....  77.8%  67.6%  71.4%  49.9%  30.3%   39.2%   19.8%
Hypothecation Loans.  11.8   22.2   20.9   29.6   37.1    35.8    40.7
A&D Loans...........   7.1    6.0    3.1   14.4   24.0    17.6    13.2
Other Loans.........   3.3    4.2    4.6    6.1    8.6     7.4    26.3
                     -----  -----  -----  -----  -----    ----    ----
Total..............  100.0% 100.0% 100.0% 100.0% 100.0%  100.0%  100.0%
                     =====  =====  =====  =====  =====   =====   =====
</TABLE>


   (1) Purchased Loans

    The Company provides indirect  financing to consumers through a large number
of  experienced  land  dealers  and resort  developers  from which it  regularly
purchases land loans and VOI loans. The dealers and resort developers make loans
to consumers  generally  using the Company's  standard  forms and subject to the
Company's  underwriting criteria. The Company then purchases such loans from the
land  dealers  and  resort  developers  on an  individually  approved  basis  in
accordance with its credit guidelines.

    Each land dealer and resort developer from whom the Company  purchases loans
is interviewed by the Company and approved by its credit  committee.  Management
evaluates  each land  dealer's  and  resort  developer's  experience,  financial
statements and credit references and inspects a substantial  portion of the land
dealer's and resort developer's  inventory of land and VOIs prior to approval of
loan purchases.

    In order to  enhance  the  creditworthiness  of loans  purchased  from  land
dealers and resort  developers,  the Company typically requires land dealers and
resort  developers  to guarantee  payment of the loans and  typically  retains a
portion of the  amount  payable  by the  Company to each land  dealer and resort
developer on purchase of the loan. The retained portion, or reserve, is released
to the land dealer or resort developer as the related loan is repaid.

    Prior to  purchasing  land loans or VOI loans,  the  Company  evaluates  the
credit and payment history of each borrower in accordance with it's underwriting
guidelines,  performs  borrower  interviews  on a sample of loans,  reviews  the
documentation  supporting the loans for  completeness and obtains an appropriate
opinion from local legal counsel.  The Company  purchases only those loans which
meet its credit standards.

    The Company also purchases  portfolios of seasoned loans primarily from land
dealers and resort developers.  The land dealers or resort developers  typically
guarantee  the loans  sold and the  Company  typically  withholds  a reserve  as
described above.  Management believes that the portfolio  acquisition program is
attractive to land dealers and resort  developers  because it provides them with
liquidity  to  purchase  additional   inventory.   The  Company  also  purchases
portfolios of seasoned loans from  financial  institutions  and others.  Sellers
generally do not guarantee  such loans,  but the Company sets aside a portion of
the purchase discount as an allowance for future loan losses.

    In evaluating  such  seasoned  portfolios,  the Company  conducts its normal
review  of  the  borrower's   documentation,   payment  history  and  underlying
collateral.  However,  the Company  may not always be able to reject  individual
loans.

    The Company's portfolio of Purchased Loans is secured by property located in
38 states.
<TABLE>
<S>                     <C>     <C>    <C>     <C>      <C>    <C>

                                     Principal Amount of Loans
                                    December 31,               June 30,
                         1993    1994   1995    1996    1997    1998
                         ----    ----   ----    ----    ----    ----
   Southwest..............18%     19%    16%     26%      30%     31%
   South..................33      37     31      31       31      30
   West....................2       3     20      20       17      19
   Mid-Atlantic...........17      16     16      10       10       9
   Northeast..............30      25     17      13       12      11
                          --      --     --      --      ---     ---
        Total............100%.   100%   100%    100%     100%    100%
                         ===     ===    ===     ===      ===     ===

</TABLE>

      a. Land Loans

    Dealers  from  whom  the  Company   purchases   Land  Loans  are   typically
closely-held  firms with  annual  revenues  of less than $3.0  million.  Dealers
generally purchase large rural tracts (generally 100 or more acres) from farmers
or other owners and  subdivide  the property into one to twenty acre parcels for
resale  to  consumers.  Generally  the  subdivided  property  is  not  developed
significantly  beyond the  provision of graded  access  roads.  In  recreational
areas,  sales are made primarily to urban consumers who wish to use the property
for a vacation or retirement home or for recreational  purposes such as fishing,
hunting or  camping.  In other  rural  areas,  sales are more  commonly  made to
persons  who will  locate  a  manufactured  home on the  parcel.  The  aggregate
principal amount of Land Loans purchased from individual  dealers during the six
months  ended June 30, 1998  varied  significantly  from a low of  approximately
$6,300 to a high of approximately $4.7 million. As of June 30, 1998 and December
31, 1997, the five largest dealers accounted for approximately  20.7% and 18.4%,
respectively,  of  the  principal  amount  of the  Land  Loans  in the  Serviced
Portfolio.  No single  dealer  accounted for more than 5.2% and 5.0% at June 30,
1998 and at December 31, 1997.

    As of June 30, 1998 and December 31, 1997, 40.7% and 47.0%, respectively, of
the Serviced Portfolio consisted of Land Loans. The average principal balance of
such Land Loans was approximately $12,800 and $13,000, respectively, at June 30,
1998 and December 31, 1997.  The following  table sets forth as of June 30, 1998
the distribution of Land Loans in the Company's Serviced Portfolio:
<TABLE>
<S>                     <C>          <C>        <C>           <C>

                                     Percentage              
Principal Balance                       of                 Percentage of 
                           Principal  Principal  Number of    Number of
                             Amount    Amount      Loans         Loans
Less than $10,000....... $29,704,000    19.0%      5,766         47.3%
10,000-$19,999..........  60,745,000    38.8       4,256         35.0
20,000 and greater......  66,058,000    42.2       2,157         17.7
                          ----------   -----       -----        -----
     Total..............$156,507,000   100.0%     12,179        100.0%
</TABLE>
   
      As of June 30, 1998 and  December  31,  1997,  the  weighted  average
interest rate of the Land Loans included in the Company's Serviced Portfolio was
12.0% and 12.1%, respectively.  The weighted average remaining maturity was 11.9
and 12.1  years,  respectively,  at June 30, 1998 and  December  31,  1997.  The
following  table sets forth as of June 30,  1998 the  distribution  of  interest
rates payable on the Land Loans:
<TABLE>
<S>                                      <C>                <C>  
                                                          Percentage of
                                          Principal          Principal
Interest Rate                              Amount              Amount
Less than 12.0%..........................$56,444,000             36.0%
12.0%-13.9%.............................. 74,128,000             47.4
14.0% and greater........................ 25,935,000             16.6
                                         ----------             -----
     Total............................. $156,507,000            100.0%
                                        ============            =====

</TABLE>

    As of June 30, 1998 and December 31, 1997, the Company's Land Loan borrowers
resided in 50 states,  the District of Columbia and four and two  territories or
foreign countries.


      b. VOI Loans

    The Company purchases VOI Loans from various resort developers.  The Company
generally  targets  small to medium size resorts with  completed  amenities  and
established property owners associations.  These resorts participate in programs
that  permit  purchasers  of VOIs to  exchange  their  timeshare  intervals  for
timeshare  intervals in other  resorts  around the world.  During the six months
ended June 30, 1998, the Company acquired approximately $1,312,000 of VOI Loans.
As of June 30, 1998 and December 31, 1997, the five largest developers accounted
for approximately 36.8% and 36.6%, respectively,  of the principal amount of the
VOI Loans in the Serviced Portfolio. No single developer accounted for more than
9.0% at June 30, 1998 or at December 31, 1997.

    As of June 30, 1998 and December 31, 1997, 6.1% and 9.6%,  respectively,  of
the Serviced Portfolio  consisted of VOI Loans. The average principal balance of
such VOI Loans was approximately $3,500 and $3,600, respectively.  The following
table sets forth as of June 30, 1998 the distribution of VOI Loans:
<TABLE>
<S>                      <C>           <C>            <C>          <C>                      

                                     Percentage of              Percentage of
Principal Balance         Principal    Principal    Number of     Number of 
                          Amount         Amount       Loans         Loans
Less than $4,000...... $8,729,000        37.2%        4,186         62.7%
$4,000-$5,999.........  7,724,000        32.9         1,562         23.4
$6,000 and greater....  7,009,000        29.9           926         13.9
                         ---------      -----          ----         ----
     Total............$23,462,000       100.0%        6,674        100.0%
                      ===========       =====         =====        =====
</TABLE>





    As of June 30, 1998 and  December 31, 1997,  the weighted  average  interest
rate of the VOI Loans included in the Company's Serviced Portfolio was 14.6% and
the weighted average remaining  maturity was 3.7 years. The following table sets
forth as of June 30, 1998 the  distribution of interest rates payable on the VOI
Loans:
<TABLE>
<S>                                   <C>           <C>
                                                   Percentage of
                                       Principal     Principal
Interest Rate                           Amount        Amount
-------------                           ------      ----------
Less than 14.0%.................... $ 9,941,000        42.4%
14.0%-15.9%.......................... 5,886,000        25.1
16.0% and greater.....................7,635,000        32.5
                                      ---------        -----
     Total......................... $23,462,000       100.0%
                                    ===========        =====
</TABLE>

      As of June 30, 1998 and December 31, 1997,  the  Company's  VOI  borrowers
resided in 50 states,  the District of Columbia and four  territories or foreign
countries.


   (2) Hypothecation Loans

    The  Company  extends   Hypothecation  Loans  to  land  dealers  and  resort
developers and other businesses secured by receivables. The Company has recently
expanded its marketing of Hypothecation  Loans to include loans to other finance
companies  secured by other types of collateral.  These loans may be larger than
the Company's  average  Hypothecation  Loans and may provide the Company with an
option to take an equity  position in the borrower.  During the six months ended
June 30, 1998, the Company extended or acquired  approximately  $66.4 million of
Hypothecation  Loans,  of which $9.6  million,  or 14.5%,  were  secured by Land
Loans, $33.2 million,  or 50.0%, were secured by VOI Loans and $23.6 million, or
35.5%, were secured by other types of collateral such as tax lien  certificates,
accounts receivable and mortgages.

    The Company typically extends  Hypothecation Loans based on advance rates of
75% to 90% of the eligible receivables which serve as collateral.  The Company's
Hypothecation Loans are typically made at variable rates based on the prime rate
of  interest  plus 2% to 4%. As of June 30,  1998 and  December  31,  1997,  the
Company had $114.6 million and $81.9 million of Hypothecation Loans outstanding,
none of which were 30 days or more past due. During the three months ended March
31, 1998,  the Company  acquired a $17.0  million  participation  interest in an
Hypothecation  Loan from another financial  institution.  As planned,  in May of
1998, the Company  purchased the underlying  receivables,  which the Company has
reclassified  as Other Loans.  The proceeds of the  receivables  purchased  were
applied  to pay off the  Company's  participation  interest.  At June 30,  1998,
Hypothecation  Loans ranged in size from $6,000 to $19.0 million with an average
principal  balance of  $1,381,000.  At December  31, 1997,  Hypothecation  Loans
ranged  in  size  from  $7,800  to  $8.7  million  with an  average  balance  of
$1,204,000.  The five largest Hypothecation Loans represented 11.7% and 10.7% of
the Serviced Portfolio at June 30, 1998 and December 31, 1997, respectively.


  (3) A&D Loans

    The  Company  also  makes  A&D  Loans  to  dealers  and  developers  for the
acquisition and  development of rural and timeshare  resorts in order to finance
additional  receivables  generated by the A&D Loans. During the six months ended
June 30, 1998,  the Company made $21.4  million of A&D Loans to land dealers and
resort developers,  of which $9.1 million, or 42.6%, were secured by land, $12.3
million, or 56.3%, were secured by resorts under development.

    The Company  generally makes A&D Loans to land dealers and resort developers
based on loan to value ratios of 60% to 80% at variable rates based on the prime
rate plus 2% to 4%. As of June 30, 1998 and December  31, 1997,  the Company had
$48.6 million and $41.7 million, respectively, of A&D Loans outstanding, none of
which were 30 days or more past due. At June 30, 1998 and December 31, 1997, A&D
Loans were secured by timeshare resort  developments and rural land subdivisions
in 21 states and one foreign territory and 18 states and one foreign  territory,
respectively.  A&D  Loans  ranged in size from  $1,700 to $8.4  million  with an
average principal balance of $559,000 at June 30, 1998. A&D Loans ranged in size
from $7,800 to $7.3  million  with an average  principal  balance of $622,000 at
December 31, 1997. The five largest A&D Loans  represented 5.2% and 6.1%, of the
Serviced Portfolio at June 30, 1998 and December 31, 1997, respectively.

  (4) Other Loans

    At June 30, 1998,  Other Loans  consisted  primarily of consumer home equity
loans, consumer construction loans, builder construction loans and other secured
commercial loans.  Historically,  the Company has made or acquired certain other
secured and unsecured  loans to identify  additional  lending  opportunities  or
lines of business  for  possible  future  expansion as it did with VOI Loans and
Hypothecation  Loans.  In  May  of  1998,  the  Company  purchased  232  builder
construction  loans totalling  $32.7 million,  a portion of which had previously
been  collateral  for  the  Hypothecation  Loan in  which  the  Company  owned a
participation  interest.  At June 30,  1998,  the Company had 221 of the builder
construction  loans totalling  $32.7 million.  The Company had $41.4 million and
$8.5 million of Other Loans,  0.75% and 1.97% of which were 90 days or more past
due at June 30, 1998 and  December  31,  1997,  respectively.  At June 30, 1998,
Other  Loans  ranged in size from less  than $500 to  $821,500  with an  average
principal  balance of $55,900.  At December 31, 1997, Other Loans ranged in size
from less than $500 to $151,000  with an average  principal  balance of $13,800.
The five largest Other Loans  represent  0.2% of the Serviced  Portfolio at June
30, 1998 and December 31, 1997.

Loan Underwriting

    The  Company has  established  loan  underwriting  criteria  and  procedures
designed  to  reduce  credit  losses  on  its  Serviced   Portfolio.   The  loan
underwriting  process  includes  reviewing each borrower's  credit  history.  In
addition,   the  Company's   underwriting  staff  routinely  conducts  telephone
interviews  with a sample  of  borrowers.  The  primary  focus of the  Company's
underwriting  is to assess the likelihood  that the borrower will repay the loan
as agreed by examining the borrower's  credit history  through credit  reporting
bureaus.

    The  Company's  loan policy is to purchase Land and VOI Loans from $3,000 to
$50,000. On a case by case basis, the Company will also consider purchasing such
loans in excess of $50,000.  As of June 30, 1998, the Company had 160 Land Loans
exceeding $50,000  representing 1.3% of the number of such loans in the Serviced
Portfolio,  for a total of $11.5  million.  There  were no VOI  Loans  exceeding
$50,000 as of June 30, 1998. The Company will originate  Hypothecation  Loans up
to $15 million and A&D Loans up to $10 million.  From time to time,  the Company
may have an opportunity to originate larger  Hypothecation Loans or A&D Loans in
which case the Company would seek to participate such loans with other financial
institutions.  Construction  Loans  greater  than  $200,000  and any other loans
greater  than  $100,000  must be  approved  by the  Credit  Committee  which  is
comprised  of the Chief  Executive  Officer,  Executive  Vice  President,  Chief
Financial Officer and two Senior Vice Presidents.

Collections and Delinquencies

    Management  believes  that  the  relatively  low  delinquency  rate  for the
Serviced  Portfolio  is  attributable   primarily  to  the  application  of  its
underwriting  criteria,  as well as to dealer  guarantees and reserves  withheld
from dealers and  developers.  No assurance can be given that these  delinquency
rates can be maintained in the future.

    Collection  efforts are managed and  delinquency  information is analyzed at
the Company's headquarters.  Unless circumstances otherwise dictate,  collection
efforts are generally made by mail and telephone.  Collection efforts begin when
an account is four days past due,  at which  time the  Company  sends out a late
notice. When an account is sixteen days past due the Company attempts to contact
the borrower to determine the reason for the delinquency and to attempt to cause
the  account  to become  current.  If the  status of the  account  continues  to
deteriorate,  an analysis of that  delinquency  is undertaken by the  collection
supervisor to determine the  appropriate  action.  When the loan is 90 days past
due in accordance  with its original terms and it is determined that the amounts
cannot be collected  from the dealer or developer  guarantees  or reserves,  the
loan is generally  placed on a nonaccrual  status and the collection  supervisor
determines  the  action  to be  taken.  The  determination  of how to work out a
delinquent  loan is based upon many factors,  including the  borrower's  payment
history and the reason for the current  inability to make timely  payments.  The
Company  has not  restructured  a  material  number  of  problem  loans.  When a
guaranteed loan becomes 60 days (90 days in some cases) past due, in addition to
the  Company's  collection   procedures,   the  Company  generally  obtains  the
assistance of the dealer or developer in collecting the loan.

    The  Company  extends a limited  number of its loans for reasons the Company
considers acceptable such as temporary loss of employment or serious illness. In
order to qualify  for a one to three month  extension,  the  customer  must make
three timely payments without any intervention from the Company.  For extensions
of four to six  months,  the  customer  must make four to six  timely  payments,
respectively,  without any intervention  from the Company.  The Company will not
extend a loan more than two times for an  aggregate  six months over the life of
the loan. The Company has extended  approximately 1.1% of its loans through June
30,  1998.  The Company does not  generally  modify any other loan terms such as
interest rates or payment amounts.

    Regulations  and practices  regarding the rights of the mortgagor in default
vary greatly from state to state. To the extent permitted by applicable law, the
Company collects late charges and  return-check  fees and records these items as
additional  revenue.  Only if a delinquency  cannot  otherwise be cured will the
Company decide that  foreclosure  is the  appropriate  course of action.  If the
Company  determines  that  purchasing a property  securing a mortgage  loan will
minimize the loss  associated with such defaulted loan, the Company may accept a
deed in lieu of foreclosure, take legal action to collect on the underlying note
or bid at the foreclosure sale for such property.






    Serviced Portfolio


    The following table shows the Company's delinquencies and delinquency rates,
net of dealer/developer reserves and guarantees for the Serviced Portfolio:
<TABLE>
<S>             <C>          <C>            <C>          <C>          <C>           <C>         
                                                                                    Six Months
                                                                                       Ended
                                       Year Ended December 31,                        June 30,
                  1993          1994          1995          1996          1997          1998
                  ----          ----          ----          ----          ----          ----                          
Serviced      
Portfolio......$84,360,000  $105,013,000  $176,650,000  $242,445,000  $304,102,000  $384,663,000

Delinquent         
loans(1).......    511,000       981,000     3,062,000     3,255,000     3,642,000     4,251,000
Delinquency
as a Percentage       
of Serviced
Portfolio......       .61%          .93%          1.73%         1.34%        1.20%          .10%
----------
</TABLE>

(1)Delinquent  loans are those  which are 30 days or more past due which are not
   covered by dealer/developer  reserves or guarantees and not included in other
   real estate owned.



Land Loans


    The following table shows the Company's delinquencies and delinquency rates,
net of  dealer/developer  reserves and guarantees for Land Loans in the Serviced
Portfolio:
<TABLE>
<S>             <C>          <C>         <C>         <C>           <C>              <C>
                                                                                       Six
                                                                                     Months
                                                                                     Ended
                                     Year Ended December 31,                        June 30,
                   1993         1994         1995         1996          1997          1998
Land Loans in
  Serviced     
Portfolio......$77,258,000  $90,502,000  $97,266,000  $119,370,000  $142,828,000  $156,507,000
Delinquent Land
  Loans(1).....    511,000      981,000    1,059,000     1,920,000     2,453,000     2,893,000
Delinquency as a
  Percentage of
  Land Loans in       
  Serviced
Portfolio......       .66%        1.08%        1.09%         1.61%          1.72%        1.85%
----------
</TABLE>

(1)Delinquent  loans are those  which are 30 days or more past due which are not
   covered by dealer/developer  reserves or guarantees and not included in other
   real estate owned.










VOI Loans

    The following table shows the Company's delinquencies and delinquency rates,
net of  dealer/developer  reserves and  guarantees for VOI Loans in the Serviced
Portfolio:
<TABLE>
<S>            <C>           <C>        <C>           <C>         <C>           <C>    
                                                                                 Six Months
                                                                                   Ended
                                    Year Ended December 31,                       June 30,
                   1993         1994       1995         1996        1997           1998
                 -------       ------     -------       ----        ----          -------
VOI Loans in
Serviced          
Portfolio....   $1,434,000  $2,851,000  $46,700,000  $43,284,000  $29,232,000  $23,462,000

Delinquent VOI
  Loans(1).....        --          --     1,958,000    1,316,000      739,000      552,000
Delinquency as a
  percentage of
VOI Loans in          
Serviced
  Portfolio....       --           --          4.19%        3.04%        2.53%        2.35%
----------
</TABLE>

(1)Delinquent  loans are those  which are 30 days or more past due which are not
   covered by dealer/developer  reserves or guarantees and not included in other
   real estate owned.

   Hypothecation, A&D and Other Loans

    The Company did not have any delinquent Hypothecation Loans or A&D Loans for
the years ended  December  31,  1993  through  December  31, 1997 or for the six
months  ended June 30,  1998.  The Company did not have  significant  amounts of
delinquent  Other Loans for the years ended  December 31, 1993 through  December
31, 1996. At December 31, 1997,  there were $8.5 million of Other Loans of which
$450,000   or  5.3%  were  30  days  or  more  past  due  and  not   covered  by
dealer/developer  reserves or  guarantees  and not included in other real estate
owned.  At June 30,  1998,  there  were $41.4  million  of Other  Loans of which
$806,000   or  2.0%  were  30  days  or  more  past  due  and  not   covered  by
dealer/developer  reserves or  guarantees  and not included in other real estate
owned.

Allowance for Loan Losses, Net Charge-offs and Dealer Reserves

    The following is an analysis of the total allowances for all loan losses:
<TABLE>
<S>                  <C>         <C>         <C>         <C>          <C>            <C>
                                                                                      Six
                                                                                     Months
                                                                                      Ended
                                      Year Ended December 31,                        June 30,
                        1993       1994         1995        1996         1997          1998
Allowance,
beginning of          
  year.............$  498,000  $1,064,000   $1,264,000   $3,715,000   $4,528,000   $5,877,000
Provision for       
loan losses........   620,000     559,000      890,000    1,954,000    1,400,000      810,000
Net charge-offs of
  uncollectible    
accounts...........  (493,000)   (359,000)    (946,000)   (1,965,000) (2,010,000)    (968,000)
Allocation of
purchase            
  adjustment(1)....   439,000          --    2,507,000       824,000    1,959,000     744,000
Allowance, end of   
year...............$1,064,000  $1,264,000   $3,715,000    $4,528,000   $5,877,000  $6,463,000                   
----------
</TABLE>

(1)Represents  allocation of purchase  adjustment related to purchase of certain
   nonguaranteed loans.

    The following is an analysis of net charge-offs by major loan and collateral
types experienced by the Company:
<TABLE>
<S>                    <C>        <C>       <C>        <C>        <C>        <C>
                                                                              Six
                                                                             Months
                                                                             Ended
                                       Year Ended December 31,              June 30,
                           1993     1994      1995       1996       1997       1998
                         ------    -----     -----      -----      -----      -----
Land Loans............. $493,000  $359,000  $546,000   $669,000   $986,000  $525,000
VOI Loans..............      --       --      45,000  1,284,000    939,000   266,000
Hypothecation Loans....      --       --        --        --        --         --
A&D Loans..............      --       --     352,000     (8,000)    (2,000)    --
Other Loans............      --       --       3,000     20,000     87,000   178,000
Total net charge-offs.. $493,000  $359,000  $946,000 $1,965,000 $2,010,000  $969,000
Net charge-offs as a
percentage                  
  of the average
Serviced Portfolio.....     .69%      .38%      .67%       .94%       .74%      .56%
</TABLE>

    As part of the Company's  financing of Land Loans and VOI Loans, the Company
enters into arrangements  with most land dealers and resort  developers  whereby
the Company  establishes  reserves to protect the Company from potential  losses
associated with such loans.  The Company retains a portion of the amount payable
to a dealer  when  purchasing  a Land  Loan or a VOI  Loan  and uses the  amount
retained  to absorb  loan  losses.  The  Company  negotiates  the  amount of the
reserves  with the  land  dealers  and  resort  developers  based  upon  various
criteria,  two of which are the financial  strength of the land dealer or resort
developer and the credit risk associated with the loans being purchased.  Dealer
reserves for Land Loans were  $6,420,000,  $7,555,000 and $8,321,000 at December
31,  1995,  1996 and  1997,  respectively,  and  $8,488,000  at June  30,  1998.
Developer  reserves  for  VOI  Loans  amounted  to  $3,224,000,  $3,072,000  and
$2,299,000 at December 31, 1995, 1996 and 1997, respectively,  and $1,931,000 at
June 30, 1998. Most dealers and developers  provide personal and, when relevant,
corporate guarantees to further protect the Company from loss.


Loan Servicing and Sales

    The  Company  retains  the right to service  all the loans it  purchases  or
originates.  Servicing includes  collecting  payments from borrowers,  remitting
payments to investors who have purchased the loans, accounting for principal and
interest,  contacting  delinquent  borrowers  and  supervising  foreclosure  and
bankruptcies in the event of unremedied  defaults.  Substantially  all servicing
results  from the  origination  and  purchase of loans by the  Company,  and the
Company  has  not  historically   purchased  loan  servicing  rights  except  in
connection with the purchase of loans. Servicing rates generally approximate .5%
to 2% of the principal balance of a loan.

    Historically,  the Company  subcontracted  the  servicing of its loans to an
unaffiliated  third party. In July 1998, the Company  resumed  certain  customer
service and collection functions.  the unaffiliated third party will continue to
provide certain data processing and payment  processing  functions.  The Company
retains responsibility for servicing all loans as a master servicer.

    In  1990,  the  Company  began  privately  placing  issues  of  pass-through
certificates  evidencing an undivided  beneficial ownership interest in pools of
mortgage loans which have been transferred to trusts.  The principal and part of
the interest payments on the loans transferred to the trust are collected by the
Company, as the servicer of the loan pool, remitted to the trust for the benefit
of the  investors,  and then  distributed  by the trust to the  investors in the
pass-through certificates.

    As of June  30,1998,  the  Company  had  sold  or  securitized  a  total  of
approximately  $417.1  million in loans.  In certain of the Company's  issues of
pass-through certificates, credit enhancement was achieved by dividing the issue
into a senior portion which was sold to the investors and a subordinated portion
which was retained by the Company.  In certain  other of the  Company's  private
placements,   credit  enhancement  was  achieved  through  cash  collateral.  If
borrowers  default  in the  payment  of  principal  or  interest  on  the  loans
underlying these issues of pass-through  certificates,  losses would be absorbed
first by the  subordinated  portion or cash collateral  account  retained by the
Company and might, therefore,  have to be charged against the allowance for loan
losses to the extent dealer guarantees and reserves are not available.

    The  Company  also has a $150.0  million  revolving  line of credit and sale
facility for its land loans as part of an asset backed commercial paper facility
with a multi-seller commercial paper conduit. The facility expires in June 2001.
As of June 30,  1998,  the  outstanding  balance  of the sold or  pledged  loans
securing  this  facility  was $124.4  million.  The  Company  has an  additional
revolving  line of  credit  and sale  facility  of $25.0  million  with  another
multi-seller commercial paper conduit. The facility expires in March 2000. As of
June 30, 1998,  the  outstanding  aggregate  balance of the sold loans under the
facility was $12.3 million.

Marketing and Advertising

    The Company markets its program to rural land dealers and resort  developers
through  brokers,  referrals,  dealer and developer  solicitation,  and targeted
direct mail. The Company employs three marketing  executives  based in Lakewood,
Colorado,  six marketing  executives based in Williamstown,  Massachusetts and 2
marketing  executives  based in Hoover,  AL. In the last 5 years the Company has
closed loans with over 300 different dealers and developers.

    Management  believes that the Company  benefits from name  recognition  as a
result of its referral,  advertising and other marketing efforts. Referrals have
been the  strongest  source of new business for the Company and are generated in
the states in which the  Company  operates by dealers,  brokers,  attorneys  and
financial  institutions.  Management and marketing  representatives also conduct
seminars for dealers and brokers and attend trade shows to improve awareness and
understanding of the Company's programs.

Regulation

    The Company is licensed as a lender,  mortgage  banker or mortgage broker in
21 of the states in which it operates,  and in those states its  operations  are
subject to supervision by state authorities (typically state banking or consumer
credit authorities). Expansion into other states may be dependent upon a finding
of financial  responsibility,  character  and fitness of the Company and various
other  matters.   The  Company  is  generally  subject  to  state   regulations,
examination  and reporting  requirements,  and licenses are revocable for cause.
The  Company  is  subject  to state  usury laws in all of the states in which it
operates.

    The consumer  loans  purchased or financed by the Company are subject to the
Truth-in-Lending Act. The Truth-in-Lending Act contains disclosure  requirements
designed to provide  consumers  with uniform,  understandable  information  with
respect to the terms and conditions of loans and credit transactions in order to
give them the  ability  to compare  credit  terms.  Failure  to comply  with the
requirements  of the  Truth-in-Lending  Act may give rise to a limited  right of
rescission on the part of the borrower.  The Company  believes that its purchase
or financing  activities are in substantial  compliance in all material respects
with the Truth-in-Lending Act.

    Origination  of the loans also  requires  compliance  with the Equal  Credit
Opportunity Act of 1974, as amended  ("ECOA"),  which  prohibits  creditors from
discriminating  against  applicants  on the basis of race,  color,  sex,  age or
marital  status.  Regulation B promulgated  under ECOA restricts  creditors from
obtaining  certain types of information from loan  applicants.  It also requires
certain disclosures by the lender regarding consumer rights and requires lenders
to advise  applicants of the reasons for any credit denial.  In instances  where
the  applicant  is denied  credit or the interest  rate  charged  increases as a
result of information  obtained from a consumer credit agency,  another statute,
the Fair  Credit  Reporting  Act of 1970,  as amended,  requires  the lenders to
supply the applicant with a name and address of the reporting agency.

Competition

    The  finance  business is highly  competitive,  with  competition  occurring
primarily on the basis of customer service and the term and interest rate of the
loans. Traditional competitors in the finance business include commercial banks,
credit  unions,   thrift  institutions,   industrial  banks  and  other  finance
companies,  many of which have  considerably  greater  financial,  technical and
marketing resources than the Company. There can be no assurance that the Company
will not face increased competition from existing or new financial  institutions
or finance companies.  In addition,  the Company may enter new lines of business
that may be highly  competitive and may have competitors with greater  financial
resources than the Company.

    The Company believes that it competes on the basis of providing  competitive
rates and prompt,  efficient and complete service,  and by emphasizing  customer
service  on a timely  basis to  attract  borrowers  whose  needs  are not met by
traditional financial institutions.

Employees

    As of June 30, 1998, the Company had 95 full-time equivalent employees. None
of the Company's employees is covered by a collective bargaining agreement.  The
Company considers its relations with its employees to be good.

Facilities

    The Company owns a leasehold interest in approximately 26,000 square feet of
office  space in  Williamstown,  Massachusetts,  which is used as the  Company's
headquarters.  The  initial  ten  year  lease  term  expires  in May 2007 and is
renewable at the  Company's  option for two  additional  ten year  periods.  The
initial land lease  provides for an annual  rental of $20,000.  The Company also
occupies an  aggregate  of  approximately  5,100  square feet of office space in
Lakewood, Colorado, pursuant to a lease expiring in January 2001, with an option
to renew until 2004,  providing for an annual rental of  approximately  $56,000,
including  utilities  and exterior  maintenance  expenses.  A subsidiary  of the
Company occupies an aggregate of approximately 6,100 square feet of office space
in Hoover, Alabama, pursuant to a lease expiring in December 1999, providing for
an annual rental of approximately $60,000.


Item 6.   Exhibits

        The following exhibits are filed herewith:

               10.172   Indenture  of  Trust  dated  as of June 1,  1998,
                     between  Litchfield  Hypothecation  Corp. 1998-A and
                     The Chase Manhattan Bank.

               10.173   Servicing  agreement  dated  as of June  1,  1998
                     among the Company,  Litchfield  Hypothecation  Corp.
                     1998-A and The Chase Manhattan Bank.

               10.174   Indenture  of  Trust  dated  as of June 1,  1998,
                     between  Litchfield  Hypothecation  Corp. 1998-B and
                     The Chase Manhattan Bank.

10.175         Servicing  agreement  dated as of June 1,  1998  among the
                     Company,  Litchfield  Hypothecation Corp. 1998-B and
                     the Chase Manhattan Bank.

10.176         Amendment No. 5 to  Receivable  Purchase  Agreement  dated
                     September  29,  1995,  dated  as  of  May  27,  1998
                     among the Company,  Litchfield  Mortgage  Securities
                     Corporation 1994, Holland Limited  Securities,  Inc.
                     and   Internationale   Nederlanden   (U.S.)  Capital
                     Markets, Inc.

10.177         Amendment   No.  5  to   Receivable   Loan  and   Security
                     Agreement  dated  September  29,  1995,  dated as of
                     May  27,   1998   among  the   Company,   Litchfield
                     Mortgage   Securities   Corporation  1994,   Holland
                     Limited   Securities,    Inc.   and   Internationale
                     Nederlanden (U.S.) Capital Markets, Inc.

                11.1 Statement re: computation of earnings per share

                27.1 Financial Data Schedule




<PAGE>







                               SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                  LITCHFIELD FINANCIAL CORPORATION




DATE:  August 12, 1998                 /s/ Richard A. Stratton
                                       -----------------------

                                  RICHARD A. STRATTON
                                  Chief Executive Officer,
                                  President and Director





DATE:  August 12, 1998                 /s/ Ronald E. Rabidou
                                       ---------------------

                                  RONALD E. RABIDOU
                                  Chief Financial Officer





<PAGE>


                                 Exhibit 10.172


INDENTURE  OF TRUST  (herein,  as amended or  supplemented  from time to time as
permitted  hereby,  the  "Indenture"),  dated as of June 1, 1998, by and between
LITCHFIELD HYPOTHECATION CORP. 1998-A, a corporation organized under the laws of
the State of Delaware (the  "Issuer"),  and THE CHASE MANHATTAN BANK, a New York
banking  corporation,  as trustee (together with its permitted successors in the
trusts hereunder, the "Trustee").


                        W I T N E S S E T H:


           WHEREAS,  the  Issuer  proposes  to  issue  from  time  to  time  its
Hypothecation Loan Collateralized  Notes in an aggregate  outstanding  principal
amount not to exceed  $30,000,000  (collectively,  the "Notes") pursuant to this
Indenture and to deliver the net proceeds of the sale thereof to the  Originator
(as such term and such other  capitalized  terms used  herein and not  otherwise
defined are defined in Article I hereof) in consideration of the purchase of the
Loans by the Issuer from the Originator;

           WHEREAS,    Litchfield   Financial   Corporation,   a   Massachusetts
corporation,  in its capacity as servicer (the "Master Servicer")  pursuant to a
Servicing  Agreement,   dated  as  of  June  1,  1998  (herein,  as  amended  or
supplemented from time to time as permitted thereby, the "Servicing Agreement"),
by and among the Issuer, the Master Servicer,  and the Trustee, will service the
Loans;

WHEREAS, as security for the Notes, the Issuer proposes to pledge and assign all
       of the  Issuer's  right,  title and  interest in and to the Loans and the
       Loan  Collateral  (other  than  the  Unassigned  Rights)  to the  Trustee
       pursuant to this Indenture;

           WHEREAS, the Issuer has duly authorized the execution and delivery of
this Indenture to provide for the issuance, payment, administration and securing
of the Notes for the benefit of the Holders thereof;

WHEREAS, the Issuer and the Trustee  agree that the Trustee be  appointed  under
       this  Indenture  and be charged with and accept the trusts and duties set
       forth  in this  Indenture  in  connection  with  the  issuance,  payment,
       administration  and  securing of the Notes under this  Indenture  for the
       benefit of the Holders of the Notes;

WHEREAS, the Trustee has duly  authorized  the  execution  and  delivery of this
       Indenture and is duly  authorized to accept the trusts and to perform its
       obligations under this Indenture;

WHEREAS, all things  necessary to make this  Indenture a valid  agreement of the
       Issuer and the Trustee in accordance with its terms have been done; and

WHEREAS, all things necessary to make the Notes,  when executed and delivered by
       the  Issuer  and  authenticated  by the  Trustee  and  issued  as in this
       Indenture  provided,  the valid,  binding  and legal  obligations  of the
       Issuer according to the import thereof, have been done and performed.


                           GRANTING CLAUSE

           NOW,  THEREFORE,  in order to secure the payment of the principal of,
interest  on, and all other  amounts  payable  with  respect to, the Notes to be
issued  pursuant to this  Indenture,  and in order to secure the performance and
observance  of all the  covenants and  conditions  contained  herein and in such
Notes, and in order to declare the terms and conditions upon which the Notes are
executed, authenticated,  issued, delivered, secured and accepted by all Persons
who  shall  from  time to  time be or  become  Holders  thereof,  and for and in
consideration of the mutual  covenants  contained  herein,  of acceptance by the
Trustee of the trusts hereby created,  and of the purchase and acceptance of the
Notes by the  Holders  thereof,  the  Issuer has  executed  and  delivered  this
Indenture and by these presents:

The  Issuer  does  hereby  pledge,  bargain,  sell,  warrant,  alienate,
       remise,  convey, assign,  transfer,  create and grant a lien upon
       and a  security  interest  in  and a  right  of  set-off  against
       (collectively,  "Grant")  unto  the  Trustee,  its  successor  or
       successors  and its or their  assigns  forever,  in trust  and as
       collateral  security for the benefit of the Holders of the Notes,
       the Issuer's entire right,  title,  interest and estate,  whether
       now or hereafter  acquired,  in, to and under (i) the Loans; (ii)
       the Loan  Collateral;  (iii) all monies and other property of any
       kind  that  relate to any of the Loans and that are now or at any
       time or times  hereafter in the  possession  or under the control
       of the  Issuer,  the Master  Servicer,  any  Sub-Servicer  or the
       Trustee  or  any  bailee  of  the  Trustee,   including   without
       limitation,  the Lock Box  Account and all monies  therein;  (iv)
       the  Servicing  Agreement,   each  Subservicing  Agreement,  each
       Agency  Agreement,  the Purchase and Sale Agreement,  the Deposit
       Account Assignment and the Payment Direction  Agreement;  (v) all
       books and records of the Issuer to the extent  pertaining  to any
       of (i)  through  (iv) above,  including  all  computer  programs,
       disks,  tapes  and  related  electronic  data  processing  media,
       credit files, account cards, payment records,  correspondence and
       ledgers  in  which  any  of  the   foregoing   are  reflected  or
       maintained;  (vi) all  moneys  and  securities  from time to time
       held by the  Trustee in any  Account  created  under the terms of
       this  Indenture and all  interest,  profits,  proceeds,  or other
       income  derived  from  such  moneys  and  securities;   (vii) the
       present and  continuing  exclusive  right,  power and  authority,
       subject to the  provisions  of the Servicing  Agreement,  to give
       and receive notices and other communications,  to make waivers or
       other  agreements  subject  to the  provisions  of the  Servicing
       Agreement,  to make claims for and demand  performance  on, under
       or pursuant to any of the Loan  Collateral,  to bring actions and
       proceedings  thereunder  or for the  enforcement  thereof  or the
       Loans,  and to exercise  all  remedies,  powers,  privileges  and
       options  and to do any and all things  which the Issuer is or may
       become  entitled  to do under the  Loans or the Loan  Collateral;
       (viii) any  and all  property  of every name and  nature,  now or
       hereafter   transferred,   mortgaged,   pledged  or  assigned  as
       security or  additional  security for payment or  performance  of
       any  obligation  of the  Hypothecation  Borrowers  to the  Issuer
       under  the  Loans  or any of the  Loan  Collateral  or  otherwise
       (other  than  the  Unassigned   Rights),   and  the  liabilities,
       obligations  and  indebtedness  evidenced  thereby  or  reflected
       therein;  and  (ix) all  income,   revenues,   issues,  products,
       revisions,  substitutions,  replacements,  profit and proceeds of
       and  from  all  of  the  foregoing,  including  proceeds  of  and
       unearned  premiums  with respect to insurance  policies  insuring
       any of the Loan Collateral (collectively, the "Trust Estate").

TO     HAVE AND TO HOLD IN TRUST all and singular  the Trust Estate  whether now
       or hereafter  acquired,  unto the Trustee and its successor or successors
       and its or their  assigns  forever  for the benefit of the Holders of the
       Notes, but:

       IN TRUST NEVERTHELESS,  upon the terms, trusts and conditions hereinafter
       set  forth  for  the  equal  and  proportionate  benefit,   security  and
       protection  of all  present  and  future  Holders  of the  Notes  without
       preference,  privilege,  priority  or  distinction  as  to  the  lien  or
       otherwise  of any of the  Notes  over any of the other  Notes,  except as
       otherwise may be provided in this Indenture.

           PROVIDED, HOWEVER, that if the Issuer, its successors or assigns, (I)
shall pay, or cause to be paid,  the  principal  of and  interest  payable  with
respect  to,  the Notes due or to become  due  thereon,  at the times and in the
manner mentioned in the Notes, or shall provide,  as permitted  hereby,  for the
payment  thereof,  (ii) shall keep,  perform and observe all the  covenants  and
conditions  pursuant to the terms of this  Indenture to be kept,  performed  and
observed  by it, and (iii) shall pay or cause to be paid to the Trustee all sums
of money due or to become due to it and any other fiduciary  appointed hereunder
in accordance with the terms and provisions hereof, then, upon the final payment
thereof,  this  Indenture,  all rights of the  Holders  of the Notes  under this
Indenture  and the rights  hereby  granted for the benefit  thereof shall cease,
determine  and be void;  otherwise  this  Indenture  shall be and remain in full
force and effect.

           The  Trustee,  for  itself and its  successors  and  assigns,  hereby
declares  that it shall hold all the estate,  right,  title and  interest in any
property received by it under this Indenture, including, without limitation, the
Trust Estate,  in trust for the benefit of all present and future Holders of the
Notes,  subject to the terms of this  Indenture.  The Trustee  acknowledges  the
Grant of the Trust Estate hereunder,  accepts the trusts hereunder in accordance
with the  provisions  hereof  and  agrees to  perform  fully the  duties  herein
required of it to the end that the  interests of the Holders of the Notes may be
adequately and  effectively  protected in accordance with the provisions of this
Indenture.

THIS   TRUST INDENTURE FURTHER WITNESSETH, and it is expressly declared that all
       Notes issued and secured  hereunder are to be issued,  authenticated  and
       delivered and all said  property,  rights and interests and other amounts
       hereby assigned and pledged,  are to be dealt with and disposed of under,
       upon and  subject  to the  terms,  conditions,  stipulations,  covenants,
       agreements,  trusts, uses and purposes as hereinafter expressed,  and the
       Issuer has agreed and covenanted, and does hereby agree and covenant with
       the Trustee and with the respective Holders of the Notes, as follows:


                              ARTICLE 1

                     DEFINITIONS AND ASSUMPTIONS

      SECTION 1.1  Definitions.  For all purposes of this  Indenture,  except as
otherwise  expressly  provided herein or unless the context otherwise  requires,
capitalized  terms not otherwise defined herein shall have the meanings ascribed
to such terms in Appendix A hereto which is  incorporated  by reference  herein.
All other  capitalized  terms  used  herein  shall have the  meanings  specified
herein.

      SECTION 1.2 Construction.  In this Indenture, unless the context otherwise
requires:

           (a) The terms "hereby," "hereof," "hereto," "herein," "hereunder" and
any similar terms, as used in this Indenture,  refer to this Indenture,  and the
term "hereafter" shall mean after, and the term "heretofore"  shall mean before,
the date of the execution and delivery of this Indenture.

           (b) Words of the masculine gender shall mean and include  correlative
words of the feminine and neuter genders and words importing the singular number
shall mean and include the plural number and vice versa.

           (c)  Words  importing  persons  shall  include  firms,  associations,
partnerships  (including limited partnerships),  trusts,  corporations and other
legal entities, including public bodies, as well as natural persons.

           (d) Any  headings  preceding  the texts of the several  Articles  and
Sections of this Indenture, and any table of contents appended to copies hereof,
shall be solely for  convenience of reference and shall not constitute a part of
this Indenture, nor shall they affect its meaning, construction or effect.

                              ARTICLE 2

                              THE NOTES

      SECTION 2.1  Authorization of Notes; Notes to Constitute Full
Recourse Obligations.

           (a) The Notes issuable hereunder shall be issued as registered Notes,
without coupons,  in one or more series as from time to time shall be authorized
by the Issuer.  The Notes of all series shall be known and entitled generally as
the "Litchfield  Hypothecation  Corp. 1998-A  Hypothecation Loan  Collateralized
Notes." The Notes of each series shall have such further particular  designation
as the Issuer may adopt for each series,  and each Note issued  hereunder  shall
bear upon the face thereof the designation so adopted for the series to which it
belongs;

           (b) The Trustee is hereby authorized and directed to authenticate and
deliver a series of Notes of the Issuer which shall be designated as "Litchfield
Hypothecation Corp. 1998-A  Hypothecation Loan  Collateralized  Notes, Series A"
(the "Series A Notes").  The Trustee is hereby  authorized to  authenticate  and
deliver to the  Purchaser  on the  Closing  Date  Series A Notes in the  initial
principal amount of $10,027,636.73.

           (c) The Trustee is hereby  authorized to  authenticate  and deliver a
series of Notes of the Issuer  which  shall be  designated  from time to time as
"Litchfield  Hypothecation Corp. 1998-A Hypothecation Loan Collateralized Notes,
Series B Variable  Funding Notes (the "Variable  Funding Notes") at any time and
from time to time on or after the Closing Date, the Trustee is hereby authorized
upon the direction of the Issuer to authenticate  and deliver  Variable  Funding
Notes in any principal amount in excess of $25,000;  provided,  however, that no
authorization  and delivery of Variable  Funding Notes shall be  authorized  if,
after giving  effect to the  principal  amount of Variable  Funding  Notes to be
issued, the aggregate principal amount of all Notes outstanding would exceed the
Note Limit.  The  Variable  Funding  Notes shall be  revolving  variable  amount
funding  Notes issued by the Issuer for the purpose of funding  Future  Advances
made by the  Originator  to the  Hypothecation  Borrowers  and  assigned  to the
Issuer.  Any  Noteholder  of Variable  Funding Notes that  purchases  additional
Variable Funding Notes (or at such Holder's direction,  the Trustee) may, and is
hereby  authorized to, record on the grid attached to such Noteholder's Note the
date and amount of any additional  principal to be evidenced thereby;  provided,
however, that the failure to make any such recordation on such grid or any error
on such grid  shall not  affect  any  Noteholder's  rights  with  respect to the
principal amount of such Note, or interest thereon. At any time and from time to
time after the Closing Date, any Holder of Variable Funding Notes shall have the
right,  upon  written  notice to the Trustee and the Issuer and  delivery of the
Variable  Funding Note to be converted to the Trustee,  to convert not less than
$750,000 in aggregate  outstanding  principal  amount of Variable  Funding Notes
into Series C Notes of a like aggregate  principal amount.  Any Variable Funding
Note so converted shall be cancelled by the Trustee.

           (d) The Trustee is hereby  authorized to  authenticate  and deliver a
series of Notes of the Issuer  which  shall be  designated  from time to time as
"Litchfield  Hypothecation Corp. 1998-A Hypothecation Loan Collateralized Notes,
Series C" (the "Series C Notes").  At any time and from time to time on or after
the Closing Date, the Trustee is hereby authorized upon receipt from a Holder of
Variable Funding Notes of written notice requesting  conversion of such Variable
Funding  Notes  pursuant to Section  2.1(c) hereof  (which  conversion  shall be
effective as of a Payment Date specified in the request for  conversion) and the
Variable  Funding Notes to be converted,  to  authenticate  and deliver Series C
Notes to such  Holder in a like  aggregate  principal  amount  as the  aggregate
outstanding amount of the Variable Funding Notes converted.

           (e) The Notes  shall  constitute  full  recourse  obligations  of the
Issuer.   The  Notes  when  issued  shall  not  constitute  direct  or  indirect
indebtedness or obligations of the Master  Servicer or the  Originator.  Neither
the Master  Servicer  nor the  Originator  shall be liable to the Holders of the
Notes for the  payment of the  principal  thereof and  interest  thereon for any
liability   under  this   Indenture.   The  foregoing  shall  not  diminish  the
Originator's  obligations  under the Guarantee.  Neither the Notes nor the Loans
are insured by any governmental agency.

      SECTION 2.2 Forms of Notes and  Certificate of  Authentication.  The Notes
and the Trustee's  certificate of  authentication  shall be in substantially the
forms set forth in Exhibit A attached  hereto,  with  necessary  or  appropriate
variations, omissions and insertions, as permitted or required by this Indenture
and may have such  letters,  numbers or other marks of  identification  and such
legends  or  endorsements  placed  thereon  as  may,  consistent  herewith,   be
determined by the Authorized  Officers of the Issuer  executing  such Notes,  as
evidenced by their execution of such Notes. The definitive Notes shall be typed,
photocopied, printed, lithographed or engraved or produced by any combination of
these methods (with or without steel engraved borders), all as determined by the
Authorized  Officers of the Issuer  executing such Notes,  as evidenced by their
execution of such Notes.

      SECTION 2.3 Authorized Principal Amount. The aggregate principal amount of
the Notes  that may be  authenticated,  delivered  and  Outstanding  under  this
Indenture is  $30,000,000.  All Notes shall be identical in all respects  except
for the maturity thereof, the interest rate thereon,  the denominations  thereof
and such  differences  to reflect the revolving  nature of the Variable  Funding
Notes.  All Notes issued under this  Indenture  shall in all respects be equally
and ratably  entitled to the benefits  hereof  without  preference,  priority or
distinction  on  account  of the  actual  time or  times of  authentication  and
delivery, all in accordance with the terms and provisions of this Indenture.

      SECTION   2.4  Date  of  Notes;   Denominations.   (i)  Notes   which  are
authenticated and delivered by the Trustee to or upon the order of the Issuer on
the Closing  Date shall be dated as of the Closing  Date.  Other series of Notes
which  are  authenticated  after  the  Closing  Date  shall  be  dated as of the
respective  Closing date therefor.  All other Notes which are  authenticated for
any other purpose hereunder shall be dated the date of their authentication. The
Series A Notes  shall be  issued  in  minimum  denominations  of  $100,000,  the
Variable  Funding Notes shall be issued in minimum  denominations of $25,000 and
the Series C Notes shall be issued in minimum denominations of $750,000.

       (ii) Notes issued upon transfer,  exchange,  conversion or replacement of
other Notes shall be issued in authorized  denominations reflecting the original
aggregate principal amount of the Notes so transferred,  exchanged, converted or
replaced, but shall represent only the then current outstanding principal amount
of the Notes so transferred, converted, exchanged or replaced. In the event that
any Note is divided into more than one Note in  accordance  with the  provisions
hereof, the principal amount of such Note shall be proportionately divided among
the Notes delivered in exchange therefor.

      SECTION 2.5   Execution, Authentication, Delivery and Dating.
(i)  Each Note shall be executed on behalf of the Issuer with the
manual or facsimile signature of an Authorized Officer of the Issuer.

            (ii) Notes bearing the manual or facsimile  signature of individuals
who were at any time  Authorized  Officers of the Issuer  shall bind the Issuer,
notwithstanding  that such  individuals  or any of them have ceased to hold such
offices prior to the  authentication  and delivery of such Notes or did not hold
such offices at the date of such Notes.

            (iii) At any time and from  time to time  after  the  execution  and
delivery of this Indenture,  the Issuer may deliver Notes executed by the Issuer
to the Trustee for  authentication.  Upon a written order from the Issuer (which
order shall be in the form of Exhibit B hereto) the Trustee  shall  authenticate
and deliver such Notes as in this Indenture provided and not otherwise.  No Note
shall be entitled to any benefit under this  Indenture or be valid or obligatory
for  any  purpose,   unless  there  appears  on  such  Note  a  certificate   of
authentication  substantially in the form set forth in Exhibit A hereto executed
by the Trustee by the manual signature of an Authorized  Officer of the Trustee,
and such  certificate upon any Note shall be conclusive  evidence,  and the only
evidence, that such Note has been duly authenticated and delivered hereunder.

      SECTION 2.6   Transfer and Registry; Exchange; Negotiability.

           (a) (i) Each Note  shall be  transferable  only upon the books of the
Issuer (the "Note Register"), which shall be kept for that purpose at the office
of the Person  acting as  registrar  of the Issuer (the "Note  Registrar").  The
Trustee is hereby designated as the Note Registrar. Subject to the provisions of
paragraph  (b) of this Section 2.6, the transfers of any Note may be effected on
the books of the Issuer by the Holder  thereof in person or by his attorney duly
authorized in writing, upon surrender thereof together with a written instrument
of transfer  satisfactory  to the Note  Registrar duly executed by the Holder or
its duly  authorized  attorney.  Upon the transfer of any such Note,  the Issuer
shall  issue  in the  name of the  transferee  a new  Note or  Notes of the same
aggregate  principal amount, the same series,  interest rate and maturity as the
surrendered Note.

            (ii) At the option of the Holder,  Notes may be exchanged  for other
Notes of any authorized denominations, and of a like aggregate principal amount,
series,  interest rate and maturity, upon surrender of the Notes to be exchanged
at such office or agency.  Whenever any Notes are so  surrendered  for exchange,
the Issuer shall execute,  and the Trustee shall  authenticate and deliver,  the
Notes which the Noteholder making the exchange is entitled to receive.

           (iii) All Notes issued upon any  registration of transfer or exchange
of Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.

           (iv) Every Note presented or surrendered for registration of transfer
or  exchange  shall  (if so  required  by the  Issuer  or the  Trustee)  be duly
endorsed,  or be  accompanied  by a  written  instrument  of  transfer  in  form
satisfactory  to the  Trustee,  duly  executed,  by the  Holder  thereof  or his
attorney duly authorized in writing.

                     (b)  Each Note shall bear the following legend:

           "THE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
      OF
1933 ("1933 ACT"),  OR THE  SECURITIES  LAWS OR "BLUE SKY" LAWS OF ANY STATE AND
HAVE  BEEN  SOLD IN  RELIANCE  UPON AN  EXEMPTION  PROVIDED  IN THE 1933 ACT AND
APPLICABLE  STATE  SECURITIES  AND  BLUE  SKY LAW.  THE  NOTES  MAY NOT BE SOLD,
TRANSFERRED,  PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUBSEQUENTLY
REGISTERED  UNDER THE 1933 ACT AND APPLICABLE  STATE SECURITIES AND BLUE SKY LAW
OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."

                     (c)  No Note or any beneficial interest therein
may be  sold  or  transferred  (including,  without  limitation,  by  pledge  or
hypothecation) unless such transfer is exempt from the registration requirements
of the 1933 Act and any applicable state securities and blue sky laws or is made
in accordance with said Act and state laws. As a condition precedent to any such
transfer,  a certificate  or  certificates  in the form of Exhibit C hereto,  as
appropriate, shall be delivered to the Trustee.

                     (d)  None of the Issuer, the Note Registrar or
the Trustee is  obligated  to register the Notes under the 1933 Act or any other
securities law.

      SECTION 2.7  Regulations  With Respect to Exchanges and Transfers.  In all
cases in which the privilege of exchanging or  transferring  Notes is exercised,
the Issuer shall execute and the Trustee shall authenticate and deliver Notes in
accordance  with the  provisions of this  Indenture.  For every such exchange or
registration of transfer of Notes,  whether temporary or definitive,  the Issuer
and the Trustee may require the payment of a sum  sufficient to cover any tax or
other  governmental  charge required to be paid with respect to such exchange or
registration  of transfer.  Neither the Issuer nor the Trustee shall be required
to register  the  transfer of or exchange  Notes for a period  beginning  on the
Record Date next preceding a Payment Date and ending on such Payment Date.

      SECTION 2.8   Mutilated, Destroyed, Stolen or Lost Notes.

                     (a)  In case any Note shall become mutilated or
be  destroyed,  stolen or lost,  the Issuer shall  execute,  and  thereupon  the
Trustee shall authenticate and deliver,  a new Note of like aggregate  principal
amount, series, interest rate and maturity as the Note so mutilated,  destroyed,
stolen or lost,  in exchange and  substitution  for such  mutilated  Note,  upon
surrender and cancellation of such mutilated Note or in lieu of and substitution
for the Note destroyed,  stolen or lost,  upon filing with the Trustee  evidence
satisfactory  to the Issuer and the Trustee  that such Note has been  destroyed,
stolen or lost and proof of ownership  thereof,  and upon  furnishing the Issuer
and Trustee  with such  security or indemnity as may be required by them to save
each of them harmless (an unsecured  agreement of indemnity of a Purchaser being
deemed  sufficient for this purpose) and upon payment of any tax or governmental
charge the Issuer and Trustee may incur. All Notes so surrendered to the Trustee
shall be canceled by it. Any such new Notes issued  pursuant to this Section 2.8
in  substitution  for  Notes  alleged  to be  destroyed,  stolen  or lost  shall
constitute  original  additional  contractual  obligations  on the  part  of the
Issuer,  whether  or not the Notes so alleged  to be  destroyed,  stolen or lost
shall be found at any time, or be  enforceable  by anyone,  and shall be equally
secured by, and  entitled  to equal and  proportionate  benefits  with all other
Notes issued under the Indenture.

                     (b)  Notwithstanding the foregoing provisions of
this Section 2.8, in the event any such Note shall have matured,  and no default
has  occurred  which is then  continuing  in the payment of the  principal of or
interest on the Notes,  the Issuer may  authorize  the payment of the same (upon
surrender  thereof as provided in Section  2.9)  instead of issuing a substitute
Note,  provided  security or  indemnification  is furnished as above provided in
this Section 2.8.

                     (c)  The provisions of this Section 2.8 are
exclusive  and shall  preclude  (to the  extent  lawful)  all of the  rights and
remedies  with respect to the payment of  mutilated,  lost,  stolen or destroyed
Notes,  including  those granted by any law or statute now existing or hereafter
enacted

      SECTION 2.9 Medium of Payment;  Payment of Principal and Interest.  a) The
Notes shall be payable in lawful  currency  of the United  States of America and
shall be payable  by check  mailed by first  class  mail to the Person  entitled
thereto at such  Person's  address as it  appears  on the Note  Register  on the
applicable  Record  Date  except  that  payments  to Holders of in excess of one
million dollars  ($1,000,000) of original principal amount of the Notes shall be
made in immediately  available  funds to an account at a banking  institution in
the United  States;  provided  that such  Holder has  provided to the Trustee no
later  than two  Business  Days  prior  to the  relevant  Payment  Date its wire
transfer instructions (the wire transfer instructions of the Purchaser set forth
in the Note  Purchase  Agreement are deemed  sufficient  for all payments on the
Notes held by the Purchaser).

                     (b)  Each Note shall bear interest on the
outstanding principal amount thereof from and including (i) June 26, 1998 in the
case of the Series A Notes,  and (ii) in the case of the Variable Funding Notes,
the Series C Notes and any  subsequent  series of Notes,  from and including the
Closing date therefor, and, in each case, the most recent date to which interest
has been paid until paid.  Interest shall accrue on the principal  amount of the
Series A Notes and the Variable  Funding  Notes at the end of each day at a rate
per annum  equal to 2.10%  plus the LIBOR  Rate,  as  determined  by the  Master
Servicer  and set forth in the Master  Servicer's  Certificate.  Interest  shall
accrue on the Series C Notes and any subsequent  series of Notes at a rate to be
determined  by the Master  Servicer  on or before the Closing for such series of
Notes.  The term "LIBOR  Rate" shall mean the rate  published in The Wall Street
Journal under "Money Rates" (or if such publication  shall cease to publish such
rate, then the rate published in such other nationally recognized publication as
the  Trustee  may from time to time  specify)  as the  average of the  interbank
offered rates for U.S. Dollar deposits in the London interbank market for a term
of one month,  based on quotations at 5 major banks. The LIBOR Rate for each day
of a Payment  Period shall be the rate so published on the first Business Day of
such Payment  Period.  Interest shall accrue at the Default Rate with respect to
the principal amount of any portion of the Notes that is not paid on the Payment
Date for such  principal  (whether  due at  stated  maturity,  on  demand,  upon
acceleration  or  otherwise)  until paid in full.  Interest  shall be calculated
daily and shall be computed on the basis of a 360-day  year of twelve  months of
30 days each.

                      (c)  (i)  On each Payment Date, payments of
principal of the Notes will be due in an amount equal to the  Principal  Payment
Amount in respect of the aggregate Loans as of such Payment Date.

            (ii) (A) If any of the  representations  or warranties  contained in
Section 3 of the Purchase and Sale Agreement  shall prove to be, in any material
and adverse respect,  false, incorrect or misleading as to any Loan, the Issuer,
at its expense, shall promptly take such action as is necessary and use its best
efforts to cause such false, incorrect or misleading  representation or warranty
to be, in all material  respects,  true,  correct and not misleading,  within 30
days following the giving of written notice to the Issuer by the Trustee of such
false,  incorrect or misleading  representation or warranty (provided,  however,
that the Trustee shall have no obligation to  investigate  or determine  whether
any such  representation  is false,  incorrect or  misleading)  or following the
discovery thereof by the Issuer.

           (B)If within the  applicable  time period set forth in paragraph  (A)
              above the Issuer fails
to cure,  in all material  respects,  any such  representation  or warranty with
respect  to a Loan  which is,  in any  material  respect,  false,  incorrect  or
misleading,  then,  the Issuer  shall as soon as possible  but in no event later
than 60 days following notice or discovery of the false, incorrect or misleading
representation  or warranty,  take all actions necessary or advisable under this
Indenture and the Purchase and Sale Agreement to (i) cause the Trustee to redeem
(pursuant to the exercise of the Repurchase  Option set forth in Section 4(b) of
the "Purchase and Sale  Agreement"),  on a pro rata basis among the  outstanding
Notes,  an  aggregate  principal  amount of the Notes  equal to the  outstanding
principal  amount of the Loan with  respect  to which the  false,  incorrect  or
misleading  representation  or warranty was made, and to pay accrued interest on
such redeemed  Notes to the date of redemption or (ii),  with the consent of the
Holders of at least 66 2/3% of the aggregate outstanding principal amount of the
Notes, substitute a new Loan for such Loan.

            (iii) The Issuer  shall have the right to prepay  all,  but not less
than all, of any series of outstanding Notes at any time after the date on which
the aggregate  outstanding principal amount of such series of Notes equals or is
less than 10% of the initial aggregate principal amount of such series of Notes.

            (iv) In the event that,  pursuant to the terms of the  Purchase  and
Sale  Agreement,  the Originator has notified the Issuer that (A) the Originator
intends to exercise Unassigned Rights in respect of a Loan and (B) such exercise
of  Unassigned  Rights  requires  the  release of such Loan from the Lien of the
Trust Estate  hereunder,  the Issuer shall have the right to prepay an aggregate
outstanding  principal  amount of the Notes equal to the principal amount of the
Loan released hereunder. Upon such prepayment, together with accrued interest on
such prepaid  Notes to the date of  prepayment,  the Trustee  shall  release the
related Loan in accordance with Section 8.3 hereof.

            (v)  All  unpaid   principal  of  the  Notes  shall  mature  and  be
immediately due and payable at Stated Maturity.

            (vi) Payments of principal (as a result of prepayments or otherwise)
to be made will be allocated  pro rata among the Notes in the  proportion  which
the outstanding principal amount of each Note bears to the aggregate outstanding
principal  amount of the Notes of all series as of the first day of the month in
which the Payment Date occurs.

            (vii) All  reductions in the principal  amount of a Note effected by
payments of  installments of principal made on any Payment Date shall be binding
upon all future Holders of the Note and of any Note issued upon the registration
of transfer thereof or in exchange  therefor or in lieu thereof,  whether or not
such payment is noted on such Note.

            (viii) Whenever the entire  remaining unpaid principal amount of the
Notes will become due and payable on the next Payment  Date,  the Trustee  shall
notify  the  Person in whose  name such  Note is  registered  as of the close of
business  on the  Record  Date  prior  to such  Payment  Date  that  such  final
installment  is expected to be paid on such Payment  Date.  Such notice shall be
given by the Trustee in the name and at the expense of the Issuer by first-class
mail,  postage prepaid,  mailed no later than the Business Day following the day
on which the Trustee receives the Master Servicer's  Certificate with respect to
such Payment Date.  Such notice shall set forth the following  information:  the
fact of such expectation of payment in full, restating the requirement set forth
in this Indenture that such payment shall be payable only upon  presentation  of
such  Note (or in the case of  mutilated,  destroyed,  lost or stolen  Notes,  a
certificate  to  that  effect  and  an  indemnity  (or  unsecured  agreement  of
indemnity)  as provided  in Section  2.8  hereof) on or after the  Payment  Date
therefor at the  corporate  trust office of the Trustee for  payment,  the place
where such Notes are to be  surrendered  for payment and that no interest  shall
accrue on the principal of such Notes for any period after such Payment Date.

            (ix) The  final  installment  of  principal  of any Note made on any
Payment  Date shall be  payable,  subject to Section  2.8(b)  hereof,  only upon
presentation  of such  Note (or in the  case of  mutilated,  destroyed,  lost or
stolen  Notes,  a  certificate  to that effect and an  indemnity  (or  unsecured
agreement  of  indemnity)  as  provided  in Section  2.8 hereof) on or after the
Payment Date therefor at the corporate  trust office of the Trustee for payment;
provided,  however, that this requirement of presentation shall not apply to the
Purchaser if it furnishes to the Trustee its unsecured agreement of indemnity in
the same manner as is permitted by Section 2.8 hereof.

      SECTION 2.10 Persons Deemed Owners.  The Issuer,  the Trustee and the Note
Registrar  may  deem and  treat  the  Person  in  whose  name any Note  shall be
registered  upon the Note Register as the absolute  owner of such Note,  whether
such Note shall be overdue or not, for the purpose of  receiving  payment of, or
on account  of, the  principal  of and  interest  on such Note and for all other
purposes,  and all such  payments  so made to any such  Holder or upon his order
shall be valid and effective to satisfy and  discharge  the liability  upon such
Note to the  extent of the sum or sums so paid,  and  neither  the  Issuer,  the
Trustee nor the Note Registrar shall be affected by any notice to the contrary.

      SECTION 2.11 Cancellation. All Notes surrendered upon payment of the final
installment  of  principal  pursuant  to  Section  2.9(c)  hereof  or  otherwise
surrendered  for  registration  of  transfer,  conversion  or exchange  shall be
delivered to the Trustee and shall be promptly canceled by it. The Issuer may at
any  time  deliver  to  the  Trustee  for   cancellation  any  Notes  previously
authenticated and delivered  hereunder which the Issuer may have acquired in any
manner whatsoever,  and all Notes so delivered shall be promptly canceled by the
Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes
canceled as provided in this  Section,  except as  expressly  permitted  by this
Indenture.

      SECTION 2.12 Access to List of Noteholders' Names and Addresses.  The Note
Registrar  will furnish or cause to be  furnished to the Trustee,  the Issuer or
any  Noteholder  promptly  after  receipt  by the Note  Registrar  of a  request
therefor from the Trustee,  the Issuer or such Noteholder in writing, a list, in
such form as the Trustee,  the Issuer or such Noteholder may reasonably require,
of the primary  contacts,  names and addresses of the Noteholders as of the most
recent Record Date. Every Noteholder by receiving and holding Notes, agrees with
the Issuer,  the  Registrar  and the Trustee that  neither the Issuer,  the Note
Registrar nor the Trustee shall be held  accountable by reason of the disclosure
of any  such  information  as to the  names  and  addresses  of the  Noteholders
hereunder, regardless of the source from which such information was derived.

      SECTION 2.13   Acts of Noteholders.

            (a) Any request, demand, authorization,  direction, notice, consent,
waiver  or  other  action  provided  by this  Indenture  to be given or taken by
Noteholders  may be  embodied in and  evidenced  by one or more  instruments  of
substantially  similar tenor signed by such Noteholders in person or by an agent
duly appointed in writing,  and, except as herein otherwise  expressly provided,
such action shall become  effective  when such  instrument  or  instruments  are
delivered to the Trustee and where required to the Issuer. Proof of execution of
any  such  instrument  or of a  writing  appointing  any  such  agent  shall  be
sufficient  for any purpose of this  Indenture  and  conclusive  in favor of the
Trustee and the Issuer if made in the manner provided in this Section 2.13.

            (b) The fact and date of the execution by any Noteholder of any such
instrument or writing may be proven in any  reasonable  manner which the Trustee
deems sufficient.

                    (c)   The ownership of Notes shall be proven by the
Note Register.

           (d) Any request, demand,  authorization,  direction, notice, consent,
waiver or other act by a Noteholder shall bind every Holder of Notes issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof,
in respect of anything  done, or omitted to be done by the Trustee or the Issuer
in reliance  thereon,  whether or not  notation of such action is made upon such
Notes.

                           (e)  The Trustee may require such
additional proof of any matter referred to in this Section 2.13 as it shall deem
necessary.



<PAGE>


                              ARTICLE 3

                          ISSUANCE OF NOTES

      SECTION 3.1 Conditions to Authentication and Delivery of Notes.  Following
execution  and delivery of this  Indenture by the Issuer and the Trustee,  Notes
shall from time to time be executed by the Issuer and  delivered  to the Trustee
for  authentication  and  delivery  together  with the  written  order  required
pursuant to Section 2.5 hereof, and, thereupon, the same shall be authenticated;
provided, however, that on or before the authentication and delivery of Notes on
the  initial  Closing  Date,  and,  as a condition  to such  authentication  and
delivery,  the Trustee, or the Collateral Agent on behalf of the Trustee,  shall
have received the following:

                  (i)  A List of Loans, certified by an Authorized
      Officer of the Master Servicer;

                (ii) The originals of each Loan Document relating to each Loan;

            (iii)  If any of the Transaction Documents include an instrument
      executed by a
Hypothecation  Borrower or a Consumer, the original instrument endorsed in blank
by the Hypothecation  Borrower or Consumer, or, if endorsed to the Originator or
the Issuer,  endorsed in blank by an Authorized Officer of the Originator or the
Issuer;

                  (iv)  The originals of all Consumer Financing
Document;

           (v) If any of the Loan Collateral  consists of real estate encumbered
by a Mortgage,  an original or copy  time-stamped by the  appropriate  recording
office of the  recorded  Mortgage  and an original or copy  time-stamped  by the
appropriate recording office of all amendments to such Mortgage;

            (vi)  A copy of an officially certified document, dated not more
      than 30 days prior to the
Closing  Date (and,  if  available,  confirmed  on the Business Day prior to the
Closing Date by telegram,  telephone or other similar means), evidencing the due
organization and good standing of the Issuer;

                     (vii) A certificate of an Authorized Officer of
      the Issuer dated as of the Closing Date,
certifying that (a) the Issuer is not in Default under this  Indenture;  (b) the
issuance  of the Notes  applied  for will not result in any breach of any of the
terms, conditions or provisions of, or constitute a default under any indenture,
mortgage,  deed of trust or other agreement or instrument to which the Issuer is
a party or by which it or its  property  is bound or any  order of any  court or
administrative  agency  entered in any Proceeding to which the Issuer is a party
or by which it or its property may be bound or may be subject; (c) the Issuer is
the owner of each Loan Granted to the  Trustee;  the Issuer has not assigned any
interest  or  participation  in any such Loan;  and the Issuer has full right to
Grant each such Loan to the  Trustee;  (d) the Issuer has Granted to the Trustee
all of its right,  title, and interest in each Loan Granted to the Trustee;  (e)
other than liens created under or pursuant to the Indenture, the Trust Estate is
free and clear of any  pledge,  charge or  encumbrance  thereon or with  respect
thereto  created by or  through  the  Issuer,  and all action on the part of the
Issuer to that end has been duly and validly  taken;  (f) after giving effect to
the issuance of the Notes,  the aggregate  outstanding  principal  amount of the
Notes will not exceed the Note Limit; and (g) all conditions  precedent provided
in this Indenture  relating to the issuance,  authentication and delivery of the
Notes applied for have been complied with;

           (viii) An Opinion of Counsel (or Opinions of Counsel) to the Issuer,
      addressed to the
Trustee  and the  Purchaser  and dated as of the date of  authentication  of the
Notes applied for, in the form attached hereto as Exhibit D;

           (ix)   A fully executed copy of each of the following agreements:

                     (A)  this Indenture;

                             (B)  the Servicing Agreement;

                     (C)  the Agency Agreements;

                     (D)  the Purchase and Sale Agreement;
                     (E)  the Deposit Account Assignment; and

                             (F)  the Payment Direction Agreement.

               (x) A certificate of an Authorized  Officer of the Issuer,  dated
as of the date of  authentication  of the Notes applied for, that the Issuer has
filed or  caused  to be filed  UCC-1  financing  statements  in the  appropriate
recording offices executed by the Issuer, as debtor, and naming the Trustee,  as
secured party, and the Loans and Loan Collateral as collateral;

    (xi)  Copies of resolutions of the Board of Directors of the Master Servicer
      approving the
execution,   delivery  and  performance  of  the  Servicing  Agreement  and  the
transactions contemplated thereby,  certified by the Clerk or an Assistant Clerk
of the Master Servicer;

         (xii)  A copy of an officially certified document, dated not more
      than 30 days prior to the
date of authentication of the Notes applied for (and, if available, confirmed on
the  Business Day prior to such date by  telegram,  telephone  or other  similar
means), evidencing the due organization and good standing of the Master Servicer
in the state of its organization; and

     (xiii)  Other.  Such other documents as may be reasonably requested by
      the Trustee or the
Purchaser.   Notwithstanding  the  foregoing,   for  each  Loan  constituting  a
Participation Interest, in lieu of the foregoing documents,  the Trustee, or the
Collateral  Agent on behalf of the  Trustee,  shall have  received a copy of the
Loan Documents and the original  participation  certificate endorsed in blank by
an Authorized Officer of the Originator.

        SECTION 3.2    Additional Document Deliveries; Post Closing Matters

                    (a) Within 90 days of the  Closing  Date,  the Issuer  shall
deliver to the Trustee (or the  Collateral  Agent) with respect to each Mortgage
received by a Hypothecation  Borrower from a Consumer and collaterally  assigned
to the  Originator,  the  original  or  copy  time-stamped  by  the  appropriate
recording  office  of such  collateral  assignment  and an  original  collateral
reassignment of such Mortgage (which may be contained in a blanket reassignment)
from the  Originator to the Issuer and from the Issuer to the Trustee (which may
be  contained  in one  instrument),  executed in blank and in form  suitable for
recording  by the  Trustee  (or the  Collateral  Agent)  at any time an Event of
Default exists.

            (b) On or before any Closing  after the Closing Date, as a condition
to the  authentication  and delivery of Notes on the date of such  Closing,  the
Trustee,  or the Collateral Agent on behalf of the Trustee,  shall have received
(i) the documents  specified in Sections 3.1(i) through 3.1(v) above, and (ii) a
certificate  of an  Authorized  Officer  of the  Issuer  dated  the date of such
Closing, certifying as to the matters set forth in Section 3.1 (vii) above.

            (c) Within 90 days of the Closing  Date,  the Issuer shall cause all
lock-box or collection  accounts in respect of the Loans or the Loan  Collateral
which on the Closing  Date are owned or in the name of the "Master  Servicer" to
be transferred to an account or accounts in the name of the Trustee. The Trustee
shall not have any  obligations  with  respect to any such  account,  including,
without  limitation,  any obligation to direct investments in such account or to
respond to any inquiry with respect to any such account.

                               ARTICLE 4

                        COVENANTS OF THE ISSUER

      SECTION 4.1 Payment of Principal  and  Interest.  The Issuer will duly and
punctually pay the principal of and interest on the Notes in accordance with the
terms of the Notes and this Indenture.

      SECTION 4.2 Maintenance of Existence.

            (a) Except as permitted by Section  4.2(b),  the Issuer will keep in
full effect its existence, rights and franchises as a corporation under the laws
of the  State of its  organization  and the  Issuer or any  permitted  successor
hereunder 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  Indenture,  the
Notes, the Servicing  Agreement or any of the Loan Documents.  The Issuer at all
times shall hold  itself out as having an  existence  separate  from that of the
Master  Servicer,  and shall keep books and records  separate  from those of the
Master Servicer.

            (b) Any Person into which the Issuer hereunder may be merged or with
which it may be  consolidated on an involuntary  basis, or any Person  resulting
from any such merger or  consolidation  to which the Issuer hereunder shall be a
party,  shall be the successor Issuer under this Indenture without the execution
or filing of any paper,  instrument or further act to be done on the part of the
parties hereto,  anything herein, or in any agreement relating to such merger or
consolidation, by which any such successor Issuer may seek not to retain certain
powers,  rights  and  privileges  theretofore  obtaining  for any period of time
following such merger or consolidation, to the contrary notwithstanding.

      SECTION 4.3   Protection of Trust Estate.

            (a) The Issuer  will from time to time  execute and deliver or cause
to be  delivered  all  amendments  hereto  and all  such  financing  statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:

                   (i)    Grant more effectively all or any portion of
      the Trust Estate;

            (ii)  maintain or preserve  the lien (and the  priority  thereof) of
this Indenture or carry out more effectively the purposes hereof;

                (iii)  perfect, publish notice of, or protect the
validity of any Grant made or to be made by this Indenture;

             (iv)  preserve and defend title to the Trust Estate and the
      rights of the Trustee, and of the
Noteholders secured thereby, in such Trust Estate against the claims
of all Persons and parties; and

                   (v)  pay any and all taxes levied or assessed upon
      all or any part of the Trust Estate.

                   (b) The Issuer  hereby  designates  the Trustee its agent and
attorney-in-fact  to  execute,  upon the  Issuer's  failure to do so in a timely
manner,  any financing  statement,  continuation  statement or other  instrument
required pursuant to this Section 4.3. Such power of attorney is coupled with an
interest and  irrevocable,  and the Issuer hereby ratifies and confirms all that
the Trustee may do by virtue thereof.  Such  designation  shall not be deemed to
create a duty in the  Trustee to monitor the  compliance  by the Issuer with the
foregoing  covenants,  and the duty of the  Trustee  to execute  any  instrument
required  pursuant  to this  Section  4.3 shall  arise only if the  Trustee  has
knowledge of the type  described in Section  9.1(e) hereof of any Default by the
Issuer in complying with the provisions of this Section 4.3.

      SECTION 4.4 Enforcement of Servicing Agreement.

                   (a) The Noteholders agree that (i) the Issuer and the Trustee
are  hereby  authorized  to engage  the Master  Servicer  to  service  the Loans
pursuant to the Servicing  Agreement,  and (ii) the Trustee shall be entitled to
rely on the services of the Master Servicer for purposes of servicing the Loans.
Notwithstanding  the foregoing,  if the Trustee is notified by the Issuer or any
of the Noteholders that action is necessary (x) for the enforcement of the Loans
and the Loan Collateral, including without limitation, the prompt payment of all
principal and interest and all other amounts due thereunder, consistent with the
provisions of the Servicing Agreement, or (y) to defend,  enforce,  preserve and
protect the rights and privileges of the Issuer and of the Noteholders  under or
with  respect to the Loans and the related Loan  Collateral,  or (z) to preserve
the Liens of the Loans and the Loan  Collateral,  the Trustee  shall  notify the
Master Servicer and request that the Master Servicer take such action.

          The Issuer will punctually  perform and observe all of its obligations
and agreements contained in the Servicing Agreement.  The Issuer shall cause the
Master Servicer to diligently enforce all terms and covenants and to satisfy all
conditions of the Servicing Agreement, including, without limitation, the prompt
payment of all principal and interest and all other amounts due thereunder.  The
Issuer  at all  times  shall  cause  to be  defended,  enforced,  preserved  and
protected  the  rights  and  interests  of  the  Issuer,  the  Trustee  and  the
Noteholders under or with respect to the Servicing Agreement.

                  (b) If the Issuer shall have knowledge of the occurrence of an
Event of Default under the Servicing Agreement, the Issuer shall promptly notify
the Trustee  thereof,  and shall specify in such notice the action,  if any, the
Issuer is taking in respect of such Event of  Default.  If such Event of Default
arises from the  failure of the Master  Servicer to perform any of its duties or
obligations under the Servicing Agreement with respect to the Loans securing the
Notes, the Issuer may remedy such failure.  So long as any such Event of Default
under the Servicing Agreement shall be continuing, the Trustee may, and upon the
direction of (i) the Purchaser while the Purchaser is a Holder of Notes, or (ii)
the  Holders  of  Notes  representing  not less  than 51% of the then  aggregate
outstanding  principal  amount  of the  Notes  (other  than  Notes  owned by the
Originator or any Affiliate of the Originator),  the Trustee shall terminate all
of the rights and powers of the Master  Servicer  under the Servicing  Agreement
pursuant to Section 6.1 of the Servicing Agreement. Unless directed or permitted
by the  Trustee or the  Holders of Notes  representing  not less than 51% of the
then aggregate outstanding principal amount of the Notes (other than Notes owned
by the Originator or any Affiliate of the Originator),  the Issuer may not waive
any such Event of Default under the Servicing  Agreement or terminate the rights
and powers of the Master Servicer under the Servicing Agreement.

         (c) Upon any  termination  of the Master  Servicer's  rights and powers
pursuant to Section 5.1 of the Servicing Agreement,  all rights, powers, duties,
obligations  and  responsibilities  of the Master  Servicer  with respect to the
related  Loans  shall  vest in and be  assumed by a  Successor  Master  Servicer
appointed  by the  Issuer  with the  consent  of (i) the  Purchaser,  while  the
Purchaser is a Holder of Notes, and (ii) the then Holders of Notes  representing
not less  than 51% of the then  aggregate  outstanding  principal  amount of the
Notes  (provided,  that the Holder of any Notes owned by the  Originator  or any
Affiliate of the Originator  shall not be entitled to participate in any consent
of the proposed  Successor  Master Servicer as an affiliate of the  Originator),
and such Successor Master Servicer shall be the successor in all respects to the
Master Servicer in its capacity as servicer with respect to such Loans under the
Servicing Agreement.  No resignation or termination of the Master Servicer under
the Servicing Agreement shall be effective until a Successor Master Servicer has
been  appointed  and  assumed  the  duties  of the  Master  Servicer.  Upon such
appointment,  such  Successor  Master  Servicer  shall  enter  into a  servicing
agreement with the Issuer and the Trustee,  such  agreement to be  substantially
similar to the Servicing Agreement.  If, within 15 days after the termination or
resignation  of the Master  Servicer,  the Issuer shall not have obtained such a
new servicer  acceptable to the Noteholders as provided  above,  the Trustee may
appoint,  or may  petition  a court of  competent  jurisdiction  to  appoint,  a
successor   servicer  to  service  the  Loans.   In  connection  with  any  such
appointment, the Trustee may make such arrangements for the compensation of such
successor as it and such successor shall agree,  and the Issuer shall enter into
an agreement with such successor for the servicing of such Loans, such agreement
to be in form and  substance  satisfactory  to the Trustee and (i) the Purchaser
while the  Purchaser  is a Holder of Notes  and (ii) the then  Holders  of Notes
representing  not  less  than 51% of the then  aggregate  outstanding  principal
amount of the Notes. Any such  compensation of the successor  servicer shall not
be in  excess  of that  payable  to the  Master  Servicer  under  the  Servicing
Agreement,  unless the Master  Servicer or some other Person  agrees to pay such
additional  compensation.  The Master  Servicer  agrees that in the event of the
termination  of the  Master  Servicer  as a result of an Event of Default by the
Master Servicer under the Servicing Agreement, the Master Servicer shall pay the
Servicing Fee of the successor  servicer in the event such successor servicer is
paid  compensation  in excess of that payable to the Master  Servicer  under the
Servicing  Agreement to the extent of the difference  between a market servicing
rate and the rate theretofore payable to the Master Servicer under the Servicing
Agreement

                (d) If any of the Noteholders or the Issuer notifies the Trustee
that action is  necessary in order to defend,  enforce,  preserve or protect the
rights and interests of the Issuer and the Noteholders  under or with respect to
the  Servicing  Agreement,  the  Trustee  shall  notify the Issuer or the Master
Servicer,  as the case may be,  and  direct  the  notified  party to  diligently
enforce all terms and  covenants  and satisfy all  conditions  of the  Servicing
Agreement. The Trustee may, without the consent of any Noteholder, enter into or
consent to any  amendment  or  supplement  to the  Servicing  Agreement  for the
purpose of  increasing  the  obligations  or duties of any party  other than the
Trustee or the  Noteholders.  Except as provided  above in this  paragraph,  the
Trustee shall not consent or agree to or permit any amendment,  modification  or
waiver of the  Servicing  Agreement  without  the prior  consent  thereto of the
Holders of 66-2/3% of the aggregate  outstanding  principal  amount of the Notes
(without  regard  to any  Notes  owned  by  the  Master  Servicer  or any of its
Affiliates).  The  Trustee  may,  in its  discretion,  decline  to enter into or
consent  to any such  supplement  or  amendment  if its own  rights,  duties  or
immunities shall be adversely affected.

      SECTION  4.5 Books of  Account.  The  Issuer  covenants  that the books of
record  and  account  of the  Issuer  and,  pursuant  to the  provisions  of the
Servicing  Agreement,  the Master  Servicer shall at all times be subject to the
inspection  and  use of the  Trustee  and  any  Holder  of  Notes  and of  their
respective agents and attorneys.

      SECTION 4.6 Performance of Obligations. The Issuer will punctually perform
and  observe  all of its  obligations  and  agreements  under  the terms of this
Indenture and the Notes.  The Issuer will not take any action,  and will use its
best efforts not to permit any action to be taken by others, which would release
any Person's covenants or obligations under any instrument included in the Trust
Estate, or which would result in the hypothecation,  subordination,  termination
or  discharge  of,  or  impair  the  validity  or  effectiveness  of,  any  such
instrument, except as expressly provided in this Indenture.

      SECTION 4.7  Negative  Covenants.  Except as  expressly  permitted by this
Indenture or contemplated by the Servicing Agreement, the Issuer will not:

                 (a)  sell, transfer, exchange or otherwise dispose of
any of the Trust Estate;

                 (b) claim any credit on, make any deduction  from the principal
or interest  payable in respect of the Notes (other than amounts  required to be
withheld  from such  payments  under the Code or any other  applicable  state or
federal  law) or assert any claim  against any present or former  Noteholder  by
reason of the  payment  of any taxes  levied or  assessed  upon any of the Trust
Estate;

                 (c) engage in any business or activity or create, incur, assume
or in any manner  become  liable on any debt other than in  connection  with, or
relating to, the issuance of the Notes pursuant to this Indenture;

                 (d)  amend the certificate of incorporation of the
Issuer without the prior written consent of the Purchaser;

                 (e)  dissolve or liquidate in whole or in part;

                 (f) consolidate  with or merge into any other Person or convey,
transfer or lease  substantially  all of its assets as an entirety to any Person
unless the Person formed by such consolidation or into which the Issuer has been
merged or the  Person  which  acquires  substantially  all of the  assets of the
Issuer as an entirety is an organization  organized under the laws of a state in
the United States,  can lawfully perform the obligations of the Issuer hereunder
and  executes and delivers to the Trustee an  agreement,  in form and  substance
reasonably  satisfactory  to the Trustee,  which  contains an assumption by such
successor  entity of the due and punctual  performance  and  observance  of each
representation,  warranty,  covenant  and  obligation  to be made,  performed or
observed by the Issuer under this Indenture;

         (g) (i) permit the validity or  effectiveness  of this  Indenture to be
impaired or permit the lien of this  Indenture  with respect to the Trust Estate
to be  subordinated,  terminated  or  discharged,  or  permit  any  Person to be
released from any covenants or obligations  under this  Indenture,  the Loans or
the Loan  Collateral,  (ii)  permit any lien,  pledge,  charge,  adverse  claim,
security interest, mortgage or other encumbrance (other than liens created under
or pursuant to this  Indenture) to be created on or extend to or otherwise arise
upon or burden the Trust Estate or any part  thereof or any interest  therein or
the  proceeds  thereof,  or  (iii)  permit  the  lien of this  Indenture  not to
constitute a perfected security interest in the Trust Estate;

                 (h)  permit any material amendment to the Loan
Documents or waive any payment default thereunder;

                 (i)   permit any amendment or modification to the
Servicing Agreement; or

                 (j)  permit any amendment or modification to any
Consumer Financing Document.

      SECTION 4.8   Protection of Security: Power to Issue Notes and
Grant Trust Estate; Indenture to Constitute Contract.  The Issuer
represents, warrants and covenants that:

                 (a) The  Issuer  is,  and at all times  during the term of this
Indenture  will be, a corporation  duly  organized and validly  existing in good
standing under the laws of the State of Delaware;  and the Issuer is, and at all
times during the term of this  Indenture  will be, duly qualified to do business
as  a  foreign  corporation  and  in  good  standing  under  the  laws  of  each
jurisdiction where the character of its property,  the nature of its business or
the performance of its obligations under this Indenture makes such qualification
necessary  except where the failure to be so qualified  will not have a material
adverse  effect on the  business  of the Issuer or its  ability  to perform  its
obligations  under  this  Indenture  or  any  other  documents  or  transactions
contemplated hereunder or the validity or enforceability of the Loans;

                 (b) The Issuer holds,  and at all times during the term of this
Indenture will hold, all material licenses, certificates, franchises and permits
from all governmental  authorities necessary for the conduct of its business and
has received no notice of  proceedings  relating to the  revocation  of any such
license, certificate,  franchise or permit, which singly or in the aggregate, if
the subject of an unfavorable decision,  ruling or finding, would materially and
adversely affect its ability to perform its obligations  under this Indenture or
any other  documents or transactions  contemplated  hereunder or the validity or
enforceability of the Loans;

         (c) The Issuer has, and at all times during the term of this  Indenture
will have, all requisite power and authority to own its  properties,  to conduct
its  business,  to execute and deliver  this  Indenture  and all  documents  and
transactions  contemplated  hereunder,  to perform all of its obligations  under
this Indenture and any other documents or transactions  contemplated  hereunder,
to issue the Notes and to Grant the Trust Estate in the manner and to the extent
provided  herein.  The Issuer has all requisite  power and authority to acquire,
own, sell and convey to the Trustee the Trust Estate;

                (d) This  Indenture,  the  Notes  and all  other  documents  and
instruments  required or contemplated hereby to be executed and delivered by the
Issuer have been duly  authorized,  executed  and  delivered  by the Issuer and,
assuming the due execution and delivery by the other party or parties hereto and
thereto,  if any,  constitute legal,  valid and binding  agreements  enforceable
against the Issuer in accordance with their respective terms subject,  as to the
enforcement of remedies, to bankruptcy, insolvency,  reorganization,  moratorium
and other  similar  laws  affecting  the  enforceability  of  creditors'  rights
generally   applicable   in  the  event  of  the   bankruptcy,   insolvency   or
reorganization of the Issuer and to general principles of equity;

                (e) The  execution,  delivery and  performance  by the Issuer of
this Indenture, the Notes and any other documents and transactions in connection
herewith  to which the Issuer is a party do not and will not (i)  violate any of
the provisions of the  organizational  documents or by-laws of the Issuer;  (ii)
violate any provision of any law,  governmental rule or regulation  currently in
effect  applicable to the Issuer or its properties or by which the Issuer or its
properties may be bound or affected,  (iii) violate any judgment,  decree, writ,
injunction,  award, determination or order currently in effect applicable to the
Issuer or its  properties or by which the Issuer or its  properties are bound or
affected,  (iv) conflict with, or result in a breach of, or constitute a default
under, any of the provisions of any indenture, mortgage, deed of trust, contract
or other  instrument  to which the  Issuer is a party or by which it is bound or
(v) except for the Grant hereunder,  result in the creation or imposition of any
lien upon any of its  properties  pursuant  to the terms of any such  indenture,
mortgage, deed of trust, contract or other instrument;

                (f)  Except  for the  filing  of  financing  statements  and the
recording of assignments  contemplated  hereby, no consent,  approval,  order or
authorization  of,  and no  filing  with  or  notice  to,  any  court  or  other
governmental  authority in respect of the Issuer is required in connection  with
the  authorization,  execution,  delivery or  performance  by the Issuer of this
Indenture, the Notes or any of the other documents or transactions  contemplated
hereunder;

                (g) The Issuer is not in default under any agreement,  contract,
instrument  or  indenture  to which the  Issuer is a party or by which it or its
properties  is or are  bound,  or  with  respect  to  any  order  of any  court,
administrative  agency,  arbitrator  or  governmental  body  which  would have a
material adverse effect on the transactions contemplated hereunder; and no event
has occurred which with notice or lapse of time or both would  constitute such a
default with respect to any such agreement,  contract,  instrument or indenture,
or  with  respect  to any  such  order  of  any  court,  administrative  agency,
arbitrator or governmental body;

                (h)  There  is no  pending  or,  to the  best  of  the  Issuer's
knowledge,  threatened  action,  suit,  proceeding or  investigation  before any
court,  administrative  agency,  arbitrator  or  governmental  body  against  or
affecting the Issuer which, if decided adversely, would materially and adversely
affect (i) the condition (financial or otherwise), business or operations of the
Issuer,  (ii) the ability of the Issuer to perform its obligations under, or the
validity  or  enforceability  of,  this  Indenture  or any  other  documents  or
transactions contemplated under this Indenture, (iii) any Loan Collateral,  (iv)
the Master Servicer's ability to service the Loans;

                (i) No document,  certificate or report furnished or required to
be furnished by the Issuer  pursuant to this Indenture  contains or will contain
when furnished any untrue  statement of a material fact or fails or will fail to
state a  material  fact  necessary  in order to make  the  statements  contained
therein not misleading;

                (j)  Other  than  liens   created  under  or  pursuant  to  this
Indenture,  the Trust Estate is and will be free and clear of any pledge, charge
or encumbrance thereon or with respect thereto created by or through the Issuer,
and all action on the part of the  Issuer to that end has been duly and  validly
taken;

                (k) The Issuer  shall at all times,  to the extent  permitted by
law,  defend,  preserve  and protect  the Grant of the Trust  Estate and all the
rights of Noteholders under this Indenture against all claims and demands of all
Persons  whomsoever  claiming by, through or under the Issuer (except claims and
demands of the Trustee under or pursuant to this Indenture);

                (l) The Issuer shall at all times hold itself out to the public,
including  creditors of the  Originator,  and carry out its business and conduct
its affairs  under the Issuer's  own name and as a separate and distinct  entity
from the Originator or any of its Affiliates;

                (m) The Issuer shall at all times be responsible for the payment
of all its obligations and indebtedness,  shall at all times maintain a business
office,  records,  books of account and funds  separate from the  Originator and
shall observe all customary formalities of independent existence;

                (n) The  Issuer  shall make its books and  records  and the Note
Register available to the Noteholders and the Trustee, at their own expense, for
purposes of inspection and copying and shall, at the Issuer's expense,  furnish,
or cause to be  furnished,  to the  Trustee or any  Noteholder,  promptly  after
receipt by the Issuer of a request  therefor from the Trustee or such Noteholder
in  writing,  a  list  of the  primary  contacts,  names  and  addresses  of the
Noteholders as of the Record Date immediately preceding such request;

                (o) As long as any Note is  outstanding,  the  Issuer  shall not
issue,  incur,  assume or guarantee any indebtedness or other obligation  except
for  such  indebtedness  as may be  incurred  by the  Issuer  pursuant  to  this
Indenture and related documents or instruments;

                (p) Each of the representations and warranties of the Originator
set forth in the Purchase and Sale Agreement are true and correct as of the date
when made,  and the Issuer hereby makes such  representations  and warranties to
the Trustee for the benefit of the Noteholders; and

                (q) The Issuer shall  provide to each  Noteholder  (i) within 60
days of the end of each fiscal quarter the unaudited financial statements of the
Issuer as of the end of such fiscal quarter, and (ii) within 135 days of the end
of each fiscal year of the Issuer,  the  unaudited  financial  statements of the
Issuer as of the end of such fiscal year.

      SECTION 4.9 Maintenance of Offices or Agency.  The Issuer will maintain an
office or agency,  which may be changed in the discretion of the Issuer,  within
the United States of America at which Notes may be presented or surrendered  for
payment,  Notes may be surrendered for  registration of transfer or exchange and
notices  and  demands  to or upon the  Issuer in  respect  of the Notes and this
Indenture may be served. The Issuer hereby initially appoints the Trustee at its
corporate  trust  office  such  office or agency.  The Issuer  will give  prompt
written  notice  to the  Trustee  of the  location,  and  of any  change  in the
location,  of any such office or agency. If at any time the Issuer shall fail to
maintain any such office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the  corporate  trust office,  and the Issuer  hereby  appoints the
Trustee  at  its   corporate   trust  office  its  agent  to  receive  all  such
presentations, surrenders, notices and demands.

      SECTION 4.10 Further  Assurances.  The Issuer will execute and deliver, or
cause to be executed and delivered,  all such additional  instruments and do, or
cause to be done, all such additional actions as (i) may be necessary or proper,
consistent  with the Granting  Clause hereof,  to carry out the purposes of this
Indenture and to make subject to the lien hereof any property  intended so to be
subject,  (ii) may be necessary or proper to transfer to any  successor  trustee
the estate, powers, instruments and funds held in trust hereunder and to confirm
the lien of this Indenture with respect to any series of the Notes, or (iii) the
Trustee may  reasonably  request for any of the foregoing  purposes.  The Issuer
hereby authorizes the Trustee to execute and file all such financing statements,
continuation statements and other documents as the Trustee may deem necessary or
advisable  to  make  or  keep  effective  the  lien  of  this  Indenture  or any
supplemental  indenture and the priority thereof. The Trustee shall have no duty
to monitor compliance by the Issuer with the foregoing covenants or to determine
whether  the  execution  or  filing  of any  financing  statements  or any other
document is necessary or advisable in connection with the foregoing.

                              ARTICLE 5

                ACCOUNTS, DISBURSEMENTS AND RELEASES

      SECTION 5.1 Collection of Money.  Except as otherwise  expressly  provided
herein,  the Trustee may demand  payment or delivery  of, and shall  receive and
collect,  directly and without  intervention or assistance from any fiscal agent
or other  intermediary,  pursuant  to the  terms  hereof,  all  money  and other
property  payable to or  receivable by the Trustee  pursuant to this  Indenture,
including all payments due on the Loans, in accordance with the respective terms
and  conditions  of such  Loans and the Loan  Collateral.  Except  as  otherwise
expressly  provided  herein,  the Trustee shall hold all such money and property
received  by it as part of the Trust  Estate and shall  apply it as  provided in
this Indenture.

      SECTION 5.2  Payment Account.

                (a) On or prior to the Closing Date, the Trustee shall establish
and  thereafter  maintain a separate trust account under the sole control of the
Trustee entitled "The Chase Manhattan Bank, as trustee, in trust for the benefit
of the holders of the Litchfield  Hypothecation Corp. 1998-A  Hypothecation Loan
Collateralized  Notes--Payment Account." The Trustee shall make withdrawals from
the Payment Account only as provided in this Indenture. Monies on deposit in the
Payment Account shall be invested in accordance with Section 5.4 hereof.

                (b) Not  later  than  the  Business  Day  immediately  following
receipt  thereof,  the Trustee shall  deposit or cause to be deposited  into the
Payment  Account  all  monies  received  by the  Trustee in respect of the Loans
(including all payments, insurance proceeds,  condemnation proceeds,  recoveries
and Servicer Advances, if any) in immediately available funds;

                (c) On each Payment Date,  the Trustee,  in accordance  with the
Master  Servicer's  Certificate,  shall  withdraw and  distribute or cause to be
distributed all monies received in the related  Collection  Period on deposit in
the Payment Account (including any Investment Income with respect to such monies
on deposit in the Payment Account) in the following order of priority:

          (i)  To the Trustee, all accrued and unpaid fees and
reimbursable expenses due and payable to the Trustee pursuant to
Section 9.7 hereof;

              (ii) If the Master  Servicer is not the Originator or an Affiliate
of the  Originator,  to the Master  Servicer  by wire  transfer  of  immediately
available  funds,  an amount equal to the  Servicing Fee due and payable on such
Payment Date plus all Servicer  Advances made by the Master Servicer on previous
Payment Dates to the extent the Master Servicer has not been reimbursed for such
Servicer Advances;

              (iii)  To the Holders of Notes on the Record Date
      relating to such Payment Date, interest
accrued on the Notes in the related Payment Period;

         (iv) Pro rata to the  Holders of Notes on the Record  Date  relating to
such Payment Date, the Principal  Payment  Amount due and payable,  if any, with
respect to the Notes;

              (v)    If the Master Servicer is the Originator or an
      Affiliate of the Originator, to the Master
Servicer by wire transfer of immediately available funds, an amount equal to the
Servicing  Fee due and payable on such Payment  Date plus all Servicer  Advances
made by the Master  Servicer on previous  Payment Dates to the extent the Master
Servicer has not been reimbursed for such Servicer Advances; and

          (vi) Provided no Payment  Default has occurred and is  continuing,  to
the Issuer,  all remaining  amounts on deposit in the Payment Account,  plus all
Investment  Income,  if any, then held in the Payment  Account to the extent not
needed to make the  distributions  required  by clauses  (i) through (v) of this
Section 5.2(c);

      SECTION 5.3 Servicer  Advances.  If on the date which is two Business Days
prior  to a  Payment  Date,  amounts  on  deposit  in the  Payment  Account  are
insufficient to make the distributions  required to be made on such Payment Date
pursuant to paragraphs (iii) and (iv) of Section 5.2 hereof, the Master Servicer
shall be  required  to make a deposit in the amount of such  shortfall  into the
Payment Account (each, a "Servicer  Advance") on such date;  provided,  however,
that the Master Servicer shall not be obligated to make any Servicer  Advance if
the Master  Servicer  determines  that the Master  Servicer  will not be able to
ultimately  recover the full amount of such  Servicer  Advance;  and,  provided,
further  that at no time  shall  outstanding  unreimbursed  Future  Advances  in
respect of any particular  Loan exceed  $100,000.  The Master  Servicer shall be
entitled to  reimbursement  for any Servicer  Advance as provided in Section 5.2
hereof.

      SECTION 5.4 Investment of Funds. Amounts on deposit in the Payment Account
shall, if and to the extent then permitted by law, be invested by the Trustee in
Eligible  Investments,  at the written direction of an Authorized Officer of the
Issuer.  Such  investments  shall mature on or before the Business Day preceding
the  Payment  Date  following  the date of such  investment.  Net income or gain
received  and  collected  from such  investments  shall be  credited  and losses
charged to the Payment Account.

      SECTION 5.5  Repayment to the Issuer from the  Accounts.  After payment in
full of the  principal  of,  interest on, and all other  amounts due and payable
with  respect to the Notes (in  accordance  with  Section  7.1  hereof)  and the
payment of all fees,  reimbursable charges and expenses of or other amounts owed
to the  Issuer,  the  Trustee,  and the Note  Registrar  and all  other  amounts
required to be paid  hereunder,  all amounts  remaining  in the Payment  Account
shall be paid to the Issuer on its written order.

      SECTION 5.6 Reports to the Noteholders.  On each Payment Date, the Trustee
will  furnish to the  Issuer  and will  include  with each  distribution  to the
Noteholders  the Master  Servicer's  Certificate  delivered  pursuant to Section
3.1(a) of the Servicing Agreement.

                               ARTICLE 6

                               [RESERVED]

                               ARTICLE 7

                   EVENTS OF DEFAULT AND REMEDIES

      SECTION 7.1 Events of Default. Each of the events described in clauses (a)
through (l) below shall  constitute  an "Event of Default"  with  respect to the
Notes  (whatever  the reason for such Event of Default  and  whether it shall be
voluntary or  involuntary  or be effected by operation of law or pursuant to any
judgment,  decree or order of any court or any order,  rule or regulation of any
administrative or governmental body):

                (a) The Issuer  shall fail to make any payment of  principal  on
the Notes within two Business  Days of the day the same becomes due and payable;
or

        (b) The Issuer  shall fail to make any  payment of interest on the Notes
within two Business Days of the day the same becomes due and payable; or

                (c) The Issuer  shall fail to observe or perform in any material
respects any of the  covenants of the Issuer under  Sections 4.2, 4.3, 4.4, 4.5,
4.6 or 4.9 hereof, which failure has continued for a period of 30 days; or

                (d)  The Issuer shall fail to observe or perform its
covenants under Section 4.7 hereof; or

                (e) Any  representation  or  warranty of the Issuer set forth in
Section 4.8 of this Indenture shall prove to be false in any material respect as
of the date when made; or

                (f)  The Issuer makes an assignment for the benefit of
creditors or is generally not paying its debts as such debts become
due; or

                (g) The Issuer  petitions  or applies to any  tribunal  for,  or
consents to, the appointment of, or taking  possession by, a trustee,  receiver,
custodian,  liquidator or similar official of the Issuer,  or of any substantial
part of the  assets of the  Issuer,  or  commences  a  voluntary  case under the
Bankruptcy Law of the United States or any  proceedings  relating to the Issuer,
under the Bankruptcy Law of any other jurisdiction; or

                (h) Any such  petition  or  application  is  filed,  or any such
proceedings  are  commenced,  against  the  Issuer  and  the  Issuer  by any act
indicates its approval thereof,  consent thereto or acquiescence therein, or any
order,  judgment or decree is entered  appointing  any such  trustee,  receiver,
custodian, liquidator or similar official, or approving the petition in any such
proceedings  and such order,  judgment or decree remains  unstayed and in effect
for more than 30 days; or

                (i) Any order,  judgment or decree is entered in any proceedings
against  the Issuer  decreeing  the  dissolution  of the Issuer and such  order,
judgment or decree remains unstayed and in effect for more than 60 days; or

                (j) A final  judgment  in an  amount in  excess  of  $50,000  is
rendered  against  the  Issuer,  and within 60 days after  entry  thereof,  such
judgment is not discharged or execution thereof stayed pending appeal, or within
60 days after the expiration of any such stay, such judgment is not discharged;

       (k) Any  assignment  by the Issuer to a delegate  of its duties or rights
hereunder,  except as specifically  permitted hereunder,  or any attempt to make
such an assignment; or

                (l) Any  occurrence  or  existence  of any Event of Default  (as
defined in the Servicing Agreement) under the Servicing Agreement.

      SECTION  7.2  Acceleration  of  Maturity.  (a)  Upon  the  occurrence  and
continuance  of an Event of  Default,  (i) if such  event is an Event of Default
specified in clause (h), (i), (j) or (k) of Section 7.1, all of the Notes at the
time outstanding shall  automatically  become immediately due and payable at par
together with interest accrued thereon, without presentment,  demand, protest or
notice of any kind,  all of which are hereby  waived by the Issuer,  and (ii) if
such event is any other Event of Default, the Trustee may, and, upon the written
request of over 25% in aggregate  outstanding  principal amount of the Notes (by
notice in writing to the Issuer and the Trustee), shall declare all of the Notes
to be, and all of the Notes shall  thereupon be and become,  immediately due and
payable  together with interest accrued thereon,  without  presentment,  demand,
protest  or other  notice of any kind,  all of which  are  hereby  waived by the
Issuer.

                (b) At any time after a declaration  pursuant to Section 7.2(a),
but before any  judgment or decree for the payment of monies due shall have been
obtained or entered,  unless the same has been discharged,  and before the Notes
have matured by their terms,  or as otherwise  provided  herein,  if all overdue
payments of principal and interest upon such Notes, together with the reasonable
and proper  charges,  expenses and liabilities of the Trustee and the Holders of
such Notes and their  respective  agents and  attorneys  and all other sums then
payable by the Issuer under this Indenture (except the principal of and interest
accrued since the next  preceding  Payment Date on such Notes or due and payable
solely by virtue of such declaration) shall either be paid by or for the account
of the Issuer or provisions  satisfactory to the Holders of 51% of the aggregate
outstanding  principal  amount of the Notes shall be made for such payment,  and
all Events of Default under such Notes and under this Indenture  (other than the
payment of  principal  and  interest  due and  payable  solely by reason of such
declaration)  have been cured to the  satisfaction  of the Holders of 51% of the
aggregate  outstanding  principal amount of the Notes or provision deemed by the
Holders of 51% of the aggregate  outstanding principal amount of the Notes to be
adequate has been made therefor,  then and in every such case the Holders of 51%
of the aggregate  outstanding principal amount of the Notes by written notice to
the Issuer and to the Trustee,  shall have the right,  but not be obligated  to,
rescind such  declaration  and annul such Event of Default in its entirety.  For
purposes  of the  foregoing  sentence,  the  Holders  of  51%  of the  aggregate
outstanding  principal amount of the Notes shall be determined without regard to
any Notes owned by the Originator or any of its  Affiliates.  No such rescission
and  annulment  shall  extend to or affect  any  subsequent  Event of Default or
impair or exhaust any right or power consequent thereon.

      SECTION 7.3 Enforcement of Remedies. (a) If an Event of Default shall have
occurred and be continuing  and the Notes have been declared due and payable and
such declaration and its consequences have not been rescinded and annulled,  the
Trustee  may,  and  upon  the  written  request  of the  Holders  of over 25% in
aggregate  outstanding  principal amount of the Notes shall,  proceed to protect
and  enforce  its rights and the rights of the  Noteholders  under the Notes and
this Indenture and take one or more of the following actions without limitation:

        (i)  proceed to protect and enforce its rights and the rights of
      the Noteholders by appropriate
Proceedings whether by the specific  enforcement of any covenant or agreement in
this Indenture or in the aid of the exercise of any power granted herein,  or to
enforce any other property remedy;

                     (ii)      institute Proceedings for the
collection of all amounts then payable on the Notes,  whether by  declaration or
otherwise, enforce any judgment obtained, and collect any monies adjudged due;

              (iii) in accordance  with Section  7.13,  sell the Trust Estate or
any  portion  thereof or rights or  interest  therein,  at one or more public or
private sales called and conducted in any manner permitted by law;

              (iv) institute  Proceedings  from time to time for the complete or
partial foreclosure of this Indenture with respect to the Trust Estate; and

              (v)    exercise any remedies of a secured party under the
      Uniform Commercial Code and take
any other  appropriate  action or protect and enforce the rights and remedies of
the Trustee or the Noteholders hereunder.

                (b) In the enforcement of any right or remedy under the Notes or
this Indenture, the Trustee shall be entitled to sue for, enforce payment on and
receive any and all amounts  then or during any Event of Default  becoming,  and
any  time  remaining,  due from the  Issuer,  for  principal  and  interest,  or
otherwise,  under  any of the  provisions  of the Notes or this  Indenture,  and
unpaid,  with  interest  on overdue  payments  at the rate or rates of  interest
specified  in the  Notes,  together  with  any and all  costs  and  expenses  of
collection  and of all  Proceedings  under the Notes or the  Indenture,  without
prejudice to any other right or remedy of the Trustee or the  Noteholders and to
recover  and enforce  judgments  or decrees  against  the Issuer,  but solely as
provided in this  Indenture and in the Notes for any amounts  remaining  unpaid,
with  interest,  costs and  expenses,  and to collect  (but  solely  from moneys
available  therefor  to the extent  provided  in this  Indenture)  in any manner
provided by law, the moneys adjudged or decreed to be payable. The Trustee shall
file such proof of claim and other  papers or  documents  as may be necessary or
advisable in order to have the claims of the Trustee and the Noteholders allowed
in any judicial proceeding, relative to the Issuer or its creditors or property.

                (c) The Trustee  may, and if requested in writing by the Holders
of over 51% in aggregate outstanding principal amount of the Notes and furnished
with reasonable  security and indemnity (an unsecured  agreement of indemnity of
the Purchaser being deemed  sufficient for such purpose),  shall,  institute and
maintain such suits and proceedings or take such other acts as it may be advised
shall be necessary or expedient to prevent any  impairment of the security under
this Indenture or under any Loan Collateral by any acts which may be unlawful or
in violation of this  Indenture or of such Loan  Collateral,  and such suits and
proceedings  as the Trustee may be advised  shall be  necessary  or expedient to
preserve  or  protect  its  interests  and  the  interests  of the  Noteholders;
provided,  that such request shall not be otherwise than in accordance  with the
provisions of law and of this Indenture.

      SECTION 7.4 Application of Money Collected Upon Acceleration. If the Notes
have been  declared due and payable  pursuant to Section 7.2 hereof,  any moneys
collected by the Trustee  pursuant to this  Article 7 or  otherwise  held by the
Trustee as part of the Trust Estate shall be applied in the  following  order at
the date or dates fixed by the Trustee and, in case of the  distribution of such
moneys on account of principal  of and  interest on the Notes upon  presentation
and surrender thereof:

                   FIRST:  To the  payment  of amounts  due the  Trustee
       pursuant to Section 9.7 hereof  including  amounts payable to the
       Trustee acting as Master Servicer;

            SECOND:  To the payment of all the amounts then due and
unpaid upon the Notes for:

               (a)   all interest payable on the Notes through the
Acceleration Date;

               (b)  interest from the first day following the
Acceleration Date to the date of payment in full of the aggregate
principal amount of the Notes; and

               (c) interest on any overdue installments of interest on the Notes
from the due date of any such  installments  to the date of payment  but only to
the extent that payment of such interest shall be legally enforceable;

such funds to be allocated in proportion to the total amount of
interest otherwise payable on the Notes;

      THIRD:  To the payment of all amounts then due and unpaid upon
the Notes for principal ratably, without preference or priority of any
kind;

     FOURTH:  To  the  payment  of all  other  amounts  to  the  persons
entitled thereto in accordance with this Indenture.

      SECTION 7.5  Unconditional  Rights of Noteholders To Receive Principal and
Interest.  Notwithstanding any other provision in this Indenture,  the Holder of
any Note shall have an absolute and  unconditional  right to receive  payment of
the principal of and interest on such Note (subject to Section 2.9 hereof) on or
after the respective  Payment Dates expressed in such Note, and such right shall
not be impaired without the consent of such Holder.

      SECTION  7.6  Restoration  of Rights and  Remedies.  If the Trustee or any
Noteholder  has  instituted  any Proceeding to enforce any right or remedy under
this Indenture and such  proceeding has been  discontinued  or abandoned for any
reason,  or has been determined  adversely to the Trustee or to such Noteholder,
then and in every such case the Issuer,  the Trustee and the Noteholders  shall,
subject to any  determination  in such  proceedings,  be restored  severally and
respectively to their former positions hereunder,  and thereafter all rights and
remedies  of the Trustee and the  Noteholders  shall  continue as though no such
Proceeding had been instituted.

      SECTION  7.7 Rights and  Remedies  Cumulative.  No right or remedy  herein
conferred  upon or reserved to the Trustee or to the  Noteholders is intended to
be exclusive of any other right or remedy,  and every right and remedy shall, to
the extent  permitted by law, be cumulative and in addition to every other right
and remedy given  hereunder or now or hereafter  existing at law or in equity or
otherwise;  the  assertion or employment  of any right or remedy  hereunder,  or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.

      SECTION  7.8 Delay or  Omission  Not  Waiver.  No delay or omission of the
Trustee or any Holder to exercise any right or remedy accruing upon any Event of
Default shall impair any such right or remedy or constitute a waiver of any such
Event of Default or an acquiescence  therein.  Every such right and remedy given
by  this  Article  7 or by law  to the  Trustee  or to  the  Noteholders  may be
exercised  from time to time,  and as often as may be deemed  expedient,  by the
Trustee or by the Noteholders, as the case may be.

      SECTION 7.9 Control by  Noteholders  Subject to the  provisions of Section
7.2,  Section 7.3 and Section 7.7, the Holders of at least 51% of the  aggregate
outstanding  principal  amount of the Notes  shall  have the right to direct the
time,  method and place of conducting any proceeding for any remedy available to
the Trustee with respect to the Notes or exercising any trust or power conferred
on the Trustee with respect to the Notes; provided that:

                (a)  such direction shall not be in conflict with any
rule of law or with this Indenture;

                (b)  the Trustee shall have been provided with
indemnity reasonably satisfactory to it;

                (c)  subject  to (d)  below,  any  direction  to the  Trustee to
undertake a sale of the Trust Estate or any part thereof shall be by the Holders
of Notes  representing  not  less  than  66-2/3%  of the  aggregate  outstanding
principal amount of the Notes; and

                (d) the Trustee may take any other action  deemed  proper by the
Trustee which is not inconsistent with such direction;  provided, however, that,
subject to Section 9.1 hereof,  the  Trustee  need not take any action  which it
determines  might involve it in liability or may be unjustly  prejudicial to the
Noteholders not consenting.

      SECTION  7.10  Waiver  of Past  Events  of  Default.  Prior  to the time a
judgment  or  decree  for  payment  of the money  due has been  obtained  by the
Trustee,  as provided in this  Article VII, the Trustee may waive any past Event
of Default  with  respect to the Notes and its  consequences  except an Event of
Default  (a) in the payment of  principal  of or interest on any of the Notes or
(b) in respect of a covenant or  provision  hereof  which  cannot be modified or
amended  without the consent of the Holder of each Note affected.  Upon any such
waiver,  such Event of Default  shall  cease to exist and be deemed to have been
cured and not to have occurred, and any Event of Default arising therefrom shall
be deemed to have been cured, and not to have occurred for every purpose of this
Indenture.  In the case of any such  waiver,  the  Issuer,  the  Trustee and the
Holders of the Notes  shall be  restored to their  former  positions  and rights
hereunder,  respectively;  but no such waiver shall extend to any  subsequent or
other Event of Default or impair any right consequent thereon.

      SECTION 7.11  Undertaking for Costs. The Issuer and the Trustee agree, and
each  Noteholder  by such  Noteholder's  acceptance of a Note shall be deemed to
have agreed,  that any court may in its discretion  require, in any suit for the
enforcement  of any right or  remedy  under  this  Indenture  undertaken  by the
Trustee at the direction of the Noteholders,  or in any suit against the Trustee
for any action  taken,  suffered or omitted by it as Trustee,  the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit, and
that  such  court  may in its  discretion  assess  reasonable  costs,  including
reasonable  attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant;  but the  provisions  of this Section 7.11 shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Noteholder, or group of
Noteholders,  holding in the aggregate at least 51% of the aggregate outstanding
principal  amount of the Notes,  or to any suit instituted by any Noteholder for
the  enforcement  of the payment of principal of or interest on any Note,  which
principal or interest is due and payable.

      SECTION 7.12 Issuer Waiver of Stay or Extension Laws; Waiver of Jury Trial
(i) The Issuer covenants (to the extent that it may lawfully do so) that it will
not at any time insist upon,  plead, or in any manner  whatsoever  claim or take
the benefit or advantage of, any stay or extension law wherever enacted,  now or
at  any  time  hereafter  in  force,  which  may  affect  the  covenants  or the
performance  of this  Indenture;  and the  Issuer  (to  the  extent  that it may
lawfully do so) hereby  expressly  waives all benefit or  advantage  of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.

                      (ii)  The Issuer and the Trustee each hereby
waives the right to trial by jury in any  Proceeding  of any kind arising out of
or in respect of this Indenture or any Note.

      SECTION 7.13   Sale of Trust Estate.

                 (a) The power to effect  any sale of any  portion  of the Trust
Estate  pursuant to Section 7.3 hereof shall not be exhausted by any one or more
sales as to any portion of the Trust Estate remaining unsold, but shall continue
unimpaired  until  either the entire  Trust  Estate  shall have been sold or all
amounts  payable  on the Notes and under  this  Indenture  shall  have been paid
pursuant to Section 7.4. The Trustee may from time to time  postpone any sale by
public  announcement made at the time and place of such sale. The Trustee hereby
expressly  waives its right to any amount fixed by law as  compensation  for any
sale; provided, however, that such waiver does not apply to any amounts to which
the Trustee is otherwise entitled under Section 9.7 hereof.

                  (b) The  Trustee  may bid for and  acquire  any portion of the
Trust  Estate in  connection  with a public sale or, to the extent  permitted by
law, a private sale thereof,  and in lieu of paying cash to the Issuer therefor,
may make  settlement  for the purchase price by applying to the gross sale price
in payment therefor the sum of (i) the amount of unpaid principal of and accrued
interest on the Notes,  and (2) the expenses of the sale and of any  proceedings
in connection  therewith  which are  reimbursable  to it pursuant to Section 9.7
hereof and other  amounts due  hereunder  and secured by the Trust  Estate.  The
Notes need not be produced to complete any such sale.

                  (c) The  Trustee  shall  execute  and  deliver an  appropriate
instrument of conveyance  transferring  its interest in any portion of the Trust
Estate in  connection  with a sale hereof.  In  addition,  the Trustee is hereby
irrevocably  appointed an agent and  attorney-in-fact  of the Issuer to transfer
and  convey  the  Issuer's  interest  in any  portion  of the  Trust  Estate  in
connection with a sale thereof,  and to take all action necessary to effect such
sale.  No purchaser or  transferee  at such a sale shall have any  obligation to
ascertain  the  Trustee's  authority,  inquire  into  the  satisfaction  of  any
conditions precedent or see to the application of any moneys.

      SECTION  7.14  Action on Notes.  The  Trustee's  right to seek and recover
judgment  on the Notes or under  this  Indenture  shall not be  affected  by the
seeking,  obtaining or  application of any other relief under or with respect to
this Indenture. Neither the lien of this Indenture nor any rights or remedies of
the Trustee or the Noteholders shall be impaired by the recovery of any judgment
by the  Trustee  against the Issuer or by the levy of any  execution  under such
judgment  upon any portion of the Trust  Estate or upon any of the assets of the
Issuer.


                               ARTICLE 8

                       SATISFACTION AND DISCHARGE

      SECTION 8.1 Satisfaction and Discharge of Indenture.  This Indenture shall
cease to be of  further  effect  except  as to (a)  rights  of  registration  of
transfer and exchange,  (d) rights of  substitution  of new Notes for mutilated,
destroyed,  lost or stolen Notes,  (e) rights of Noteholders to receive payments
of  principal  thereof and interest  thereon,  (f) the rights,  obligations  and
immunities  of the  Trustee  hereunder,  and (g) the  rights of  Noteholders  as
beneficiaries  hereof with respect to the property so deposited with the Trustee
and  payable to them,  and the  Trustee,  on demand of and at the expense of the
Issuer,  shall  execute  proper  instruments   acknowledging   satisfaction  and
discharge of this Indenture, when:

                  (a) all Notes  theretofore  authenticated and delivered (other
than Notes  which  have been  mutilated,  destroyed,  stolen and which have been
replaced,  or paid as provided in Section 2.8 hereof) have been delivered to the
Trustee for cancellation; and

                  (b) the  Issuer has  delivered  to the  Trustee  an  Officer's
Certificate stating that there has been compliance with all conditions precedent
herein provided for the satisfaction and discharge of this Indenture.

                         Notwithstanding  the satisfaction and discharge of this
       Indenture, the obligations of the Issuer to the Trustee under Section 9.7
       hereof and of the Trustee to the Issuer and the Noteholders,  as the case
       may be, under Section 8.2 hereof and the  provisions of Article II hereof
       with respect to lost, stolen, destroyed or mutilated Notes,  registration
       of  transfer  and  exchange of Notes,  and rights to receive  payments of
       principal of or interest on the Notes shall survive.

      SECTION 8.2  Application  of Trust Money.  All moneys  deposited  with the
Trustee  pursuant to Article V hereof shall be held in trust by the Trustee,  in
its trust  capacity  and not in its  commercial  capacity,  and  applied  by the
Trustee in accordance  with the provisions of the Notes and this  Indenture,  to
the payment to the Holders of the Notes,  and,  if  required  hereunder,  to the
Issuer.

      SECTION 8.3 Release of Trust Estate.

                  (a) Subject to the payment of its fees and  expenses  pursuant
to Section 9.7 hereof and only when and to the extent required by the provisions
of this  Indenture,  the Trustee (or any  Collateral  Agent on its behalf) shall
execute  instruments  to release  property from the lien of this  Indenture,  or
convey the Trustee's  interest in the same, in a manner and under  circumstances
which are not  inconsistent  with the  provisions  of this  Indenture.  No party
relying upon an  instrument  executed by the Trustee as provided in this Article
VIII shall be bound to  ascertain  the  Trustee's  authority,  inquire  into the
satisfaction  of any  conditions  precedent  or see  to the  application  of any
moneys.

                  (b) The  Trustee  shall,  at such  time as there  are no Notes
outstanding  and all sums due the  Trustee  pursuant  to Section 9.7 hereof have
been paid, release the Trust Estate from the lien of this Indenture.

                  (c) Upon  receipt of an  Officer's  Certificate  of the Master
Servicer  substantially  in the form of  Exhibit E stating  either  (i) that all
payments  of  principal  and  interest  have been made upon any Loan held by the
Trustee,  or the  Collateral  Agent on  behalf  of the  Trustee,  hereunder  and
deposited  into the Payment  Account or (ii) that the  Trustee  has  received an
amount  sufficient  to  prepay a  principal  amount  of the  Notes  equal to the
outstanding   principal   amount   of  a  Loan  in   accordance   with   Section
2.9(c)(ii)(B)(iv)  hereof, the Trustee, or the Collateral Agent on behalf of the
Trustee, shall promptly release, reassign without representation or recourse and
deliver the Loan Documents with respect to such Loan to the Issuer.


                               ARTICLE 9

                              THE TRUSTEE

      SECTION 9.1   Certain Duties and Responsibilities

                  (a)  Except during the continuance of an Event of
Default:

                         (i)  the duties of the Trustee shall be
determined  solely by the express  provisions of this  Indenture and the Trustee
need perform only those duties and no others;  the Trustee undertakes to perform
such  duties  and  only  such  duties  as are  specifically  set  forth  in this
Indenture,  and no  implied  covenants  or  obligations  shall be read into this
Indenture against the Trustee; and

                         (ii)  in the absence of bad faith on its
part, the Trustee may conclusively rely upon certificates or opinions  furnished
to the Trustee and conforming to the  requirements of this Indenture,  including
investment instructions received pursuant to Section 5.4 hereof, as to the truth
of the statements and the correctness of the opinions expressed therein;  but in
the case of any such  certificates  or opinions  which by any  provision of this
Indenture are specifically  required to be furnished to the Trustee, the Trustee
shall  be under a duty to  examine  the same to  determine  whether  or not they
conform as to form to the requirements of this Indenture.

                  (b)  In  case  an  Event  of  Default  has   occurred  and  is
continuing,  the Trustee shall  exercise such of the rights and powers vested in
it by this  Indenture,  and use the  same  degree  of care  and  skill  in their
exercise,  as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.

                  (c)  No  provision  of  this  Indenture,   including,  without
limitation,  Section  9.7,  shall be  construed  to  relieve  the  Trustee  from
liability for its own negligent action, its own negligent failure to act, or its
own willful misconduct, except that:

                 (iii)    this subsection shall not be construed to
      limit the effect of subsection (a) of this
Section 9.1;

                 (ii)     the Trustee shall not be liable for any
      error of judgment made in good faith by an
Authorized  Officer of the  Trustee,  unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts; and

           (iii) the Trustee shall not be personally  liable with respect to any
action taken or omitted to be taken by it in good faith in  accordance  with any
direction received by the Trustee in accordance with the terms of this Indenture
from the Holders of at least 51% (or such other percentage as may be required by
the terms  hereof) of the then  aggregate  outstanding  principal  amount of the
Notes  relating to the time,  method and place of conducting  any Proceeding for
any remedy available to the Trustee,  or exercising any trust or power conferred
upon the Trustee, under this Indenture.

                  (d)  Whether  or not  therein  expressly  so  provided,  every
provision of this Indenture  relating to the conduct of, affecting the liability
of or affording  protection to the Trustee shall be subject to the provisions of
this Section.

                  (e) For all purposes under this  Indenture,  the Trustee shall
not be deemed to have notice of any  Default or Event of Default  (other than an
Event of Default  described  in  Sections  7.1(a) or (b) hereof) or a Default or
Event of Default  under any  document  included in the Trust  Estate,  unless an
Authorized  Officer of the  Trustee has actual  knowledge  thereof or unless the
Trustee has received  written notice thereof at the Trust Office and such notice
references the Notes generally,  the Issuer, the Trust Estate or this Indenture.
For  purposes  of  determining  the  Trustee's   responsibility   and  liability
hereunder, whenever reference is made in this Indenture to a Default or an Event
of Default,  such  reference  shall be construed to refer only to the Default or
the Event of Default of which the Trustee is deemed to have  notice  pursuant to
this Section 9.1(e).

                  (f) No provision of this  Indenture  shall require the Trustee
to expend or risk its own funds or otherwise  incur  financial  liability in the
performance  of any of its duties  hereunder,  or in the  exercise of any of its
rights or  powers,  if there  shall be  reasonable  ground  for  believing  that
repayment of such funds or adequate  indemnity against such risk or liability is
not  reasonably  assured  to it,  the  Trustee  having  the right to  require an
indemnity pursuant to subparagraph (g) below.

                  (g) The Trustee shall not be under any obligation to institute
any suit, or to take any remedial  Proceeding under this Indenture,  or to enter
any  appearance  in or in any  way  defend  any  suit  in  which  it may be made
defendant,  or to take any steps in the execution of the trusts hereby  created,
the  performance  of any of its duties  hereunder or in the  enforcement  of any
rights and powers  hereunder  until it shall be  indemnified  to its  reasonable
satisfaction  against any and all costs and  expenses,  outlays and counsel fees
and other reasonable  disbursements and against all liability,  except liability
which is  adjudicated  to have  resulted  from  its own  negligence  or  willful
misconduct, in connection with any action so taken.

                  (h) Notwithstanding any extinguishment of all right, title and
interest of the Issuer in and to the Trust Estate  following an Event of Default
and a  consequent  declaration  of  acceleration  of the  maturity of the Notes,
whether such extinguishment occurs through a sale of the Trust Estate to another
person,  the  acquisition  of the Trust Estate by the Trustee or otherwise,  the
rights,  powers and duties of the Trustee  with  respect to the Trust Estate (or
the proceeds  thereof)  and the  Noteholders  and the rights of the  Noteholders
shall continue to be governed by the terms of this Indenture.

                  (i) The Trustee shall keep and maintain proper books of record
and accounts  relating to the Notes in which full, true and correct entries will
be made of all dealings or transactions of the Trustee in relation to the Notes,
the  Accounts  and the Issuer.  The Trustee  shall keep such books of record and
accounts available for inspection by the Issuer or by any Holder of Notes during
reasonable  business hours and under reasonable  circumstances.  For purposes of
preparing  such books and records,  the Trustee is authorized to retain  outside
accountants at the expense of the Issuer.

      SECTION 9.2 Notice of Events of Default.  Promptly after the Trustee shall
have notice of the  occurrence  of any Default or Event of Default,  the Trustee
shall  transmit by mail to all  Holders  and the Issuer  notice of such Event of
Default known to the Trustee.

      SECTION 9.3 Certain Rights of the Trustee.  Except as otherwise  expressly
provided in Section 9.1 hereof:

                  (a) in the  absence  of bad faith or  negligence  the  Trustee
conclusively  may rely on and shall be  protected in acting or  refraining  from
acting  when  doing  so,  in  each  case  in  accordance  with  any  resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, note or other paper or document believed by the Trustee to
be genuine and to have been signed or  presented by the proper party or parties,
and the Trustee need not investigate any facts stated therein;

                  (b)  whenever  in the  administration  of this  Indenture  the
Trustee shall deem it desirable that a matter be proved or established  prior to
taking,  suffering or omitting any action  hereunder,  the Trustee (unless other
evidence be herein specifically  prescribed) may, in the absence of bad faith on
its part, rely upon an Officer's Certificate;

                  (c) before the Trustee acts or refrains  from  acting,  it may
require an Officer's Certificate or Opinion of Counsel, or both, and the Trustee
shall not be liable for any action it takes,  suffers  or omits in  reliance  on
either thereof;  the Trustee may consult with counsel, and the written advice of
such counsel or any Opinion of Counsel shall be full and complete  authorization
and  protection  in respect of the  legality  of any action  taken,  suffered or
omitted by the Trustee hereunder in good faith and in reliance thereon;

                  (d) the Trustee shall not be under any  obligation to exercise
any of the rights or powers  vested in it by this  Indenture  at the  request or
direction  of any of the  Noteholders  pursuant to this  Indenture,  unless such
Noteholders shall have offered to the Trustee  reasonable  security or indemnity
against the costs,  expenses  and  liabilities  which might be incurred by it in
compliance with such request or direction;

                  (e) the Trustee  shall not be bound to make any  investigation
into the facts or  matters  stated in any  resolution,  certificate,  statement,
instrument,  opinion, report, notice, request, direction,  consent, order, bond,
note or other paper or document, but the Trustee in its discretion may make such
further inquiry or  investigation  into such facts or matters as it may see fit,
and  if  the  Trustee   shall   determine  to  make  such  further   inquiry  or
investigation,  it shall be entitled,  on reasonable prior notice to the Issuer,
to examine the books, records and premises of the Issuer, personally or by agent
or attorney,  during the  Issuer's  normal  business  hours;  provided  that the
Trustee  shall  and  shall  cause  its  agents  to hold in  confidence  all such
information except to the extent disclosure may be required by law and except to
the extent that the  Trustee,  in its sole  judgment,  may  determine  that such
disclosure is consistent with its obligations hereunder;

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

                  (g) the Trustee shall not be liable for any action it takes or
omits to take in good faith  which it believes  to be  authorized  or within the
rights or powers conferred upon it by this Indenture;

                  (h) to the extent a Person other than the Trustee is appointed
by the Issuer to act as Note  Registrar,  such  Person  shall be an agent of the
Issuer,  and the Trustee shall not be liable or responsible by reason of any act
or omission of any such Person; and

            (i)  the Trustee shall not be responsible for
recalculating, recomputing, or verifying any information provided to
it by the Master Servicer of and Sub-Servicer.

      SECTION  9.4 Not  Responsible  for  Recitals  or  Issuance  of Notes.  The
recitals contained herein and in the Notes, except any such recitals relating to
the Trustee,  shall be taken as the  statements  of the Issuer,  and the Trustee
assumes  no  responsibility  for their  correctness.  The  Trustee  shall not be
responsible for and makes no representation as to the validity or sufficiency of
this  Indenture,  the  Notes or the  Trust  Estate.  The  Trustee  shall  not be
accountable  for the Issuer's  issue of the Notes or application of the proceeds
thereof or for any money paid to the Issuer or upon the Issuer's direction under
any of the provisions of this Indenture.  The Trustee is not responsible for the
use or application of any moneys by any agent other than the Trustee, including,
without  limitation,  the Master Servicer.  The Trustee shall not be responsible
for any statement in the Notes or in any other  document  prepared,  executed or
delivered in connection with the sale and issuance of the Notes or the execution
and delivery of this Indenture except its certificate of authentication.

      SECTION 9.5 May Hold Notes.  The Trustee,  in its  individual or any other
capacity,  may become the owner or pledgee of Notes and may otherwise  deal with
the Issuer with the same rights it would have if it were not Trustee.

      SECTION 9.6   Money Held in Trust.  Money held by the Trustee in
      trust hereunder will be held
by the Trustee in its trust  capacity and not in its commercial  capacity,  in a
segregated account in accordance with the Indenture.  The Trustee shall be under
no  liability  for  interest  on any money  received by it  hereunder  except as
otherwise  agreed in writing  with the Issuer and except to the extent of income
or other gain on  Eligible  Investments  which are  obligations  of the  Trustee
(excluding  obligations  of  Affiliates of the Trustee) and income or other gain
actually  received by the Trustee on Eligible  Investments which are obligations
of a third party.

      SECTION 9.7  Compensation and Reimbursement

       (a)  The Issuer agrees:

          (1)    subject to any separate written agreement with the
             Trustee, to pay the Trustee from
 time to time reasonable  compensation for all services rendered by it or any of
its agents,  including,  without  limitation,  the Collateral  Agent (each,  the
"Trustee" for the purposes of this Section 9.7(a)) hereunder (which compensation
shall not be limited by any provision of law in regard to the  compensation of a
trustee of an express trust);

          (2)    to reimburse the Trustee upon its request for all
             reasonable expenses, disbursements
and advances incurred or made by the Trustee in accordance with any
provision of this Indenture; and

          (3)     to indemnify the Trustee for, and to hold the Trustee
             harmless against, any loss,
liability  or  expense  incurred  without  negligence  or bad faith on its part,
arising out of or in connection  with the acceptance or  administration  of this
trust (other than taxes,  penalties or other  liabilities  arising in connection
with the  Trustee's  failure to withhold from payments with respect to the Notes
amounts  required to be withheld  under the Code, or the  Trustee's  withholding
from such  payments  amounts not required or permitted to be withheld  under the
Code),  including  the  reasonable  costs  and  expenses,  including  reasonable
attorneys'  fees,  of  defending  themselves  against any claim or  liability in
connection  with the  exercise or  performance  of any of their powers or duties
hereunder; provided that:

            (i)   with respect to any such claim, the Trustee shall
               have given the Issuer written
notice  thereof  promptly  after  the  Trustee  shall  have  knowledge  thereof,
provided, however, that the failure of the Trustee to so notify the Issuer shall
not relieve the Issuer of its obligations pursuant to this subparagraph;

            (ii)  the Issuer shall assume the defense of any such
                 claim, provided that if the Issuer
shall not have employed counsel reasonably satisfactory to the Trustee to direct
the  defense of such claim  within a  reasonable  time after such  notice of the
claim  pursuant to  paragraph  (i) above,  the  Trustee  shall have the right to
direct the defense of such claim;

            (iii) the Trustee shall have the right to employ separate
                 counsel with respect to any
claim and to  participate in the defense  thereof,  but the fees and expenses of
such counsel  shall be at the expense of the Trustee  unless the payment of such
counsel  has been  specifically  authorized  by the  Issuer;  provided  further,
however,  that if the Trustee  shall assume the defense of any claim as a result
of the  Issuer's  failure to assume the  defense of such claim as  described  in
paragraph (ii) above,  the Issuer shall pay the reasonable  fees and expenses of
Trustee's counsel in connection with the defense of such claim; and

            (iv)  notwithstanding anything to the contrary in this
                 Section   9.7(a)(3),   the  Issuer  shall  not  be  liable  for
settlement  of any such claim by the  Trustee  entered  into  without  the prior
consent of the Issuer.

              Nothing  in this  Section  9.7  shall be  construed  to limit  the
exercise by the Trustee of any right or remedy permitted under this Indenture or
otherwise in the event of the  Issuer's  failure to pay any sums due the Trustee
pursuant to this Section 9.7.

                       (b) The  provisions  of this  Section  9.7  shall
govern all other provisions of this Indenture  regarding the payment of the fees
and expenses of the Trustee.

                       (c)  To secure the Issuer's payment obligations
under this Section 9.7, the Trustee  shall have a lien prior to the  Noteholders
on the Trust Estate,  except with respect to such moneys as are held in trust to
pay principal of and interest on particular  Notes.  Such lien shall survive the
satisfaction and discharge of this Indenture.

                       (d)  The payment obligations of the Issuer
under this  Section 9.7 shall  survive the  satisfaction  and  discharge of this
Indenture.

      SECTION 9.8 Trustee  Eligibility.  The Trustee shall be a  corporation  or
national banking association or trust company organized and doing business under
the laws of the United States of America or of any State,  authorized under such
laws to exercise  corporate trust powers,  having a combined capital and surplus
of at least $50,000,000, subject to supervision or examination by any federal or
state  banking  authority  (except as provided in Section 9.9  hereof).  If such
Trustee publishes reports of condition annually, or more frequently, pursuant to
law or to the requirements of the aforesaid  supervising or examining authority,
then for the purposes of this  Section 9.8, the combined  capital and surplus of
such  corporation  shall be deemed to be the respective  amount set forth in its
most recently published report of condition. The Trustee shall provide copies of
such  reports to the Issuer or any  Noteholder  upon  request at the  requesting
party's  expense.  If at any time the  Trustee  shall  cease to be  eligible  in
accordance with the provisions of this Section 9.8, it shall resign  immediately
in the manner and with the effect hereinafter specified in this Article IX.

      SECTION 9.9 Resignation and Removal; Appointment of Successor.

                (a) No  resignation or removal of the Trustee and no appointment
of a successor  trustee pursuant to this Article IX shall become effective until
the  acceptance  of  appointment  by the  successor  trustee  under Section 9.10
hereof. Any successor Trustee appointed  hereunder is subject to the approval of
the Holders of at least 51% of the aggregate outstanding principal amount of the
Notes,  which  approval,  in neither  case,  shall be  unreasonably  withheld or
delayed.

                (b) The Trustee or any trustee hereafter appointed may resign at
any time by giving written  notice of resignation to the Issuer,  and by mailing
notice of  resignation  by  first-class  mail,  postage  prepaid,  to all of the
Noteholders,  at their addresses appearing on the Note Register.  Upon receiving
notice of  resignation  of the  Trustee,  the Issuer  shall  promptly  appoint a
successor  trustee,  by  written  instrument,  in  duplicate,  one copy of which
instrument  shall be  delivered  to the  resigning  Trustee  and one copy to the
successor  trustee or  trustees.  The Trustee  shall serve as trustee  hereunder
until a successor trustee shall have been appointed and shall have accepted such
appointment;  provided,  however,  that if no successor  trustee shall have been
appointed and have accepted  appointment within 30 days after the giving of such
notice of resignation, the resigning Trustee may, or any Noteholder who has been
a bona fide  Holder  for at least six months may on behalf of himself or herself
and all  others  similarly  situated,  petition  any  such  court  of  competent
jurisdiction  for  the  appointment  of a  successor  trustee.  Such  court  may
thereupon,  after such  notice,  if any,  as it may deem  proper and  prescribe,
appoint a successor trustee.

            (c)  If at any time:

          (1)     the Trustee shall cease to be eligible under Section
            9.8 hereof and shall fail to resign,
after written request therefor by the Issuer or by any Noteholder who
has been a bona fide Holder for at least six months; or

                  (2) (A) the Trustee  shall become  incapable of acting,  (B) a
court  having  jurisdiction  in the  premises  in respect  of the  Trustee in an
involuntary  case  under  the  federal  bankruptcy  laws,  as now  or  hereafter
constituted, or any other applicable federal or state bankruptcy,  insolvency or
other  similar  law,  shall have  entered a decree or order  granting  relief or
appointing a receiver,  liquidator,  assignee,  custodian, trustee, sequestrator
(or  similar  official)  for  the  Trustee  or for any  substantial  part of the
Trustee's  property,  or ordering the winding-up or liquidation of the Trustee's
affairs,  provided any such decree or order shall have continued unstayed and in
effect  for a period  of 60  consecutive  days or (C) the  Trustee  commences  a
voluntary  case  under  the  federal   bankruptcy  laws,  as  now  or  hereafter
constituted, or any other applicable federal or state bankruptcy,  insolvency or
other similar law, or consents to the  appointment of or taking  possession by a
receiver,  liquidator,  assignee,  trustee,  custodian,  sequestrator  (or other
similar  official) for the Trustee or for any substantial  part of the Trustee's
property,  or  makes  any  assignment  for the  benefit  of  creditors  or fails
generally  to pay its debts as such  debts  become  due or takes  any  corporate
action in furtherance of any of the foregoing; then, in any such case the Issuer
hereby agrees with the  Noteholders  that it shall remove the Trustee by written
request and appoint a successor trustee by written instrument, in duplicate, one
copy of which  instrument  shall be  delivered to the Trustee so removed and one
copy to the successor trustee, or any Noteholder who has been a bona fide Holder
for at least six  months  may,  on behalf of himself  and all  others  similarly
situated,  petition any court of competent  jurisdiction  for the removal of the
Trustee and for the appointment of a successor trustee. Such court may hereupon,
after such notice, if any, as it may prescribe, remove the Trustee and appoint a
successor trustee.

                 (d) The  Trustee  may also be removed at any time by act of the
Holders of at least 51% of the  aggregate  outstanding  principal  amount of the
Notes.

                 (e) The Issuer shall give notice of the  resignation or removal
of the  Trustee by mailing  notice of such event by  first-class  mail,  postage
prepaid,  to the Holders of the Notes as their names and addresses appear in the
Note Register.  Each notice shall include the name of the successor  trustee and
the address of its trust  division or  department.  The notice  required by this
paragraph  (e) may be given at the same time as the notice  required  by Section
9.10.

      SECTION 9.10  Acceptance  of  Appointment  by Successor.  Every  successor
trustee appointed hereunder shall execute, acknowledge and deliver to the Issuer
and its predecessor trustee an instrument accepting such appointment  hereunder.
Upon the delivery and execution of the required instruments,  the resignation or
removal of the  predecessor  trustee shall become  effective and such  successor
trustee,  without any further act, need or conveyance,  shall become vested with
all the  rights,  powers,  trusts,  duties and  obligations  of its  predecessor
hereunder.  Notwithstanding  the  foregoing,  on  request  of the  Issuer or the
successor  trustee,  such  predecessor  trustee shall,  upon payment of its then
unpaid charges due and payable under Section 9.7 hereof,  execute and deliver an
instrument  transferring to such successor trustee all of the rights, powers and
trusts of the predecessor trustee and shall duly assign, transfer and deliver to
such successor  trustee all property and money held by such predecessor  trustee
hereunder.  Upon request of any such successor trustee, the Issuer shall execute
any and all  instruments  providing  for more full and  certain  vesting  in and
confirming to such successor trustee all such rights,  powers and trusts of this
Indenture.

      Upon acceptance of appointment by a successor  trustee as provided in this
Section 9.10, the Issuer shall mail notice thereof by first-class mail,  postage
prepaid,  to the  Holders  at the  Holders'  addresses  appearing  upon the Note
Register.  If the  Issuer  fails  to mail  such  notice  within  10  days  after
acceptance of appointment by the successor trustee,  the successor trustee shall
cause such notice to be mailed at the expense of the Issuer.

      Any successor trustee must, at the time of such successor's  acceptance of
its appointment, meet the eligibility requirements set forth in this Article IX,
and  otherwise  exercise  the  rights,  remedies,  powers and  authority  of the
predecessor trustee with respect to the Trust Estate.

        Notwithstanding  the replacement of the Trustee or any successor trustee
       pursuant to the provisions of this  Indenture,  the Issuer's  obligations
       set forth in Section  9.7  hereof  shall  survive  such  replacement  and
       continue for the benefit of the resigning or replaced trustee.

      SECTION 9.11 Merger,  Conversion,  Consolidation or Succession to Business
of Trustee. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion  or  consolidation  to which  the  Trustee  shall be a party,  or any
corporation  succeeding  to all or  substantially  all  of the  corporate  trust
business of the Trustee shall be the successor of the Trustee  hereunder without
the  execution  or filing of any paper or any  further act on the part of any of
the parties hereto;  provided such corporation shall be otherwise  qualified and
eligible under this Article IX. In case any Notes have been  authenticated,  but
not  delivered,  by the  Trustee  then  in  office,  any  successor  by  merger,
conversion or consolidation to such authenticating Trustee may deliver the Notes
so  authenticated  with the same effect as if such successor  trustee had itself
authenticated such Notes.

      SECTION 9.12  Co-trustees  and Separate  Trustees.  The Trustee shall have
power, with the consent of the Holders of Notes representing at least 51% of the
then aggregate  outstanding  principal  amount of the Notes, to appoint,  one or
more  Persons  approved  by the  Issuer  either  to act as  Collateral  Agent or
co-trustee of all or any part of the Trust Estate, or to act as separate trustee
of any such property,  in either case with such powers as may be provided in the
instrument of appointment, and to vest in such Person or Persons in the capacity
aforesaid,  any property,  title,  right or power deemed necessary or desirable,
subject to the other  provisions of this Section.  The Issuer hereby directs the
Trustee to appoint  BankBoston as the initial  Collateral  Agent pursuant to the
Collateral  Agent  Agreement.  If the Issuer does not approve  such  appointment
within 15 days  after  the  receipt  by it of a request  so to do, or in case an
Event of Default has occurred and is  continuing,  the Trustee  alone shall have
power to make such appointment.

      Should  any  written  instrument  from  the  Issuer  be  required  by  any
Collateral  Agent,  co-trustee  or separate  trustee so appointed for more fully
confirming  to such  Collateral  Agent,  co-trustee  or  separate  trustee  such
property, title, right or power, any and all such instruments shall, on request,
be executed, acknowledged and delivered by the Issuer.

      Every  Collateral  Agent,  co-trustee or separate  trustee  shall,  to the
extent  permitted by law, but to such extent only,  be appointed  subject to the
following terms, namely:

       1.  The Notes shall be authenticated and delivered and all
          rights, powers, duties and
obligations hereunder in respect of the custody of securities or cash held by or
required  to be  deposited  with the Trustee in an Account  hereunder,  shall be
exercised, solely by the Trustee.

       2.  The rights, powers, duties and obligations hereby conferred
          or imposed upon the Trustee
shall be conferred or imposed upon and  exercised or performed by the Trustee or
by the  Trustee  and such  Collateral  Agent,  co-trustee  or  separate  trustee
jointly,  as shall be  provided in the  instrument  appointing  such  Collateral
Agent,  co-trustee or separate trustee,  except to the extent that under any law
of any jurisdiction in which any particular act is to be performed,  the Trustee
shall be  incompetent  or  unqualified  to perform such act, in which event such
rights,  powers, duties and obligations shall be exercised and performed by such
Collateral Agent, co-trustee or separate trustee.

                  3. The  Trustee  at any  time,  by an  instrument  in  writing
executed by it, with the  concurrence of the Issuer,  may accept the resignation
of or remove any  Collateral  Agent,  co-trustee or separate  trustee  appointed
under this  Section  9.12,  and, in case an Event of Default has occurred and is
continuing,  the  Trustee  shall  have power to accept  the  resignation  of, or
remove,  any such Collateral  Agent,  co-trustee or separate trustee without the
concurrence of the Issuer.  Upon the written request of the Trustee,  the Issuer
shall join with the Trustee in the  execution,  delivery and  performance of all
instruments and agreements necessary or proper to effectuate such resignation or
removal. A successor to any Collateral Agent,  co-trustee or separate trustee so
resigned  or removed may be  appointed  in the manner  provided in this  Section
9.12.

           (1)    No Collateral Agent, co-trustee or separate trustee
             hereunder shall be personally
liable by reason of any act or omission of the Trustee, or any other
such trustee hereunder.

           (2)    Any act of Noteholders delivered to the Trustee shall
             be deemed to have been
delivered to each such Collateral Agent, co-trustee and separate
trustee.

                               ARTICLE 10

                               AMENDMENTS

      SECTION  10.1  Amendments  Without  Consent of  Noteholders.  Without  the
consent of, or notice to, the Holders of any Notes,  the Issuer and the Trustee,
may  amend  this  Indenture  at any time  and  from  time to time for any of the
following purposes:

         (a) to correct or amplify the  description  of any property at any time
subject to the lien of this Indenture,  or better to assure,  convey and confirm
unto the Trustee any property subject or required to be subjected to the lien of
this Indenture, or to subject to the lien of this Indenture additional property;
or

         (b) to evidence the  succession,  in compliance  with the provisions of
Section  4.2(b) hereof,  of another person to the Issuer,  and the assumption by
any such  successor of the covenants of the Issuer  contained  herein and in the
Notes; or

        (c) to add to the  covenants of the Issuer or the  Trustee,  for
the  benefit  of the  Noteholders,  or to  surrender  any right or power
herein conferred upon the Issuer; or

         (d)  to convey, transfer, assign, mortgage or pledge any
property to the Trustee to constitute additional Trust Estate; or

         (e) to cure any ambiguity,  correct or supplement any provision  herein
which may be defective or inconsistent with any other provisions herein or amend
any other  provisions  with respect to matters or questions  arising  under this
Indenture, provided that such action shall not adversely affect the interests of
the Holders; or

         (f) to evidence and provide for the acceptance of appointment hereunder
by a  successor  trustee or note  registrar,  pursuant  to the  requirements  of
Sections 9.9 or 9.10 hereof.

      The  Trustee is hereby  authorized  to join in the  execution  of any such
amendment and to make any further appropriate  agreements and stipulations which
may be therein contained or required.

      SECTION 10.2  Amendments With Consent of Noteholders . With the consent of
the Holders of at least 66-2/3% of the aggregate outstanding principal amount of
the Notes  delivered  to the Issuer and the Trustee,  the Issuer,  pursuant to a
written  request,  and the Trustee may amend this  Indenture  for the purpose of
adding to, changing or eliminating any of the provisions of this Indenture or of
modifying the rights of Holders under this Indenture; provided, however, that no
such  amendment  shall,  without the  consent of the Holder of each  outstanding
Note:

      (1)   change the maturity of the principal of, or any installment
         of principal of or interest on, any
Note,  or reduce the principal  amount  thereof,  the interest rate thereon,  or
change the provisions of this Indenture relating to the application of the Trust
Estate to payment of principal of Notes,  or change any place of payment  where,
or the coin or currency in which,  the  principal of or the interest of any Note
is payable, or impair the right to institute  Proceedings for the enforcement of
the provisions of the Indenture  requiring the  application  of funds  available
therefor,  as provided  in Article  VII, to the payment of any amount due on the
Notes on or after the maturity thereof; or

               (2) reduce the percentage of the aggregate  outstanding principal
amount of the Notes,  the consent of the  Holders of which is  required  for any
amendment,  or the consent of the Holders of which is required for any waiver of
compliance  with  certain  provisions  of this  Indenture  or  certain  defaults
hereunder and their  consequences  provided for in this Indenture;  or modify or
alter the provisions of the proviso to the definition of the term "outstanding";
or

      (3)  permit the creation of any lien ranking prior to or on a
      parity with the lien of this Indenture
with  respect  to any  part of a Trust  Estate  or  terminate  the  lien of this
Indenture on any  property at any time  subject  hereto or deprive any Holder of
the  security  afforded  by the  lien  of this  Indenture  except  as  expressly
otherwise permitted hereby; or

      (4)  reduce the percentage of the aggregate outstanding
      principal amount of the Notes, the
consent of the Holders of which is required to direct the Trustee to
sell the Trust Estate pursuant to Section 7.13 hereof; or

      (5)  modify any of the provisions of this Section 10.2, except
      to increase any percentage
specified  herein or to  provide  that  certain  additional  provisions  of this
Indenture  cannot be modified or waived without the consent of each Holder of an
outstanding Note affected thereby; or

                (6) modify any of the  provisions  of this  Indenture  in such a
manner as to affect the  calculation of the amount of any payment of interest or
Principal  Payment  Amount due on any Note on any Payment  Date  (including  the
calculation of any of the individual components of such calculation).

      Promptly  after  the  execution  by the  Issuer  and  the  Trustee  of any
amendment  pursuant to this  Section,  the  Trustee  shall mail to the Holders a
notice  setting  forth in general  terms the  substance of such  amendment.  Any
failure of the Trustee to mail such notice,  or any defect  therein,  shall not,
however, in any way impair or affect the validity of any such amendment.

      SECTION 10.3 Effect of  Amendment.  Upon the execution of any amendment of
this Indenture pursuant to the provisions  hereof,  this Indenture shall be, and
be deemed to be,  modified and amended in accordance  therewith  with respect to
each  Note  and  the  respective  rights,  limitations,   obligations,   duties,
liabilities and immunities  under this Indenture of the Trustee,  the Issuer and
the Holders shall  thereafter be  determined,  exercised and enforced  hereunder
subject in all respects to such modifications and amendments,  and all the terms
and  conditions of any such  amendment  shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.

      SECTION 10.4 Reference in Notes to  Amendments.  Notes  authenticated  and
delivered  after the  execution of any amendment of this  Indenture  pursuant to
this  Article X may,  and, if required by the Issuer  shall,  bear a notation in
form approved by the Trustee as to any matter provided for in such amendment. If
the Issuer shall so require, new Notes so modified as to conform, in the opinion
of the  Trustee  and the  Issuer,  to any such  amendment  may be  prepared  and
executed  by the  Issuer  and  authenticated  and  delivered  by the  Trustee in
exchange for outstanding Notes.

                             ARTICLE 11

                            MISCELLANEOUS

      SECTION  11.1 Form of Documents  Delivered  to Trustee.  In any case where
several  matters are required to be  certified  by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or  covered by only one  document,  but one such  Person may  certify or give an
opinion  with  respect to some  matters and one or more other such Persons as to
other  matters,  and any such  Person may  certify or give an opinion as to such
matters in one or several documents.  Where any Person is required to make, give
or  execute  two  or  more  applications,   requests,  consents,   certificates,
statements,  opinions or other instruments  under this Indenture,  they may, but
need not, be consolidated and form one instrument.

      Any  certificate  or opinion may be based,  insofar as it relates to legal
matters,  upon an opinion of, or representations by, counsel,  unless the Issuer
knows,  or in the exercise of reasonable  care should know, that the certificate
or  opinion  or  representations  with  respect  to the  matters  upon which his
certificate  or opinion is based are  erroneous.  Any Officer's  Certificate  or
Opinion of Counsel may be based, without independent  investigation,  insofar as
it  relates  to  factual   matters,   upon  a  certificate  or  opinion  of,  or
representations  by the Trustee or other  appropriate  Person,  stating that the
information  with respect to such factual  matters is in the  possession  of the
Issuer, the Trustee or other appropriate Person, as the case may be, unless such
Person  knows,  or in the  exercise of  reasonable  care should  know,  that the
certificate  or opinion or  representations  with  respect to such  matters  are
erroneous. Any opinion of counsel may be based upon such assumptions as shall be
deemed appropriate by counsel rendering such Opinion of Counsel.

      In connection with any application,  certificate or report to the Trustee,
whenever this Indenture provides that the Issuer shall deliver any document as a
condition  of the granting of such  application,  or as evidence of the Issuer's
compliance with any terms hereof,  it is intended that the truth and accuracy of
the facts and opinions  stated in such document,  at the time of the granting of
such  application or at the effective date of such certificate or report (as the
case may be),  shall in such case be  conditions  precedent  to the right of the
Issuer  to  have  such  application  granted  or  to  the  sufficiency  of  such
certificate or report. The foregoing shall not, however,  be construed to affect
the  Trustee's  right to rely upon the truth and  accuracy of any  statement  or
opinion  contained  in any such  document as provided in Article IX hereof or to
impose a duty on the Trustee to ascertain such truth or inaccuracy.

       Whenever this  Indenture  provides that the absence of the occurrence and
       continuation of a Default or Event of Default as a condition precedent to
       the taking of any action by the  Trustee at the request or  direction  of
       the Issuer, then, notwithstanding that the satisfaction of such condition
       is a condition  precedent to the  Issuer's  right to make such request or
       direction,  the Trustee shall be protected in acting in  accordance  with
       such request or direction if it does not have knowledge of the occurrence
       and  continuance  of such  Default  or Event of Default  as  provided  in
       Section 9.1(e) hereof.

      SECTION 11.2  Notices,  etc., to Parties.  All notices,  requests or other
communications  desired or required to be given under this Indenture shall be in
writing and shall be sent by (a) certified or registered  mail,  return  receipt
requested, postage prepaid, (b) national prepaid overnight delivery service, (c)
telecopy or other facsimile transmission  (following with hard copies to be sent
by national prepaid  overnight  delivery  service) or (d) personal delivery with
receipt acknowledged in writing, as follows:

           (a)  If to the Trustee:

                The Chase Manhattan Bank
                450 West 33rd Street
                New York, New York  10001
                Attention:  Global Trust Services,
                                   Structured Finance Services


           (b)  If to the Issuer:

                Litchfield Hypothecation Corp. 1998-A
                c/o Litchfield Financial Corporation
                430 Main Street
                Williamstown, MA 01267
                Attention:  President

with a copy of any letter,  notice,  communication or direction hereunder to the
Originator at the address set forth below.


           (c)  If to the Purchaser:

                BankBoston, N.A.
                15 Westminster Street
                Providence, Rhode Island 02903
                Attention: Mr. Thomas Morris


           (d)  If to the Originator or the Master Servicer:

                Litchfield Financial Corporation
                430 Main Street
                Williamstown, MA  01267
                Attention:  President


           (e)   Notices required under this Indenture to be sent to
                the Noteholders shall in
addition be sent to the Issuer.  All notices shall be deemed given when actually
received  or  refused by the party to whom the same is  directed  (except to the
extent sent by certified or registered mail, return receipt  requested,  postage
prepaid,  in which event such notice  shall be deemed given three days after the
date of mailing).  Each party may designate a change of address or  supplemental
addressee(s) by notice to the other parties,  given at least 15 days before such
change  of  address  is to  become  effective.  Any  notice  received  from  any
Noteholder  by  any  party  listed  in  this  Section  11.2  shall  be  promptly
transmitted by such party to all other parties listed in this Section 11.2.

      SECTION 11.3 Notices and  Information  to  Noteholders;  Waiver.  Upon the
request  of any  Noteholder  holding  51% or more of the  aggregate  outstanding
principal  amount of all Notes,  the  Trustee  shall  deliver  promptly  to such
Noteholder  such  information  with  respect  to the  Loan  Collateral  as  such
Noteholder shall request.

        Where this  Indenture  provides for notice to  Noteholders of any event,
       such  notice  shall  be  sufficiently   given  (unless  otherwise  herein
       expressly  provided)  if in  writing  and  mailed,  first-class,  postage
       prepaid,  to each Noteholder affected by such event, at its address as it
       appears on the Note  Register,  not later than the latest  date,  and not
       earlier than the earliest date, prescribed for the giving of such notice.
       In any case where  notice to  Noteholders  is given by mail,  neither the
       failure to mail such notice,  nor any defect in any notice so mailed,  to
       any  particular  Noteholder  shall affect the  sufficiency of such notice
       with respect to other Noteholders,  and any notice which is mailed in the
       manner herein  provided shall  conclusively be presumed to have been duly
       given.

      Where this Indenture provides for notice in any manner, such notice may be
waived in writing by any Person  entitled to receive such notice,  either before
or after the event,  and such waiver  shall be the  equivalent  of such  notice.
Waivers of notice by Noteholders shall be filed with the Trustee but such filing
shall not be a  condition  precedent  to the  validity  of any  action  taken in
reliance upon such a waiver.

        In case, by reason of the suspension of regular mail service as a result
       of a strike,  work stoppage or similar activity,  it shall be impractical
       to mail notice of any event to  Noteholders  when such notice is required
       to be given pursuant to any provision of this Indenture,  then any manner
       of giving such notice as shall be  satisfactory  to the Trustee  shall be
       deemed to be a sufficient giving of such notice.

      SECTION  11.4 Effect of Headings  and Table of  Contents.  The Article and
Section  headings herein and the Table of Contents are for convenience  only and
shall not affect the construction hereof.

      SECTION 11.5 Successors and Assigns.  All covenants and agreements in this
Indenture  by the  Issuer  shall bind its  successors  and  assigns,  whether so
expressed or not.

 . SECTION 11.6  Severability.  In case any provision in this Indenture or in the
Notes shall be invalid,  illegal or  unenforceable,  the validity,  legality and
enforceability  of the remaining  provisions shall not in any way be affected or
impaired thereby.

      SECTION  11.7 Legal  Holidays.  If any Payment  Date or other date for the
payment of principal  of or interest on any Note is proposed to be paid,  or any
date on which  mailing  of notices  by the  Trustee  to any  Person is  required
pursuant to any provision of this  Indenture,  shall not be a Business Day, then
(notwithstanding  any other provision of the Notes or this Indenture) payment or
mailing of such notice need not be made on such date,  but may be made or mailed
on the next succeeding  Business Day with the same force and effect,  and in the
case of payments, but no interest shall accrue for the period from and after the
date on which such  payment  was due to the next  succeeding  Business  Day when
paid.

      SECTION 11.8 Governing Law. This  Indenture,  each indenture  supplemental
hereto and each Note shall be construed in  accordance  with and governed by the
laws of the State of New York, without regard to the conflict-of-law  provisions
thereof.

      SECTION 11.9  Counterparts.  This instrument may be executed in any number
of  counterparts,  each of which so executed  shall be deemed to be an original,
but all  such  counterparts  shall  together  constitute  but  one and the  same
instrument.

      SECTION  11.10  Recording of  Indenture.  If this  Indenture is subject to
recording in any appropriate  public recording  office,  such recording is to be
effected by the Issuer at its expense.

      SECTION 11.11 Limited Obligations.  No recourse for obligations  hereunder
or any other  obligation  running directly for the benefit of the Trustee may be
taken,  directly or indirectly,  against (i) any holder of a beneficial interest
in  the  Issuer,  (ii)  any  partner,  beneficiary,  agent,  officer,  director,
employee,  or successor  or assign of a holder of a  beneficial  interest in the
Issuer, or (iii) any incorporator, subscriber to the capital stock, stockholder,
officer,  director or employee of the Trustee with respect to the predecessor or
successor of the Trustee with respect to the Issuer's  obligations  with respect
to the Notes or the obligation of the Issuer or the Trustee under this Indenture
or any  certificate  or  other  writing  delivered  in  connection  herewith  or
therewith.

      SECTION 11.12  Inspection.  The Issuer  agrees that,  on reasonable  prior
notice,   during  the  Issuer's   normal  business  hours  it  will  permit  any
representative  of the  Trustee or any  Noteholder  to examine  all the books of
account,  records,  reports and other  papers of the Issuer,  to make copies and
extracts therefrom, to cause such books to be audited by independent accountants
selected by the Issuer with the consent of (i) the Purchaser, so long as it owns
any  Notes,  and  (ii)  the  Holders  of not  less  than  51%  of the  aggregate
outstanding  principal amount of the Notes; and to discuss the Issuer's affairs,
finances and accounts  with the Issuer's  officers,  employees  and  independent
accountants  all at such  reasonable  times  and as often  as may be  reasonably
requested;   provided   that  the  Issuer   shall  be   entitled   to  have  its
representatives  present at any such  discussion.  The Trustee and the Purchaser
shall  hold,  and shall  cause  their  respective  representatives  to hold,  in
confidence all such information  except to the extent disclosure may be required
by law and  except to the  extent  that the  Trustee  or the  Purchaser,  in its
respective sole judgment,  may determine that such disclosure is consistent with
its obligations hereunder.  Any expenses incident to the exercise by the Trustee
or a  Noteholder  of any right  under this  Section  11.12 shall be borne by the
Issuer.

      SECTION  11.13 Usury.  The amount of interest  payable or paid on any Note
under the terms of this Indenture shall be limited to any amount which shall not
exceed the maximum nonusurious rate of interest permitted by the applicable laws
of the State of New York (or the laws of any other jurisdiction determined to be
applicable  laws of the United States  permitting a higher  maximum  nonusurious
rate that  preempts  such  applicable  New York (or  other)  laws,  which  could
lawfully be contracted for, charged or received (the "Highest Lawful Rate")). In
the event any payment of interest on any Note  exceeds the Highest  Lawful Rate,
the Issuer  stipulates  that such excess amount will be deemed to have been paid
as a result of an error on the part of both the Trustee, acting on behalf of the
Holder,  and the Issuer,  and the Holder  receiving  such excess  payment  shall
promptly, upon discovery of such error or upon notice thereof from the Issuer or
the Trustee,  refund the amount of such excess or, at the option of the Trustee,
apply the excess to the payment of  principal  of such Note,  if any,  remaining
unpaid. In addition, all sums paid or agreed to be paid for the use, forbearance
or detention  of money shall,  to the extent  permitted  by  applicable  law, be
amortized,  prorated,  allocated  and  spread  throughout  the full term of such
Notes.



      IN WITNESS  WHEREOF,  the Issuer and the Trustee  have caused this
      Indenture to be duly
executed by their duly  authorized  officers  all as of the day and year
first above written.


                               THE CHASE MANHATTAN BANK,
                               as Trustee

                               By: /s/  Cynthia Kerpen
                               Title: Assistant vice President
Title: ________________________________________

                               LITCHFIELD HYPOTHECATION CORP. 1998-A

                               By: /s/  Heather A. Sica
                               Title:  Executive Vice President












                                 Exhibit 10.173
SERVICING  AGREEMENT,  dated as of June 1, 1998 (the "Agreement"),  by and among
LITCHFIELD  HYPOTHECATION  CORP.  1998-A,  a corporation  organized and existing
under the laws of the State of Delaware  (herein,  together with its  successors
and  assigns,  called  the  "Issuer"),   LITCHFIELD  FINANCIAL  CORPORATION,   a
corporation  organized  and  existing  under  the  laws of the  Commonwealth  of
Massachusetts  (herein,  together with its  successors  and assigns,  called the
"Master   Servicer"),   and  THE  CHASE  MANHATTAN  BANK,  a  New  York  banking
corporation, as trustee (the "Trustee").


                        PRELIMINARY STATEMENT


        WHEREAS,  the  Issuer  has  entered  into an  Indenture  of  Trust  (the
"Indenture")  dated  as of the  date of this  Agreement  with  the  Trustee,  as
trustee,  pursuant  to which  the  Issuer  shall  issue its  Hypothecation  Loan
Collateralized  Notes  (collectively,  the  "Notes"),  on the  terms  and in the
amounts  described  therein.  Pursuant to the  Indenture,  as  security  for the
indebtedness represented by the Notes, the Issuer is and will be Granting to the
Trustee on behalf of the Noteholders,  the Trust Estate,  which includes,  among
other  things,  the  Loans  and the  Loan  Collateral,  its  rights  under  this
Agreement, the Payment Account and all proceeds of the foregoing.

        WHEREAS,  the parties  desire to enter into this  Agreement  to provide,
among other things,  for the  servicing of the Loans and Loan  Collateral by the
Master  Servicer.  The Master  Servicer  acknowledges  that, in order to further
secure the Notes, the Issuer is and will be Granting to the Trustee, among other
things,  this  Agreement,  and the Master Servicer agrees that all covenants and
agreements made by the Master Servicer herein with respect to the Loans securing
the Notes  shall also be for the  benefit  and  security  of the Trustee and the
Noteholders.  For its services  hereunder,  the Master Servicer will receive the
Servicing Fee.

         NOW  THEREFORE,  in  consideration  of  the  premises  and  the  mutual
         agreements  hereinafter  set forth,  the Issuer,  the  Servicer and the
         Trustee agree as follows:


           ARTICLE 1

                             DEFINITIONS

         SECTION 1.1.  Defined Terms.

           (a) For all purposes of this Agreement, except as otherwise expressly
provided herein or unless the context otherwise requires,  capitalized terms not
otherwise  defined herein shall have the meanings  ascribed to such terms in the
Appendix  A  hereto  which  is  incorporated  by  reference  herein.  All  other
capitalized terms used herein shall have the meanings specified herein.

           (b) All  terms  defined  in this  Agreement  shall  have the  defined
meanings  when  used in any  certificate  or other  document  made or  delivered
pursuant hereto unless otherwise defined therein.

           (c) As  used  in  this  Agreement  and in any  certificate  or  other
document  made or delivered  pursuant  hereto or thereto,  accounting  terms not
defined in this  Agreement or in any such  certificate  or other  document,  and
accounting  terms partly defined in this Agreement or in any such certificate or
other  document to the extent not defined,  shall have the  respective  meanings
given to them under generally accepted accounting principles. To the extent that
the definitions of accounting terms in this Agreement or in any such certificate
or other  document  are  inconsistent  with the  meanings  of such  terms  under
generally  accepted  accounting  principles,  the definitions  contained in this
Agreement or in any such certificate or other document shall control.

           (d) The words  "hereof,"  "herein,"  "hereunder" and words of similar
import when used in this Agreement  shall refer to this Agreement as a whole and
not  to  any  particular  provision  of  this  Agreement;  Section  and  Exhibit
references  contained in this  Agreement are references to Sections and Exhibits
in or to this Agreement  unless  otherwise  specified;  and the term "including"
shall mean "including without limitation".


           (e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the  masculine as well
as to the feminine and neuter genders of such terms.

           (f) Any  agreement,  instrument  or statute  defined or  referred  to
herein or in any  instrument or  certificate  delivered in  connection  herewith
means  such  agreement,  instrument  or  statute  as from time to time  amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all  attachments  thereto and  instruments  incorporated  therein;
references to a Person are also to its permitted successors and assigns.


                              ARTICLE 2

                ADMINISTRATION AND SERVICING OF LOANS

               SECTION 2.1.  The Master Servicer to Act as the Servicer.

            (a) Engagement of the Master Servicer. The Master Servicer is hereby
authorized to and shall service and administer the Loans and Loan  Collateral in
accordance with the terms of this Agreement.  Subject to the provisions  herein,
including,  without  limitation,  Sections  2.6 hereof and subject to the Master
Servicer's obligations and the covenants of the Issuer under the Indenture,  the
Master  Servicer shall have full power and  authority,  acting alone and subject
only to the specific requirements and prohibitions of this Agreement,  to do and
take any and all  actions,  or to refrain from taking any such actions and to do
any and all things in connection with such servicing and administration which it
may deem necessary or desirable, including, without limitation,  calculating and
compiling  information  required in  connection  with any report to be delivered
pursuant to this  Agreement.  Without  limiting the generality of the foregoing,
but subject to the  provisions of the Indenture and this  Agreement,  the Master
Servicer  is hereby  authorized  and  empowered  by the  Issuer to  execute  and
deliver, in the Master Servicer's own name, on behalf of the Issuer and Trustee,
any and all instruments of satisfaction or  cancellation,  or of partial or full
release or discharge, and all other comparable instruments,  with respect to the
Loans and the Loan  Collateral,  including,  without  limitation,  consenting to
sales,  transfers or  encumbrances  of the Loan  Collateral or  assignments  and
assumptions of the Loans,  all in accordance with the terms of the Loans and the
Loan Collateral.  The Master Servicer agrees that (i) its servicing of the Loans
and Loan Collateral  shall be carried out in accordance with prudent,  customary
and  usual  procedures  of  financial   institutions  which  service  loans  and
collateral similar to the Loans and Loan Collateral and, (ii) to the extent more
exacting,  the procedures  which the Master Servicer would use if the Loans were
owned by the Master Servicer (the "Servicing Standard").

           (b)  List of the  Master  Servicer's  Officers.  Promptly  after  the
execution and delivery of this  Agreement,  the Master Servicer shall deliver to
the Issuer and the Trustee a list of officers  of the Master  Servicer  involved
in, or responsible  for, the  administration  and servicing of the Loans and the
Loan  Collateral,  which  list  shall from time to time be updated by the Master
Servicer on request of the Trustee.

           (c) Actions to Perfect Security Interests.  The Master Servicer shall
promptly take all actions that are necessary or desirable to maintain continuous
perfection and priority of the security  interests  granted by the Hypothecation
Borrowers in the Loan Collateral  subject to the terms of the Indenture and this
Agreement,  including,  but not  limited  to,  obtaining  the  execution  by the
Hypothecation  Borrowers and Consumers and the recording,  registering,  filing,
re-recording,   re-registering  and  refiling  of  all  mortgages,  assignments,
security  agreements,  financing  statements,  continuation  statements or other
instruments as are necessary to maintain the security  interests  granted by the
Hypothecation  Borrowers  under  the  respective  Loans.  Without  limiting  the
foregoing,  the Master  Servicer  shall file or cause to be filed the  financing
statements on Form UCC-1 and  assignments of financing  statements on Form UCC-3
required to be filed in connection  with the Purchase and Sale Agreement and the
Indenture relating to the Loans and the transactions contemplated thereby.

           (d) Servicer  Advances.  The Master  Servicer  hereby  agrees to make
Servicer  Advances at the times and in the amounts  specified  in Section 5.3 of
the  Indenture.  The  obligation of the Master  Servicer shall be subject to the
provisions of said Section 5.3 of the Indenture.

           (e) Limitation on the Master Servicer's Obligations.  Notwithstanding
anything to the contrary  herein,  other than Section 4.3(e) hereof,  the Master
Servicer may but shall not be  obligated  to incur any cost or expense  (whether
for maintaining insurance,  protecting or maintaining collateral,  or otherwise)
if the Master  Servicer,  in its  reasonable  discretion,  determines  that such
advances may not be recovered from the Hypothecation Borrowers.

               SECTION 2.2.  Collection of Loan Payments and
Remittances; Protection of Loan Collateral; Payment Account.

           (a) Collection of Payments; Protection of Loan Collateral. The Master
Servicer shall perform (or shall cause a Sub-Servicer  to perform) the following
servicing, collection supervision and collateral protection activities:

              (1)  perform standard accounting services and general
recordkeeping services with respect to the Loans and Loan Collateral;

                 (2)  respond to any telephone and written inquiries of
                Hypothecation Borrowers and
Consumers concerning the Loans and Loan Collateral;

                              (3) keep Hypothecation Borrowers and
Consumers  informed  of the proper  place and method  for making  payments  with
respect to the Loans and Consumer Receivables;

                                    (4)  contact Hypothecation
Borrowers and Consumers to effect collection and to discourage  delinquencies in
the payment of Loans and  Consumer  Receivables,  doing so by any lawful  means,
including, but not limited to, the following:

                                     (i)  transmittal of routine past
due notices;

                                     (ii)  preparing and mailing
collection letters;

                                     (iii) contacting delinquent
Hypothecation Borrowers and Consumers by telephone to encourage
payment;

                                     (iv) transmittal of reminder
notices to delinquent Hypothecation Borrowers and Consumers; and

                                     (v)   initiating and pursuing
termination or foreclosure actions deemed necessary by the Master
Servicer;

                (5) be responsible  for the receipt and  disbursement  of monies
paid by Hypothecation Borrowers and Consumers as follows:

                                     (i)   the receipt and collection
of all amounts due and payable with respect to each Loan and the proceeds of any
Loan  Collateral,  including  all monies  remitted by Consumers  with respect to
Consumer  Receivables  forming  a part of the  Loan  Collateral;  in  connection
herewith the Master  Servicer shall use its best efforts to cause the collection
of all  payments  called  for under the  terms and  provisions  of each Loan and
Consumer Receivable,  and shall use its best efforts to cause each Hypothecation
Borrower  to make  all  payments  required  to be made in  respect  of its  Loan
pursuant to the Loan  Documents  directly to the Lock Box Account at the Lockbox
Bank.

                                     (ii) the deposit of all such
payments and proceeds in the Lock Box Account in accordance with
Section 2.2(b) below;

                                     (iii)  the maintenance of
accurate and timely books and records relating to the Master Servicer's  receipt
and  collection of all such payments and proceeds and the balance due in respect
of the Loans and Consumer Receivables;

                                     (iv)   the rendering to
Hypothecation Borrowers and to Trustee, of periodic reports (not less frequently
than monthly) in which the Master  Servicer shall set forth such  information as
is customarily  reported to such borrowers under a servicing  agreement or as is
otherwise reasonably requested by the Trustee; and

                                     (v)   the maintenance of records
concerning the status of all of the Consumer Receivables.

               (6) take such other action as may be necessary or  appropriate to
                carry out the duties  and  obligations  imposed  upon the Master
                Servicer  pursuant  to the terms of this  Section and of Section
                4.4(a)  of  the  Indenture  which  is  incorporated   herein  by
                reference.

           (b) Deposit of Misdirected Funds; No Commingling. The Master Servicer
shall promptly remit, or cause to be remitted,  to the Lock Box Bank for deposit
in the Lock Box  Account  on the  Business  Day  immediately  following  receipt
thereof by the Master Servicer and in the form received all payments received by
the Master Servicer in respect of the Loans or Consumer Receivables  incorrectly
sent to the Master  Servicer  by, or on behalf of, a  Hypothecation  Borrower or
Consumer,  respectively.  The Master  Servicer  shall not commingle with its own
assets  and  shall  keep  separate,  segregated  and  appropriately  marked  and
identified all Loans, Loan Collateral or any property comprising any part of the
Trust  Estate,  and for such time,  if any, as such Loans,  Loan  Collateral  or
property are in the  possession  or control of the Master  Servicer,  the Master
Servicer  shall  hold the same in trust  for the  benefit  of the  Trustee,  the
Noteholders (or, following termination of the Indenture, the Issuer).

          SECTION 2.3.  Records.

               The Master Servicer shall retain (or cause to be retained, at the
principal  servicing offices of the Sub-Servicers) all data (including,  without
limitation,   computerized  records)  relating  directly  to  or  maintained  in
connection with the servicing of the Loans and Loan  Collateral,  and shall give
the Trustee access to all data at all reasonable  times upon reasonable  notice,
and, while an Event of Default shall be continuing,  the Master  Servicer shall,
on demand  of the  Trustee,  immediately  deliver  to the  Trustee  (or,  at the
Trustee's  written  instruction,  to the  Successor  Master  Servicer)  all data
(including,   without  limitation,   computerized  records)  necessary  for  the
servicing of the Loans and Loan Collateral. If the rights of the Master Servicer
shall have been  terminated in accordance  with Section 5.1 or if this Agreement
shall have been  terminated  pursuant  to Section  6.1(b),  the Master  Servicer
shall,  upon  demand of the  Trustee  or of the  successor  to the rights of the
Issuer, in the case of Section 6.1(b), deliver (or cause to be delivered) to the
Trustee all data (including, without limitation, computerized records) necessary
for the  servicing of the Loans and Loan  Collateral.  In addition to delivering
such data, the Master  Servicer  shall, at its expense (or at the expense of the
Issuer's  successor in the event of termination  under Section 6.1(b)),  use its
best efforts to effect the orderly and  efficient  transfer of the  servicing of
the Loans and Loan Collateral with respect to which such termination  shall have
occurred to the party which will be assuming  responsibility for such servicing,
including,  without limitation,  directing Hypothecation Borrowers and Consumers
to remit  scheduled  payments and all other payments in respect of the Loans and
Consumer Receivables to an account or address designated by, with the consent of
the Trustee or such new servicer.  Upon request of the Trustee while an Event of
Default shall be continuing, the Master Servicer also shall send (or cause to be
sent) to the Trustee copies of all invoices, statements or other directions with
respect to payments that are sent to the Hypothecation  Borrowers and Consumers.
The  provisions  of this  paragraph  shall not  require  the Master  Servicer to
transfer  any  proprietary  material  or  computer  programs  unrelated  to  the
servicing of the Loans and Loan Collateral.


                    SECTION 2.4.  No Offset.

                   Prior to the termination of this  Agreement,  the obligations
of the Master  Servicer  under this  Agreement  shall not be subject to, and the
Master  Servicer  hereby waives,  any defense,  counterclaim  or right of offset
which the Master  Servicer  has or may have  against the Issuer or the  Trustee,
whether in respect of this Agreement, any Loan or otherwise.

      SECTION 2.5.  Servicing Compensation;  Reimbursement for
      Advances.

             As compensation  for the performance of its obligations  under this
Agreement,  the Master  Servicer  shall be entitled to receive the Servicing Fee
from the Issuer on each Payment Date out of amounts released by the Trustee from
the Payment  Account on such  Payment  Date  pursuant  to Section  5.2(c) of the
Indenture.  The Servicing Fee shall include amounts in respect of funds advanced
by the  Master  Servicer  in  respect  of the  Loans  (whether  for  maintaining
insurance,  protecting or  maintaining  collateral,  or  otherwise),  if any. In
addition,  the Master Servicer shall be entitled to reimbursements  for advances
made by the Master Servicer from recoveries. Such reimbursements from recoveries
may be made by the Master Servicer netting the unreimbursed advanced amount from
recoveries or by remittance  from the Trustee in respect of recoveries  received
by the Trustee.

                    SECTION 2.6.  Sub-Servicing Agreements.

             The Master Servicer may engage Sub-Servicers to perform some or all
of the Master Servicer's  responsibilities under this Agreement,  subject to the
following terms and conditions:

                (a) On or prior to the Closing Date,  the Master  Servicer shall
enter  into  one  or  more   subservicing   agreements  (each  a  "Sub-Servicing
Agreement")  with one or more  Sub-Servicers,  and the Master Servicer shall not
amend,  supplement or terminate  the  Sub-Servicing  Agreement,  or agree to any
assignment  of any rights or  obligations  thereunder  by the  Sub-Servicer,  or
terminate  the  Sub-Servicer,  without  the  consent  of the  Holders  of  Notes
representing at least 51% of the aggregate  outstanding  principal amount of the
Notes.

               (b)  If  the  Sub-Servicing  Agreement  with  a  Sub-Servicer  is
terminated,  the  Master  Servicer  may  enter  into  one or more  Sub-Servicing
Agreements  with another  Sub-Servicer  reasonably  acceptable to the Holders of
Notes representing at least 51% or the aggregate outstanding principal amount of
the Notes and the Issuer to assist the Master Servicer in the performance of its
duties under this Agreement.

              (c) The  Master  Servicer  shall  be  entitled  to  terminate  any
Sub-Servicing  Agreement  that  may  exist in  accordance  with  the  terms  and
conditions of such Sub-Servicing Agreement; provided, however, that in the event
of the termination of any Sub-Servicing  Agreement by the Master Servicer or the
related Sub-Servicer,  the Master Servicer shall either act directly as servicer
in  accordance  with its duties  hereunder  or shall enter into a  Sub-Servicing
Agreement with a successor Sub-Servicer.

              (d)  References in this  Agreement to actions taken or to be taken
by the  Master  Servicer  in  servicing  the Loans and Loan  Collateral  include
actions taken or to be taken by a Sub-Servicer on behalf of the Master Servicer.
Notwithstanding  any Sub-Servicing  Agreement,  or any of the provisions of this
Agreement relating to agreements or arrangements between the Master Servicer and
a Sub-Servicer,  the Master  Servicer shall remain  obligated and liable for the
servicing and  administering of the Loans and Loan Collateral in accordance with
the  provisions  of this  Agreement  without  diminution  of such  obligation or
liability by virtue of such  Sub-Servicing  Agreement and to the same extent and
under  the same  terms and  conditions  as if the  Master  Servicer  alone  were
servicing and administering the Loans and Loan Collateral. Any funds received by
any Sub-Servicer shall be deemed to be received by the Master Servicer.

              (e) Within one hundred  twenty (120) days of the Closing Date, the
Master  Servicer  shall  establish  that each  Sub-Servicer  complies  with such
servicing  standards as may reasonably be  established  by the  Purchaser,  such
standards to be delivered  in writing by the  Purchaser  within ten (10) days of
the  Closing  Date.  If  in  the  reasonable   judgment  of  the  Purchaser  any
Sub-Servicer  fails to meet such  standards,  the Master Servicer  agrees,  upon
written  request  of  the  Purchaser,   to  replace  such  Sub-Servicer  with  a
Sub-Servicer  satisfactory  to the  Purchaser in the exercise of its  reasonable
discretion.


                              ARTICLE 3

                       STATEMENTS AND REPORTS

                 SECTION 3.1.  Reporting by the Master Servicer.

               (a) Not later than 11:00 am on the third  Business Day  preceding
each Payment  Date,  the Master  Servicer  shall  transmit to the Issuer and the
Trustee  and upon  receipt  the  Trustee  shall  forward  to the  Noteholders  a
certificate (the "Master Servicer's  Certificate") setting forth the information
in respect of the Loans set forth in Exhibit A hereto.




                              ARTICLE 4

                        THE MASTER SERVICER

      SECTION 4.1.  Representations and Warranties Concerning the
Master Servicer

       The Master Servicer represents and warrants,  effective as of the Closing
Date, as follows:

               (a) The Master Servicer (i)has been duly organized and is validly
existing and in good  standing  under the laws of the state of its formation and
organization,  (ii) has qualified to do business and is in good standing in each
jurisdiction  where  the  character  of  its  properties  or the  nature  of its
activities  makes such  qualification  necessary and where failure to so qualify
would  have a  material  and  adverse  effect  on its  ability  to  perform  its
obligations  hereunder,  and (iii) has full power,  authority and legal right to
own its property, to carry on its business as presently conducted,  and to enter
into and perform its obligations under this Agreement.

              (b) The  execution  and  delivery  by the Master  Servicer of this
Agreement  are  within  the  power of the  Master  Servicer  and have  been duly
authorized by all necessary action on the part of the Master  Servicer.  Neither
the  execution  and  delivery of this  Agreement,  nor the  consummation  of the
transactions  herein  contemplated,  nor compliance with the provisions  hereof,
will conflict with or result in a breach of, or constitute a default under,  any
of the provisions of any law, governmental rule, regulation, judgment, decree or
order binding on the Master  Servicer or its properties or the charter or bylaws
or other organizational  documents and agreements of the Master Servicer, or any
of the provisions of any indenture,  mortgage,  contract or other  instrument to
which the  Master  Servicer  is a party or by which it is bound or result in the
creation  or  imposition  of any  lien,  charge or  encumbrance  upon any of its
property  pursuant  to the terms of any such  indenture,  mortgage,  contract or
other instrument.

             (c) The Master  Servicer  is not  required to obtain the consent of
any other party or consent, license, approval or authorization,  or registration
or declaration with, any governmental authority,  bureau or agency in connection
with  the  execution,  delivery,  performance  by the  Master  Servicer  of this
Agreement,  or validity or  enforceability  of this Agreement against the Master
Servicer.

            (d) This  Agreement  has been duly  executed  and  delivered  by the
Master  Servicer  and  constitutes  a  legal,   valid  and  binding   instrument
enforceable against the Master Servicer in accordance with its terms (subject to
applicable bankruptcy laws and to general principles of equity).

            (e) There are no actions,  suits or  proceedings  pending or, to the
knowledge of the Master  Servicer,  threatened  against or affecting  the Master
Servicer,  before  or  by  any  court,   administrative  agency,  arbitrator  or
governmental  body with respect to any of the transactions  contemplated by this
Agreement or the Indenture, or which will, if determined adversely to the Master
Servicer, materially and adversely affect it or its business, assets, operations
or condition,  financial or otherwise, or adversely affect the Master Servicer's
ability to perform its obligations under this Agreement.  The Master Servicer is
not in default  with respect to any order of any court,  administrative  agency,
arbitrator or  governmental  body so as to materially  and adversely  affect the
transactions contemplated by the above-mentioned documents.

            (f) The Master Servicer has obtained or made all necessary licenses,
registrations,  consents,  approvals,  waivers and  notifications  of creditors,
lessors and other  persons,  in each case, in connection  with the execution and
delivery of this Agreement by the Master  Servicer,  and the consummation by the
Master Servicer of all the transactions herein contemplated to be consummated by
the Master Servicer and the performance of its obligations hereunder.

           (g) The  Master  Servicer  is not in  default  under  any  agreement,
contract,  instrument or indenture to which the Master Servicer is a party or by
which it or its properties is or are bound,  or with respect to any order of any
court,  administrative agency, arbitrator or governmental body, which would have
a material adverse effect on the  transactions  contemplated  hereunder;  and no
event has occurred  which with notice or lapse of time or both would  constitute
such a material default with respect to any such agreement, contract, instrument
or  indenture,  or with  respect to any such order of any court,  administrative
agency, arbitrator or governmental body.

          (h) The collection and servicing practices used by the Master Servicer
with respect to each Loan and related Loan Collateral shall be consistent in all
material  respects  with  those  customarily  employed  by the  Master  Servicer
servicing loans which are owned by the Master Servicer.

          (i) The  Master  Servicer  (i) shall not extend or  shorten,  amend or
otherwise  modify the terms of any Loan,  or amend,  modify or waive any term or
condition of any Loan Collateral related thereto, in any manner which would have
a material  adverse  effect on the interests of the  Noteholders  or the Issuer,
including,  but not  limited  to,  extending  or  shortening  the due  date,  or
impairing  the  collectibility  of such Loan and (ii)  shall not take any action
that could  reasonably be expected to have a material  adverse effect on (x) the
collectibility  of the  Loans  taken  as a whole or (y) the  realization  on the
related  Loan  Collateral,  taken as a whole,  or (z) the  ability of the Master
Servicer to perform its obligations  hereunder,  in each case without  obtaining
the prior  written  consent of the Trustee,  the  Purchaser  and the Issuer.  In
connection  with any  amendment,  modification  or waiver  relating  to the Loan
Collateral  consented  to by the  Master  Servicer,  the Master  Servicer  shall
provide  the  Trustee  with a  certificate  to the effect  that such  amendment,
modification or waiver does not violate the provisions of this subsection (i).



             SECTION 4.2.  Existence; Status as the Master Servicer.

             The Master Servicer shall keep in full effect its existence, rights
and  franchises  under the laws of the state of its formation and  organization,
and  will  obtain  and  preserve  its  qualification  to  do  business  in  each
jurisdiction in which such qualification is or shall be necessary to protect the
validity and enforceability of the Loans and Loan Collateral,  the Indenture and
this Agreement or to perform its obligations hereunder.


             SECTION 4.3.  Performance of Obligations.

          (a)  Timely Performance. The Master Servicer shall punctually
perform and observe all of its obligations and agreements contained in
this Agreement in accordance with the terms hereof.

          (b) Prohibited Actions. The Master Servicer shall not take any action,
or permit any action to be taken by others,  which would  excuse any person from
any of its covenants or obligations under any of the Loans or Loan Collateral or
under any other instrument  included in the Trust Estate,  or which would result
in the amendment, hypothecation,  subordination, termination or discharge of, or
impair the validity,  enforceability  or  effectiveness  of, any of the Loans or
Loan  Collateral,  except  as  expressly  provided  herein  and  therein  or  as
contemplated by the Indenture.

         (c) Limitations of  Responsibility  of the Master Servicer.  The Master
Servicer will have no  responsibility  under this Agreement other than to render
the  services  called for  hereunder  in good faith.  The Master  Servicer,  its
affiliates,  its  directors,  officers,  shareholders  and employees will not be
liable to the Issuer, the Trustee,  the Noteholders or others,  except by reason
of acts  constituting  bad faith,  willful  misfeasance,  negligence or reckless
disregard of its duties.

         (d)  Right to  Receive  Instructions.  In the  event  that  the  Master
Servicer is unable to decide between alternative courses of action, or is unsure
as to the application of any provision of this  Agreement,  or such provision is
ambiguous as to its  application,  or is, or appears to be, in conflict with any
other  applicable  provision,  or in the event that this  Agreement  permits any
determination  by the Master  Servicer or is silent or is  incomplete  as to the
course of action which the Master Servicer is required to take with respect to a
particular  set of facts,  the Master  Servicer may give notice (in such form as
shall  be  appropriate  under  the  circumstances)  to  the  Trustee  requesting
instructions in accordance with the Indenture and, to the extent that the Master
Servicer  shall have acted or refrained  from acting in good faith in accordance
with any such instructions  received from the Trustee, the Master Servicer shall
not be liable on account of such action or  inaction  to any Person.  Subject to
the Servicing Standard set forth in Section 2.1(a), if the Master Servicer shall
not have received  appropriate  instructions  within ten days of such notice (or
within  such  shorter  period of time as may be  specified  in such  notice) the
Master  Servicer may, but shall be under no duty to, take or refrain from taking
such action, not inconsistent with this Agreement,  as the Master Servicer shall
deem to be in the best  interests of the Trustee and the Issuer,  and the Master
Servicer  shall have no  liability  to any Person  for such  action or  inaction
except for the Master Servicer's own willful misconduct or negligence.

         (e) No Duties Except as Specified in this Agreement or in Instructions.
Except as expressly provided by the terms of this Agreement, the Master Servicer
shall not have any duty or obligation to manage, make any payment in respect of,
register,  record, sell, reinvest, dispose of, create, perfect or maintain title
or any security interest in, or otherwise deal with the Trust Estate, to prepare
or file any report or other  document,  or to  otherwise  take or  refrain  from
taking any action under, or in connection with, any document contemplated hereby
to which the Master Servicer is a party. The Master Servicer nevertheless agrees
that it will,  at its own cost and expense,  promptly  take all action as may be
necessary to discharge any asserted  liens on any part of the Trust Estate which
result from asserted claims against the Master Servicer  personally that are not
related  to the  ownership  or the  administration  of the  Trust  Estate or the
transactions contemplated by the Indenture.

         (f) No Action Except Under  Specified  Documents or  Instructions.  The
Master Servicer shall not manage,  control,  use, sell, reinvest,  dispose of or
otherwise  deal with any part of the Trust Estate except (1) in accordance  with
the  powers  granted to and the  authority  conferred  upon the Master  Servicer
pursuant to this Agreement,  or (2) in accordance with instructions delivered to
the Master Servicer pursuant hereto.

         (g)  Limitations  on the  Master  Servicer  Liability.  Subject  to the
Servicing  Standards  set forth in  Section  2.1(a),  and  except for the Master
Servicer's own willful  misconduct or negligence,  the Master Servicer shall not
be personally liable under any circumstances, including, without limitation:

                     (1)       for any action taken or omitted to be
taken by the Master Servicer in good faith in accordance with the
instructions of the Trustee made in accordance herewith;

                     (2)       for any representation, warranty,
covenant, agreement or indebtedness of the Trust under the Notes, or
for any other liability or obligation of the Trust;

                     (3)  for or in respect of the validity or
sufficiency  of this  Agreement  or for the due  execution  hereof  by any party
hereto other than the Master Servicer, or for the form, character,  genuineness,
sufficiency,  value or validity of any part of the Trust  Estate,  including but
not limited to the Loans and Loan Collateral; and

                    (4) for any  action  or  inaction  of the  Trustee,  and the
Master  Servicer  shall not be responsible  for  performing or  supervising  the
performance  of any  obligation  under this  Agreement or the Indenture  that is
required to be performed by the Trustee.

        (h) Limitation on Expenditure  of Personal  Funds.  No provision of this
Agreement  (other than Section 2.1(d) and paragraph (e) above) shall require the
Master  Servicer to expend or risk its  personal  funds or  otherwise  incur any
financial liability in the performance of any of its rights or powers hereunder,
if the  Master  Servicer  shall  have  reasonable  grounds  for  believing  that
repayment of such funds or adequate  indemnity against such risk or liability is
not reasonably assured or provided to it.

         (i) Furnishing of Documents.  The Master  Servicer shall furnish to the
Trustee,  promptly  upon receipt  thereof,  duplicates or copies of all material
reports, notices, requests, demands, certificates,  financial statements and any
other instruments furnished to the Master Servicer hereunder.

         (j) Reliance; Advice of Counsel. In performing its duties hereunder the
Master  Servicer  may  conclusively  rely on and shall be protected in acting or
refraining  from  acting  when  doing so, in each  case in  accordance  with any
signature, instrument, notice, resolution, request, consent, order, certificate,
report,  opinion,  bond or other  document or paper believed by it to be genuine
and  believed  by it to be signed by the  proper  party or  parties.  The Master
Servicer may accept a certified  copy of a resolution  of the board of directors
or other governing body of any corporate party as conclusive  evidence that such
resolution has been duly adopted by such body and that the same is in full force
and effect. As to any fact or matter the manner or ascertainment of which is not
specifically  prescribed herein, the Master Servicer may for all purposes hereof
rely on a  certificate,  signed by the president or any vice president or by the
treasurer or any assistant treasurer or the secretary or any assistant secretary
of the relevant party,  as to such fact or matter,  and such  certificate  shall
constitute  full  protection  to the Master  Servicer  for any  action  taken or
omitted to be taken by it in good faith in  reliance  thereon  without  specific
knowledge to the contrary.

        (k) Reliance on Third Parties. Subject to the Servicing Standard, in the
exercise and performance of its duties and obligations under this Agreement, the
Master  Servicer  may,  at the  expense of the  Master  Servicer,  consult  with
counsel,  accountants  and other skilled  persons to be selected with reasonable
care and  employed  by it,  and the  Master  Servicer  shall not be  liable  for
anything  done,  suffered or omitted in good faith by it in accordance  with the
advice or opinion of any such counsel, accountants or other skilled persons.

         (l) Independent  Contractor.  In performing its obligations as servicer
hereunder the Master  Servicer acts solely as an  independent  contractor of the
Issuer and  Trustee.  Nothing in this  Agreement  shall,  or shall be deemed to,
create or constitute any joint  venture,  partnership  employment,  or any other
relationship  between  the Issuer and the Trustee on the one hand and the Master
Servicer on the other hand,  other than the independent  contractor  contractual
relationship  established hereby. The Master Servicer shall not be and shall not
be deemed to be liable for any acts or obligations of the Issuer or the Trustee,
and,  without  limiting the foregoing,  the Master  Servicer shall not be liable
under or in connection  with the Notes and all Persons having any claim under or
in  respect  of this  Agreement  or the  Indenture  shall look only to the Trust
Estate for payment or satisfaction thereof.


           SECTION 4.4.  Merger; Resignation and Assignment.

         (a) The Master  Servicer may not merge into any  corporation or convey,
transfer or lease substantially all of its assets as an entity, unless and until
the Master Servicer's  successor or a new servicer is approved in writing by the
Issuer  and the  Holders  of Notes  representing  at least 51% of the  aggregate
outstanding  principal  amount of the Notes and is willing to service  the Loans
and Loan Collateral and enter into a servicing agreement with the Issuer and the
Trustee in form and substance reasonably satisfactory to such parties.

         (b) Except as  provided  in Section  2.6  hereinabove  with  respect to
Sub-Servicers,  the Master  Servicer may not assign this Agreement or any of its
rights, powers, duties or obligations hereunder.

         (c) Except as  provided  in  Sections  4.4(a)  and (b),  the duties and
obligations of the Master  Servicer  under this  Agreement  shall continue until
this Agreement  shall have been terminated as provided in Section 6.1, and shall
survive the  exercise by the Issuer or the Trustee of any right or remedy  under
this Agreement, or the enforcement by the Issuer, the Trustee, or any Noteholder
of any provision of the Indenture, the Notes or this Agreement.

           SECTION 4.5.  Indemnities.

         (a) The Master  Servicer shall  indemnify and hold harmless the Trustee
and the Noteholders from and against any losses,  damages, claims or liabilities
arising out of the Master Servicer's breach of this Agreement.
         (b) The Master  Servicer  agrees to  indemnify  the Trustee for, and to
hold the Trustee  harmless  against,  any loss,  liability  or expense  incurred
without  negligence  or bad faith on its part,  arising out of or in  connection
with the  acceptance  or  administration  of the trust  created by the Indenture
(other than taxes, penalties or other liabilities arising in connection with the
Trustee's  failure to withhold  from  payments with respect to the Notes amounts
required to be withheld under the Code, or the Trustee's  withholding  from such
payments  amounts not  required  or  permitted  to be withheld  under the Code),
including the reasonable  costs and expenses,  including  reasonable  attorneys'
fees, of defending  themselves against any claim or liability in connection with
the exercise or performance of any of their powers or duties under the Indenture
provided that:

           (i) with respect to any such claim,  the Trustee shall have given the
Master  Servicer  written notice  thereof  promptly after the Trustee shall have
knowledge  thereof,  provided,  however,  that the  failure of the Trustee to so
notify  the  Master  Servicer  shall not  relieve  the  Master  Servicer  of its
obligations pursuant to this subparagraph;

               (ii)  the Master Servicer shall assume the defense of
      any such claim, provided that if the Master
Servicer shall not have employed counsel reasonably  satisfactory to the Trustee
to direct the defense of such claim within a  reasonable  time after such notice
of the claim  pursuant to paragraph (i) above,  the Trustee shall have the right
to direct the defense of such claim;

              (iii)  the Trustee shall have the right to employ
      separate counsel with respect to any claim and to
participate  in the defense  thereof,  but the fees and expenses of such counsel
shall be at the  expense of the Trustee  unless the payment of such  counsel has
been specifically authorized by the Master Servicer;  provided further, however,
that if the  Trustee  shall  assume the  defense of any claim as a result of the
Master  Servicer's  failure to assume the defense of such claim as  described in
paragraph (ii) above,  the Master  Servicer  shall pay the  reasonable  fees and
expenses of Trustee's counsel in connection with the defense of such claim; and

                     (iv)      notwithstanding anything to the
contrary in this Section  4.5(b),  the Master  Servicer  shall not be liable for
settlement  of any such claim by the  Trustee  entered  into  without  the prior
consent of the Master Servicer.

         (c) The  Provisions  of  Section  4.5(a)  and  (b)  shall  survive  the
termination of this Agreement and the Indenture.


                              ARTICLE 5

                               DEFAULT

           SECTION 5.1.  Events of Default.

         (a) Any of the following acts or occurrences  shall constitute an Event
of Default by the Master Servicer under this Agreement:

                     (i)       any failure by the Master Servicer to
remit any payments  received by it in respect of the Loans or Loan Collateral to
the  Lock Box  Bank in  accordance  with any  provision  hereof  within  two (2)
Business Days after receipt thereof; or

                     (ii)      the Trustee shall not have received a
report in accordance  with Section 3.1(a) hereof within two (2) Business Days of
the date required to be delivered or the Master Servicer shall have defaulted in
the due  observance  of any  provision  of Section 4.2 or Section 4.4 hereof and
such  default  shall  have  continued  for five (5)  Business  Days after it has
obtained knowledge of, or has been notified by the Trustee of such default; or

                     (iii)     the Master Servicer shall default in
the due  performance and observance of any other provision of this Agreement and
such default shall have  continued for a period of 30 days after it has obtained
knowledge of, or has been notified by the Trustee of such default; or

                     (iv)      any representation, warranty or
statement  of the  Master  Servicer  made in  this  Agreement  or by the  Master
Servicer in its capacity as servicer in any certificate, report or other writing
delivered pursuant hereto shall prove to be incorrect in any material respect as
of the time when the same shall have been made; or

                     (v)       the Master Servicer makes an assignment
for the benefit of creditors or is generally not paying its debts as
such debts become due; or

                     (vi)      the Master Servicer petitions or
applies to any  tribunal  for, or  consents  to, the  appointment  of, or taking
possession by, a trustee, receiver, custodian, liquidator or similar official of
the  Master  Servicer,  or of any  substantial  part of the assets of the Master
Servicer,  or commences a voluntary  case under the bankruptcy law of the United
States or any proceedings relating to the Master Servicer,  under the bankruptcy
law of any other jurisdiction; or

                     (vii)     any such petition or application is
filed, or any such  proceedings  are commenced,  against the Master Servicer and
the Master Servicer by any act indicates its approval  thereof,  consent thereto
or acquiescence  therein, or any order, judgment or decree is entered appointing
any such  trustee,  receiver,  custodian,  liquidator  or similar  official,  or
approving  the  petition in any such  proceedings  and such  order,  judgment or
decree remains unstayed and in effect for more than 45 days; or

                     (viii)    any order, judgment or decree is
entered in any proceedings against the Master Servicer decreeing the dissolution
of the Master Servicer and such order,  judgment or decree remains  unstayed and
in effect for more than 60 days; or

                     (ix)      a final judgment for an amount in
excess of  $500,000  (exclusive  of any  portion  thereof  which is  insured) is
rendered  against  the  Master  Servicer,  and  within  60 days  after the entry
thereof,  such judgment is not  discharged  or the  execution  thereof is stayed
pending  appeal,  or within 60 days after the expiration of any such stay,  such
judgment is not discharged.

      (b) Upon the occurrence and  continuance of an Event of Default  specified
in clause (v) or (vi) above, all of the rights and powers of the Master Servicer
under this Agreement shall automatically terminate, including without limitation
all rights of the Master Servicer to receive from and after such termination the
servicing  compensation  provided  for in Section  2.5, or any  compensation  or
expense reimbursement hereunder,  other than to the extent accrued prior to such
termination and not previously  paid. Upon the occurrence and continuance of any
other Event of Default, the Issuer upon direction of the Holders representing at
least 51% of the  aggregate  outstanding  principal  amount of the Notes may, by
notice given to the Master Servicer (with copies to the Issuer and the Trustee),
terminate  all of the  rights  and  powers of the  Master  Servicer  under  this
Agreement,  including  without  limitation all rights of the Master  Servicer to
receive  the  servicing  compensation  provided  for in  Section  2.5.  Upon any
automatic  termination or the giving of the notice  referred to in the preceding
sentence, all rights, powers, duties and responsibilities of the Master Servicer
under  this  Agreement,  whether  with  respect  to the  related  Loans and Loan
Collateral, Payment Account, any Servicing Fee or otherwise shall vest in and be
assumed by a new servicer as provided in Section 4.4(c) of the  Indenture.  From
and  during  the  continuation  of an  Event of  Default,  the  Issuer  upon the
direction of the Holders representing at least 51% of the aggregate  outstanding
principal  amount of the Notes (without  regard to any Notes owned by the Master
Servicer or any of its Affiliates),  are each hereby irrevocably  authorized and
empowered  to  execute  and  deliver,  on  behalf  of the  Master  Servicer,  as
attorney-in-fact  or otherwise,  all documents and other instruments  (including
any  notices to  Hypothecation  Borrowers  and  Consumers  deemed  necessary  or
advisable by the Holders representing at least 51% of the aggregate  outstanding
principal  amount of the Notes (without  regard to any Notes owned by the Master
Servicer or any of its  Affiliates)),  and to do or accomplish all other acts or
things necessary or appropriate to effect such vesting and assumption. Except as
otherwise  expressly  provided in the  Indenture,  the Issuer shall not have any
right to waive any Event of Default by the Master Servicer under this Agreement.

             (c) Promptly  after the Trustee shall have notice of the occurrence
of any Event of Default,  the Trustee shall transmit by mail to all  Noteholders
notice of such Event of Default known to the Trustee.

           SECTION 5.2.   No Effect on Other Parties.

           Upon any  termination of the rights and powers of the Master Servicer
from time to time pursuant to Section 5.1 or upon any appointment of a successor
to the Master Servicer,  all the rights,  powers,  duties and obligations of the
Issuer or the Trustee under this  Agreement or under the Indenture  shall remain
unaffected by such termination or appointment and shall remain in full force and
effect thereafter,  except as otherwise  expressly provided in this Agreement or
in the Indenture.

           SECTION 5.3.  Rights Cumulative.

           All rights and remedies from time to time  conferred upon or reserved
to the Issuer, the Trustee, or the Noteholders or to any or all of the foregoing
are cumulative,  and none is intended to be exclusive of another or any right or
remedy  which  they  may have at law or in  equity.  No  delay  or  omission  in
insisting  upon the strict  observance or  performance  of any provision of this
Agreement,  or in exercising any right or remedy, shall be construed as a waiver
or relinquishment  of such provision,  nor shall it impair such right or remedy.
Every right and remedy may be exercised from time to time and as often as deemed
expedient.

                              ARTICLE 6

                      MISCELLANEOUS PROVISIONS

             SECTION 6.1.  Termination of Agreement.

          (a) The respective  duties and  obligations of the Master Servicer and
the Issuer created by this Agreement shall terminate upon the latest to occur of
(i) the final payment or other liquidation of the last outstanding Loan included
in the Trust  Estate,  (ii) the  satisfaction  and  discharge  of the  Indenture
pursuant to Article VIII of the  Indenture,  and (iii) with respect to any Loan,
the  disposition  of  all  property   acquired  upon  foreclosure  of  any  Loan
Collateral.  Upon termination of this Agreement pursuant to this Section 6.1(a),
the Master  Servicer  shall pay over to the Issuer or any other Person  entitled
thereto all monies received from the  Hypothecation  Borrowers and Consumers and
held by the Servicer.

          (b) Following an Event of Default under the  Indenture,  the successor
to the  rights  of the  Issuer  in  respect  of the  Loans  and Loan  Collateral
(including,  without  limitation,  the  Trustee  or any  or  all of the  related
Noteholders) shall have the right to terminate this Agreement,  by notice to the
Master Servicer and the Issuer. Upon such termination, the Master Servicer shall
be  entitled  to receive  only the  accrued  and unpaid  servicing  compensation
provided  for in  Section  2.5 to the  date of such  termination  and any  other
reimbursement  to which it would  otherwise  be entitled of amounts  theretofore
advanced by it.

             SECTION 6.2.  Amendment.

          (a)  This  Agreement  may  only be  amended  from  time to time by the
Issuer,  the  Servicer  and  the  Trustee,  with  the  consent  of  the  Holders
representing at least 51% of the aggregate  outstanding  principal amount of the
Notes  (without  giving regard to any Notes owned by the Master  Servicer or its
Affiliates)  for the  purpose of adding any  provisions  to or  changing  in any
manner  or  eliminating  any of the  provisions  of  this  Agreement,  provided,
however,  that no such amendment shall, without consent of each Noteholder,  (i)
reduce in any manner the amount of, or the timing of,  payments  received on the
related  Loans which are required to be deposited in the Payment  Account;  (ii)
alter the priorities with which any allocation of funds shall be made under this
Agreement;  (iii)  permit  the  creation  of any  lien  (other  than the lien or
permitted  by the  Indenture)  on the Trust  Estate for the Notes or any portion
thereof or deprive any such Holder of the benefit of this Agreement with respect
to the Trust Estate or any portion  thereof;  or (iv) modify this Section 6.2 or
Section 4.2, 4.3(b) or 4.4.

          (b) Promptly after the execution of any amendment, the Master Servicer
shall  send to the  Trustee a  conformed  copy of each such  amendment,  but the
failure  to do so will not  impair or affect its  validity.  Promptly  after the
execution of any amendment  pursuant to Section 6.2(a) the Issuer shall cause to
be sent to each Noteholder a copy of such amendment.  Any failure to do so shall
not affect the validity of such amendment.

          (c) It shall not be  necessary,  in any consent of  Noteholders  under
this Section 6.2, to approve the particular form of any proposed amendment,  but
it shall be sufficient if such consent shall approve the substance thereof.  The
manner of obtaining  such consents and of evidencing  the  authorization  of the
execution thereof by Noteholders shall be subject to such reasonable regulations
as the Trustee may prescribe.

          (d) Any amendment or modification  effected contrary to the provisions
of this Section 6.2 shall be void.

             SECTION 6.3.  Governing Law.

       This Agreement  shall be construed in accordance with and governed by the
laws of the State of New York,  without regard to the conflict of law provisions
thereof.

             SECTION 6.4.  Notices.

      All notices,  requests or other  communications  desired or required to be
given  under  this  Agreement  shall  be in  writing  and  shall  be sent by (a)
certified or registered  mail,  return receipt  requested,  postage  prepaid,(b)
national prepaid  overnight  delivery  service,  (c) telecopy or other facsimile
transmission  (following  with  hard  copies  to be  sent  by  national  prepaid
overnight  delivery service) or (d) personal delivery with receipt  acknowledged
in  writing,  as  follows:  (i)  if to  the  Issuer,  c/o  Litchfield  Financial
Corporation,  430 Main Street,  Williamstown,  Massachusetts  01267,  Attention:
Executive Vice President, (ii) if to the Master Servicer, to the Master Servicer
at   Litchfield   Financial   Corporation,   430  Main   Street,   Williamstown,
Massachusetts  01267,  Attention:  Executive  Vice  President,  (iii)  if to the
Trustee,  at 450 West 33rd Street, New York, New York 10001,  Attention:  Global
Trust Services,  Structured  Finance Services.  Any of the persons in subclauses
(i) through  (iii) above may change its address for notices  hereunder by giving
notice of such  change to the other  persons.  Any change of address  shown on a
Note Register shall,  after the date of such change,  be effective to change the
address for such Noteholder  hereunder.  All notices and demands shall be deemed
to have been given either at the time of the delivery  thereof to any officer of
the Person  entitled to receive  such notices and demands at the address of such
person for notices  hereunder,  or on the third day after the mailing thereof to
such address, as the case may be.

             SECTION 6.5.  Severability of Provisions.

             If one or more of the provisions of this Agreement shall be for any
reason whatever held invalid or  unenforceable,  such provisions shall be deemed
severable  from the  remaining  covenants,  agreements  and  provisions  of this
Agreement  and such  invalidity or  unenforceability  shall in no way affect the
validity  or  enforceability  of such  remaining  provisions,  the rights of any
parties hereto,  or the rights of the Trustee or any Noteholders.  To the extent
permitted by law, the parties  hereto waive any  provision of law which  renders
any provision of this Agreement invalid or unenforceable in any respect.

             SECTION 6.6.  Binding Effect; Limited Rights of Others.

             The provisions of this Agreement shall be binding upon and inure to
the benefit of the respective  successors and assigns of the parties hereto, and
all such  provisions  shall  inure to the benefit of the Trustee and the related
Noteholders, provided that following an Event of Default under the Indenture and
foreclosure of the Trust Estate pursuant thereto, the successor to the rights of
the  Issuer in  respect  of the  related  Loans and Loan  Collateral  (including
without  limitation the Trustee or any or all of the related  Noteholders) shall
not be bound by the  provisions of this Agreement  unless,  within 90 days after
the date on which such  successor  shall have  succeeded  to such  rights of the
Issuer,  such successor  shall not have  terminated  this Agreement  pursuant to
Section  6.1(b).  Nothing  in this  Agreement  expressed  or  implied,  shall be
construed  to give  any  Person  other  than the  parties  hereto  any  legal or
equitable  right,  remedy or claim under or in respect of this  Agreement or any
covenants, agreements, representations or provisions contained herein.

             SECTION 6.7.  Article and Section Headings.

             The article  and section  headings  herein are for  convenience  of
reference only, and shall not limit or otherwise affect the meaning hereof.

      SECTION 6.8.  Counterparts.

      This  Agreement  may be  executed in several  counterparts,  each of which
shall be an  original  and all of which  shall  constitute  but one and the same
instrument

      IN WITNESS  WHEREOF,  the parties  hereto have caused this Agreement to be
duly executed by their respective  officers  thereunto duly authorized as of the
day and year first above written.


LITCHFIELD HYPOTHECATION CORP. 1998-A

                                By:            /s/  Heather A. Sica
                               Name:  Heather A. Sica
                               Title:  Executive Vice President


                                LITCHFIELD FINANCIAL CORPORATION


                                By:             /s/ Heather A. Sica
                               Name:  Heather A. Sica
                               Title: Executive Vice President


                                THE CHASE MANHATTAN BANK, as Trustee

                          By:  /s/ Cynthia Kerpen
                               Name: Cynthia Kerpen
                               Title: Assistant Vice President






























                                 Exhibit 10.174

INDENTURE  OF TRUST  (herein,  as amended or  supplemented  from time to time as
permitted  hereby,  the  "Indenture"),  dated as of June 1, 1998, by and between
LITCHFIELD HYPOTHECATION CORP. 1998-B, a corporation organized under the laws of
the State of Delaware (the  "Issuer"),  and THE CHASE MANHATTAN BANK, a New York
banking  corporation,  as trustee (together with its permitted successors in the
trusts hereunder, the "Trustee").


                        W I T N E S S E T H:


           WHEREAS,  the  Issuer  proposes  to  issue  from  time  to  time  its
Hypothecation Loan Collateralized  Notes in an aggregate  outstanding  principal
amount not to exceed  $50,000,000  (collectively,  the "Notes") pursuant to this
Indenture and to deliver the net proceeds of the sale thereof to the  Originator
(as such term and such other  capitalized  terms used  herein and not  otherwise
defined are defined in Article I hereof) in consideration of the purchase of the
Loans by the Issuer from the Originator;

           WHEREAS,    Litchfield   Financial   Corporation,   a   Massachusetts
corporation,  in its capacity as servicer (the "Master Servicer")  pursuant to a
Servicing  Agreement,   dated  as  of  June  1,  1998  (herein,  as  amended  or
supplemented from time to time as permitted thereby, the "Servicing Agreement"),
by and among the Issuer, the Master Servicer,  and the Trustee, will service the
Loans;

WHEREAS, as security for the Notes, the Issuer proposes to pledge and assign all
       of the  Issuer's  right,  title and  interest in and to the Loans and the
       Loan  Collateral  (other  than  the  Unassigned  Rights)  to the  Trustee
       pursuant to this Indenture;

           WHEREAS, the Issuer has duly authorized the execution and delivery of
this Indenture to provide for the issuance, payment, administration and securing
of the Notes for the benefit of the Holders thereof;

WHEREAS, the Issuer and the Trustee  agree that the Trustee be  appointed  under
       this  Indenture  and be charged with and accept the trusts and duties set
       forth  in this  Indenture  in  connection  with  the  issuance,  payment,
       administration  and  securing of the Notes under this  Indenture  for the
       benefit of the Holders of the Notes;

WHEREAS, the Trustee has duly  authorized  the  execution  and  delivery of this
       Indenture and is duly  authorized to accept the trusts and to perform its
       obligations under this Indenture;

WHEREAS, all things  necessary to make this  Indenture a valid  agreement of the
       Issuer and the Trustee in accordance with its terms have been done; and

WHEREAS, all things necessary to make the Notes,  when executed and delivered by
       the  Issuer  and  authenticated  by the  Trustee  and  issued  as in this
       Indenture  provided,  the valid,  binding  and legal  obligations  of the
       Issuer according to the import thereof, have been done and performed.



<PAGE>



                           GRANTING CLAUSE

           NOW,  THEREFORE,  in order to secure the payment of the principal of,
interest  on, and all other  amounts  payable  with  respect to, the Notes to be
issued  pursuant to this  Indenture,  and in order to secure the performance and
observance  of all the  covenants and  conditions  contained  herein and in such
Notes, and in order to declare the terms and conditions upon which the Notes are
executed, authenticated,  issued, delivered, secured and accepted by all Persons
who  shall  from  time to  time be or  become  Holders  thereof,  and for and in
consideration of the mutual  covenants  contained  herein,  of acceptance by the
Trustee of the trusts hereby created,  and of the purchase and acceptance of the
Notes by the  Holders  thereof,  the  Issuer has  executed  and  delivered  this
Indenture and by these presents:

The  Issuer  does  hereby  pledge,  bargain,  sell,  warrant,  alienate,
       remise,  convey, assign,  transfer,  create and grant a lien upon
       and a  security  interest  in  and a  right  of  set-off  against
       (collectively,  "Grant")  unto  the  Trustee,  its  successor  or
       successors  and its or their  assigns  forever,  in trust  and as
       collateral  security for the benefit of the Holders of the Notes,
       the Issuer's entire right,  title,  interest and estate,  whether
       now or hereafter  acquired,  in, to and under (i) the Loans; (ii)
       the Loan  Collateral;  (iii) all monies and other property of any
       kind  that  relate to any of the Loans and that are now or at any
       time or times  hereafter in the  possession  or under the control
       of the  Issuer,  the Master  Servicer,  any  Sub-Servicer  or the
       Trustee  or  any  bailee  of  the  Trustee,   including   without
       limitation,  the Lock Box  Account and all monies  therein;  (iv)
       the  Servicing  Agreement,   each  Subservicing  Agreement,  each
       Agency  Agreement,  the Purchase and Sale Agreement,  the Deposit
       Account Assignment and the Payment Direction  Agreement;  (v) all
       books and records of the Issuer to the extent  pertaining  to any
       of (i)  through  (iv) above,  including  all  computer  programs,
       disks,  tapes  and  related  electronic  data  processing  media,
       credit files, account cards, payment records,  correspondence and
       ledgers  in  which  any  of  the   foregoing   are  reflected  or
       maintained;  (vi) all  moneys  and  securities  from time to time
       held by the  Trustee in any  Account  created  under the terms of
       this  Indenture and all  interest,  profits,  proceeds,  or other
       income  derived  from  such  moneys  and  securities;   (vii) the
       present and  continuing  exclusive  right,  power and  authority,
       subject to the  provisions  of the Servicing  Agreement,  to give
       and receive notices and other communications,  to make waivers or
       other  agreements  subject  to the  provisions  of the  Servicing
       Agreement,  to make claims for and demand  performance  on, under
       or pursuant to any of the Loan  Collateral,  to bring actions and
       proceedings  thereunder  or for the  enforcement  thereof  or the
       Loans,  and to exercise  all  remedies,  powers,  privileges  and
       options  and to do any and all things  which the Issuer is or may
       become  entitled  to do under the  Loans or the Loan  Collateral;
       (viii) any  and all  property  of every name and  nature,  now or
       hereafter   transferred,   mortgaged,   pledged  or  assigned  as
       security or  additional  security for payment or  performance  of
       any  obligation  of the  Hypothecation  Borrowers  to the  Issuer
       under  the  Loans  or any of the  Loan  Collateral  or  otherwise
       (other  than  the  Unassigned   Rights),   and  the  liabilities,
       obligations  and  indebtedness  evidenced  thereby  or  reflected
       therein;  and  (ix) all  income,   revenues,   issues,  products,
       revisions,  substitutions,  replacements,  profit and proceeds of
       and  from  all  of  the  foregoing,  including  proceeds  of  and
       unearned  premiums  with respect to insurance  policies  insuring
       any of the Loan Collateral (collectively, the "Trust Estate").

TO     HAVE AND TO HOLD IN TRUST all and singular  the Trust Estate  whether now
       or hereafter  acquired,  unto the Trustee and its successor or successors
       and its or their  assigns  forever  for the benefit of the Holders of the
       Notes, but:

       IN TRUST NEVERTHELESS,  upon the terms, trusts and conditions hereinafter
       set  forth  for  the  equal  and  proportionate  benefit,   security  and
       protection  of all  present  and  future  Holders  of the  Notes  without
       preference,  privilege,  priority  or  distinction  as  to  the  lien  or
       otherwise  of any of the  Notes  over any of the other  Notes,  except as
       otherwise may be provided in this Indenture.

           PROVIDED, HOWEVER, that if the Issuer, its successors or assigns, (I)
shall pay, or cause to be paid,  the  principal  of and  interest  payable  with
respect  to,  the Notes due or to become  due  thereon,  at the times and in the
manner mentioned in the Notes, or shall provide,  as permitted  hereby,  for the
payment  thereof,  (ii) shall keep,  perform and observe all the  covenants  and
conditions  pursuant to the terms of this  Indenture to be kept,  performed  and
observed  by it, and (iii) shall pay or cause to be paid to the Trustee all sums
of money due or to become due to it and any other fiduciary  appointed hereunder
in accordance with the terms and provisions hereof, then, upon the final payment
thereof,  this  Indenture,  all rights of the  Holders  of the Notes  under this
Indenture  and the rights  hereby  granted for the benefit  thereof shall cease,
determine  and be void;  otherwise  this  Indenture  shall be and remain in full
force and effect.

           The  Trustee,  for  itself and its  successors  and  assigns,  hereby
declares  that it shall hold all the estate,  right,  title and  interest in any
property received by it under this Indenture, including, without limitation, the
Trust Estate,  in trust for the benefit of all present and future Holders of the
Notes,  subject to the terms of this  Indenture.  The Trustee  acknowledges  the
Grant of the Trust Estate hereunder,  accepts the trusts hereunder in accordance
with the  provisions  hereof  and  agrees to  perform  fully the  duties  herein
required of it to the end that the  interests of the Holders of the Notes may be
adequately and  effectively  protected in accordance with the provisions of this
Indenture.

THIS   TRUST INDENTURE FURTHER WITNESSETH, and it is expressly declared that all
       Notes issued and secured  hereunder are to be issued,  authenticated  and
       delivered and all said  property,  rights and interests and other amounts
       hereby assigned and pledged,  are to be dealt with and disposed of under,
       upon and  subject  to the  terms,  conditions,  stipulations,  covenants,
       agreements,  trusts, uses and purposes as hereinafter expressed,  and the
       Issuer has agreed and covenanted, and does hereby agree and covenant with
       the Trustee and with the respective Holders of the Notes, as follows:

                              ARTICLE 1

                     DEFINITIONS AND ASSUMPTIONS

      SECTION 1.1  Definitions.  For all purposes of this  Indenture,  except as
otherwise  expressly  provided herein or unless the context otherwise  requires,
capitalized  terms not otherwise defined herein shall have the meanings ascribed
to such terms in Appendix A hereto which is  incorporated  by reference  herein.
All other  capitalized  terms  used  herein  shall have the  meanings  specified
herein.

      SECTION 1.2 Construction.  In this Indenture, unless the context otherwise
requires:

           (a) The terms "hereby," "hereof," "hereto," "herein," "hereunder" and
any similar terms, as used in this Indenture,  refer to this Indenture,  and the
term "hereafter" shall mean after, and the term "heretofore"  shall mean before,
the date of the execution and delivery of this Indenture.

           (b) Words of the masculine gender shall mean and include  correlative
words of the feminine and neuter genders and words importing the singular number
shall mean and include the plural number and vice versa.

           (c)  Words  importing  persons  shall  include  firms,  associations,
partnerships  (including limited partnerships),  trusts,  corporations and other
legal entities, including public bodies, as well as natural persons.

           (c) Any  headings  preceding  the texts of the several  Articles  and
Sections of this Indenture, and any table of contents appended to copies hereof,
shall be solely for  convenience of reference and shall not constitute a part of
this Indenture, nor shall they affect its meaning, construction or effect.

                              ARTICLE 2

                              THE NOTES

      SECTION 2.1  Authorization of Notes; Notes to Constitute Full
Recourse Obligations.

           (a) The Notes issuable hereunder shall be issued as registered Notes,
without coupons,  in one or more series as from time to time shall be authorized
by the Issuer.  The Notes of all series shall be known and entitled generally as
the "Litchfield  Hypothecation  Corp. 1998-B  Hypothecation Loan  Collateralized
Notes." The Notes of each series shall have such further particular  designation
as the Issuer may adopt for each series,  and each Note issued  hereunder  shall
bear upon the face thereof the designation so adopted for the series to which it
belongs;

           (b) The Trustee is hereby authorized and directed to authenticate and
deliver a series of Notes of the Issuer which shall be designated as "Litchfield
Hypothecation Corp. 1998-B  Hypothecation Loan  Collateralized  Notes, Series A"
(the "Series A Notes").  The Trustee is hereby  authorized to  authenticate  and
deliver to the  Purchaser  on the  Closing  Date  Series A Notes in the  initial
principal amount of $15,841,431.90.

           (c) The Trustee is hereby  authorized to  authenticate  and deliver a
series of Notes of the Issuer  which  shall be  designated  from time to time as
"Litchfield  Hypothecation Corp. 1998-B Hypothecation Loan Collateralized Notes,
Series B Variable  Funding Notes (the "Variable  Funding Notes") at any time and
from time to time on or after the Closing Date, the Trustee is hereby authorized
upon the direction of the Issuer to authenticate  and deliver  Variable  Funding
Notes in any principal amount in excess of $25,000;  provided,  however, that no
authorization  and delivery of Variable  Funding Notes shall be  authorized  if,
after giving  effect to the  principal  amount of Variable  Funding  Notes to be
issued, the aggregate principal amount of all Notes outstanding would exceed the
Note Limit.  The  Variable  Funding  Notes shall be  revolving  variable  amount
funding  Notes issued by the Issuer for the purpose of funding  Future  Advances
made by the  Originator  to the  Hypothecation  Borrowers  and  assigned  to the
Issuer.  Any  Noteholder  of Variable  Funding Notes that  purchases  additional
Variable Funding Notes (or at such Holder's direction,  the Trustee) may, and is
hereby  authorized to, record on the grid attached to such Noteholder's Note the
date and amount of any additional  principal to be evidenced thereby;  provided,
however, that the failure to make any such recordation on such grid or any error
on such grid  shall not  affect  any  Noteholder's  rights  with  respect to the
principal amount of such Note, or interest thereon. At any time and from time to
time after the Closing Date, any Holder of Variable Funding Notes shall have the
right,  upon  written  notice to the Trustee and the Issuer and  delivery of the
Variable  Funding Note to be converted to the Trustee,  to convert not less than
$750,000 in aggregate  outstanding  principal  amount of Variable  Funding Notes
into Series C Notes of a like aggregate  principal amount.  Any Variable Funding
Note so converted shall be cancelled by the Trustee.

           (d) The Trustee is hereby  authorized to  authenticate  and deliver a
series of Notes of the Issuer  which  shall be  designated  from time to time as
"Litchfield  Hypothecation Corp. 1998-B Hypothecation Loan Collateralized Notes,
Series C" (the "Series C Notes").  At any time and from time to time on or after
the Closing Date, the Trustee is hereby authorized upon receipt from a Holder of
Variable Funding Notes of written notice requesting  conversion of such Variable
Funding  Notes  pursuant to Section  2.1(c) hereof  (which  conversion  shall be
effective as of a Payment Date specified in the request for  conversion) and the
Variable  Funding Notes to be converted,  to  authenticate  and deliver Series C
Notes to such  Holder in a like  aggregate  principal  amount  as the  aggregate
outstanding amount of the Variable Funding Notes converted.

           (e) The Notes  shall  constitute  full  recourse  obligations  of the
Issuer.   The  Notes  when  issued  shall  not  constitute  direct  or  indirect
indebtedness or obligations of the Master  Servicer or the  Originator.  Neither
the Master  Servicer  nor the  Originator  shall be liable to the Holders of the
Notes for the  payment of the  principal  thereof and  interest  thereon for any
liability   under  this   Indenture.   The  foregoing  shall  not  diminish  the
Originator's  obligations  under the Guarantee.  Neither the Notes nor the Loans
are insured by any governmental agency.

      SECTION 2.2 Forms of Notes and  Certificate of  Authentication.  The Notes
and the Trustee's  certificate of  authentication  shall be in substantially the
forms set forth in Exhibit A attached  hereto,  with  necessary  or  appropriate
variations, omissions and insertions, as permitted or required by this Indenture
and may have such  letters,  numbers or other marks of  identification  and such
legends  or  endorsements  placed  thereon  as  may,  consistent  herewith,   be
determined by the Authorized  Officers of the Issuer  executing  such Notes,  as
evidenced by their execution of such Notes. The definitive Notes shall be typed,
photocopied, printed, lithographed or engraved or produced by any combination of
these methods (with or without steel engraved borders), all as determined by the
Authorized  Officers of the Issuer  executing such Notes,  as evidenced by their
execution of such Notes.

      SECTION 2.3 Authorized Principal Amount. The aggregate principal amount of
the Notes  that may be  authenticated,  delivered  and  Outstanding  under  this
Indenture is  $50,000,000.  All Notes shall be identical in all respects  except
for the maturity thereof, the interest rate thereon,  the denominations  thereof
and such  differences  to reflect the revolving  nature of the Variable  Funding
Notes.  All Notes issued under this  Indenture  shall in all respects be equally
and ratably  entitled to the benefits  hereof  without  preference,  priority or
distinction  on  account  of the  actual  time or  times of  authentication  and
delivery, all in accordance with the terms and provisions of this Indenture.

      SECTION   2.4  Date  of  Notes;   Denominations.   (i)  Notes   which  are
authenticated and delivered by the Trustee to or upon the order of the Issuer on
the Closing  Date shall be dated as of the Closing  Date.  Other series of Notes
which  are  authenticated  after  the  Closing  Date  shall  be  dated as of the
respective  Closing date therefor.  All other Notes which are  authenticated for
any other purpose hereunder shall be dated the date of their authentication. The
Series A Notes  shall be  issued  in  minimum  denominations  of  $100,000,  the
Variable  Funding Notes shall be issued in minimum  denominations of $25,000 and
the Series C Notes shall be issued in minimum denominations of $750,000.

            (ii) Notes issued upon transfer, exchange, conversion or replacement
of other  Notes  shall be  issued in  authorized  denominations  reflecting  the
original  aggregate  principal  amount of the Notes so  transferred,  exchanged,
converted or replaced,  but shall  represent  only the then current  outstanding
principal amount of the Notes so transferred,  converted, exchanged or replaced.
In the event that any Note is divided into more than one Note in accordance with
the   provisions   hereof,   the   principal   amount  of  such  Note  shall  be
proportionately divided among the Notes delivered in exchange therefor.

      SECTION 2.5   Execution, Authentication, Delivery and Dating.
(i)  Each Note shall be executed on behalf of the Issuer with the
manual or facsimile signature of an Authorized Officer of the Issuer.

            (ii) Notes bearing the manual or facsimile  signature of individuals
who were at any time  Authorized  Officers of the Issuer  shall bind the Issuer,
notwithstanding  that such  individuals  or any of them have ceased to hold such
offices prior to the  authentication  and delivery of such Notes or did not hold
such offices at the date of such Notes.

            (iii) At any time and from  time to time  after  the  execution  and
delivery of this Indenture,  the Issuer may deliver Notes executed by the Issuer
to the Trustee for  authentication.  Upon a written order from the Issuer (which
order shall be in the form of Exhibit B hereto) the Trustee  shall  authenticate
and deliver such Notes as in this Indenture provided and not otherwise.  No Note
shall be entitled to any benefit under this  Indenture or be valid or obligatory
for  any  purpose,   unless  there  appears  on  such  Note  a  certificate   of
authentication  substantially in the form set forth in Exhibit A hereto executed
by the Trustee by the manual signature of an Authorized  Officer of the Trustee,
and such  certificate upon any Note shall be conclusive  evidence,  and the only
evidence, that such Note has been duly authenticated and delivered hereunder.

      SECTION 2.6   Transfer and Registry; Exchange; Negotiability.

           (a) (i) Each Note  shall be  transferable  only upon the books of the
Issuer (the "Note Register"), which shall be kept for that purpose at the office
of the Person  acting as  registrar  of the Issuer (the "Note  Registrar").  The
Trustee is hereby designated as the Note Registrar. Subject to the provisions of
paragraph  (b) of this Section 2.6, the transfers of any Note may be effected on
the books of the Issuer by the Holder  thereof in person or by his attorney duly
authorized in writing, upon surrender thereof together with a written instrument
of transfer  satisfactory  to the Note  Registrar duly executed by the Holder or
its duly  authorized  attorney.  Upon the transfer of any such Note,  the Issuer
shall  issue  in the  name of the  transferee  a new  Note or  Notes of the same
aggregate  principal amount, the same series,  interest rate and maturity as the
surrendered Note.

            (ii) At the option of the Holder,  Notes may be exchanged  for other
Notes of any authorized denominations, and of a like aggregate principal amount,
series,  interest rate and maturity, upon surrender of the Notes to be exchanged
at such office or agency.  Whenever any Notes are so  surrendered  for exchange,
the Issuer shall execute,  and the Trustee shall  authenticate and deliver,  the
Notes which the Noteholder making the exchange is entitled to receive.

           (iii) All Notes issued upon any  registration of transfer or exchange
of Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.

           (iv) Every Note presented or surrendered for registration of transfer
or  exchange  shall  (if so  required  by the  Issuer  or the  Trustee)  be duly
endorsed,  or be  accompanied  by a  written  instrument  of  transfer  in  form
satisfactory  to the  Trustee,  duly  executed,  by the  Holder  thereof  or his
attorney duly authorized in writing.

                     (b)  Each Note shall bear the following legend:

           "THE NOTES HAVE NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933
      ("1933 ACT"),  OR THE SECURITIES  LAWS OR "BLUE SKY" LAWS OF ANY STATE AND
      HAVE BEEN SOLD IN RELIANCE UPON AN EXEMPTION  PROVIDED IN THE 1933 ACT AND
      APPLICABLE  STATE  SECURITIES AND BLUE SKY LAW. THE NOTES MAY NOT BE SOLD,
      TRANSFERRED,   PLEDGED,  HYPOTHECATED  OR  OTHERWISE  DISPOSED  OF  UNLESS
      SUBSEQUENTLY REGISTERED UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES
      AND BLUE SKY LAW OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."

                     (c)  No Note or any beneficial interest therein
may be  sold  or  transferred  (including,  without  limitation,  by  pledge  or
hypothecation) unless such transfer is exempt from the registration requirements
of the 1933 Act and any applicable state securities and blue sky laws or is made
in accordance with said Act and state laws. As a condition precedent to any such
transfer,  a certificate  or  certificates  in the form of Exhibit C hereto,  as
appropriate, shall be delivered to the Trustee.

                     (d)  None of the Issuer, the Note Registrar or
the Trustee is  obligated  to register the Notes under the 1933 Act or any other
securities law.

      SECTION 2.7  Regulations  With Respect to Exchanges and Transfers.  In all
cases in which the privilege of exchanging or  transferring  Notes is exercised,
the Issuer shall execute and the Trustee shall authenticate and deliver Notes in
accordance  with the  provisions of this  Indenture.  For every such exchange or
registration of transfer of Notes,  whether temporary or definitive,  the Issuer
and the Trustee may require the payment of a sum  sufficient to cover any tax or
other  governmental  charge required to be paid with respect to such exchange or
registration  of transfer.  Neither the Issuer nor the Trustee shall be required
to register  the  transfer of or exchange  Notes for a period  beginning  on the
Record Date next preceding a Payment Date and ending on such Payment Date.
      SECTION 2.8   Mutilated, Destroyed, Stolen or Lost Notes.

                     (a)  In case any Note shall become mutilated or
be  destroyed,  stolen or lost,  the Issuer shall  execute,  and  thereupon  the
Trustee shall authenticate and deliver,  a new Note of like aggregate  principal
amount, series, interest rate and maturity as the Note so mutilated,  destroyed,
stolen or lost,  in exchange and  substitution  for such  mutilated  Note,  upon
surrender and cancellation of such mutilated Note or in lieu of and substitution
for the Note destroyed,  stolen or lost,  upon filing with the Trustee  evidence
satisfactory  to the Issuer and the Trustee  that such Note has been  destroyed,
stolen or lost and proof of ownership  thereof,  and upon  furnishing the Issuer
and Trustee  with such  security or indemnity as may be required by them to save
each of them harmless (an unsecured  agreement of indemnity of a Purchaser being
deemed  sufficient for this purpose) and upon payment of any tax or governmental
charge the Issuer and Trustee may incur. All Notes so surrendered to the Trustee
shall be canceled by it. Any such new Notes issued  pursuant to this Section 2.8
in  substitution  for  Notes  alleged  to be  destroyed,  stolen  or lost  shall
constitute  original  additional  contractual  obligations  on the  part  of the
Issuer,  whether  or not the Notes so alleged  to be  destroyed,  stolen or lost
shall be found at any time, or be  enforceable  by anyone,  and shall be equally
secured by, and  entitled  to equal and  proportionate  benefits  with all other
Notes issued under the Indenture.

                     (b)  Notwithstanding the foregoing provisions of
this Section 2.8, in the event any such Note shall have matured,  and no default
has  occurred  which is then  continuing  in the payment of the  principal of or
interest on the Notes,  the Issuer may  authorize  the payment of the same (upon
surrender  thereof as provided in Section  2.9)  instead of issuing a substitute
Note,  provided  security or  indemnification  is furnished as above provided in
this Section 2.8.

                     (c)  The provisions of this Section 2.8 are
exclusive  and shall  preclude  (to the  extent  lawful)  all of the  rights and
remedies  with respect to the payment of  mutilated,  lost,  stolen or destroyed
Notes,  including  those granted by any law or statute now existing or hereafter
enacted.

      SECTION 2.9 Medium of Payment; Payment of Principal and Interest.

                     (a)  The Notes shall be payable in lawful
currency of the United States of America and shall be payable by check mailed by
first class mail to the Person entitled  thereto at such Person's  address as it
appears on the Note Register on the applicable  Record Date except that payments
to  Holders  of in  excess  of one  million  dollars  ($1,000,000)  of  original
principal amount of the Notes shall be made in immediately available funds to an
account at a banking institution in the United States; provided that such Holder
has  provided  to the  Trustee  no later  than two  Business  Days  prior to the
relevant  Payment  Date  its  wire  transfer  instructions  (the  wire  transfer
instructions  of the  Purchaser  set forth in the Note  Purchase  Agreement  are
deemed sufficient for all payments on the Notes held by the Purchaser).

                     (b)  Each Note shall bear interest on the
outstanding principal amount thereof from and including (i) June 29, 1998 in the
case of the Series A Notes,  and (ii) in the case of the Variable Funding Notes,
the Series C Notes and any  subsequent  series of Notes,  from and including the
Closing date therefor, and, in each case, the most recent date to which interest
has been paid until paid.  Interest shall accrue on the principal  amount of the
Series A Notes and the Variable  Funding  Notes at the end of each day at a rate
per annum  equal to 2.10%  plus the LIBOR  Rate,  as  determined  by the  Master
Servicer  and set forth in the Master  Servicer's  Certificate.  Interest  shall
accrue on the Series C Notes and any subsequent  series of Notes at a rate to be
determined  by the Master  Servicer  on or before the Closing for such series of
Notes.  The term "LIBOR  Rate" shall mean the rate  published in The Wall Street
Journal under "Money Rates" (or if such publication  shall cease to publish such
rate, then the rate published in such other nationally recognized publication as
the  Trustee  may from time to time  specify)  as the  average of the  interbank
offered rates for U.S. Dollar deposits in the London interbank market for a term
of one month,  based on quotations at 5 major banks. The LIBOR Rate for each day
of a Payment  Period shall be the rate so published on the first Business Day of
such Payment  Period.  Interest shall accrue at the Default Rate with respect to
the principal amount of any portion of the Notes that is not paid on the Payment
Date for such  principal  (whether  due at  stated  maturity,  on  demand,  upon
acceleration  or  otherwise)  until paid in full.  Interest  shall be calculated
daily and shall be computed on the basis of a 360-day  year of twelve  months of
30 days each.

                      (c)  (i)  On each Payment Date, payments of
principal of the Notes will be due in an amount equal to the  Principal  Payment
Amount in respect of the aggregate Loans as of such Payment Date.

            (ii) (A) If any of the  representations  or warranties  contained in
Section 3 of the Purchase and Sale Agreement  shall prove to be, in any material
and adverse respect,  false, incorrect or misleading as to any Loan, the Issuer,
at its expense, shall promptly take such action as is necessary and use its best
efforts to cause such false, incorrect or misleading  representation or warranty
to be, in all material  respects,  true,  correct and not misleading,  within 30
days following the giving of written notice to the Issuer by the Trustee of such
false,  incorrect or misleading  representation or warranty (provided,  however,
that the Trustee shall have no obligation to  investigate  or determine  whether
any such  representation  is false,  incorrect or  misleading)  or following the
discovery thereof by the Issuer.

           (C)If within the  applicable  time period set forth in paragraph  (A)
              above the Issuer fails
to cure,  in all material  respects,  any such  representation  or warranty with
respect  to a Loan  which is,  in any  material  respect,  false,  incorrect  or
misleading,  then,  the Issuer  shall as soon as possible  but in no event later
than 60 days following notice or discovery of the false, incorrect or misleading
representation  or warranty,  take all actions necessary or advisable under this
Indenture and the Purchase and Sale Agreement to (i) cause the Trustee to redeem
(pursuant to the exercise of the Repurchase  Option set forth in Section 4(b) of
the "Purchase and Sale  Agreement"),  on a pro rata basis among the  outstanding
Notes, an aggregate principal amount of the Notes equal to

the  outstanding  principal  amount of the Loan with respect to which the false,
incorrect or misleading  representation or warranty was made, and to pay accrued
interest on such  redeemed  Notes to the date of  redemption  or (ii),  with the
consent  of the  Holders  of at  least  66  2/3%  of the  aggregate  outstanding
principal  amount  of the  Notes,  substitute  a new Loan for  such  Loan.  As a
condition to granting such consent the Noteholders  shall be entitled to conduct
a credit review of the proposed substitute substitute Loan.

            (iii) The Issuer  shall have the right to prepay  all,  but not less
than all, of any series of outstanding Notes at any time after the date on which
the aggregate  outstanding principal amount of such series of Notes equals or is
less than 10% of the initial aggregate principal amount of such series of Notes.

            (iv) In the event that,  pursuant to the terms of the  Purchase  and
Sale  Agreement,  the Originator has notified the Issuer that (A) the Originator
intends to exercise Unassigned Rights in respect of a Loan and (B) such exercise
of  Unassigned  Rights  requires  the  release of such Loan from the Lien of the
Trust Estate  hereunder,  the Issuer shall have the right to prepay an aggregate
outstanding  principal  amount of the Notes equal to the principal amount of the
Loan released hereunder. Upon such prepayment, together with accrued interest on
such prepaid  Notes to the date of  prepayment,  the Trustee  shall  release the
related Loan in accordance with Section 8.3 hereof.

            (v)  All  unpaid   principal  of  the  Notes  shall  mature  and  be
immediately due and payable at Stated Maturity.

           (vi) Payments of principal (as a result of  prepayments or otherwise)
to be made will be allocated  pro rata among the Notes in the  proportion  which
the outstanding principal amount of each Note bears to the aggregate outstanding
principal  amount of the Notes of all series as of the first day of the month in
which the Payment Date occurs.

            (vii) All  reductions in the principal  amount of a Note effected by
payments of  installments of principal made on any Payment Date shall be binding
upon all future Holders of the Note and of any Note issued upon the registration
of transfer thereof or in exchange  therefor or in lieu thereof,  whether or not
such payment is noted on such Note.

            (viii) Whenever the entire  remaining unpaid principal amount of the
Notes will become due and payable on the next Payment  Date,  the Trustee  shall
notify  the  Person in whose  name such  Note is  registered  as of the close of
business  on the  Record  Date  prior  to such  Payment  Date  that  such  final
installment  is expected to be paid on such Payment  Date.  Such notice shall be
given by the Trustee in the name and at the expense of the Issuer by first-class
mail,  postage prepaid,  mailed no later than the Business Day following the day
on which the Trustee receives the Master Servicer's  Certificate with respect to
such Payment Date.  Such notice shall set forth the following  information:  the
fact of such expectation of payment in full, restating the requirement set forth
in this Indenture that such payment shall be payable only upon  presentation  of
such  Note (or in the case of  mutilated,  destroyed,  lost or stolen  Notes,  a
certificate  to  that  effect  and  an  indemnity  (or  unsecured  agreement  of
indemnity)  as provided  in Section  2.8  hereof) on or after the  Payment  Date
therefor at the  corporate  trust office of the Trustee for  payment,  the place
where such Notes are to be  surrendered  for payment and that no interest  shall
accrue on the principal of such Notes for any period after such Payment Date.

            (ix) The  final  installment  of  principal  of any Note made on any
Payment  Date shall be  payable,  subject to Section  2.8(b)  hereof,  only upon
presentation  of such  Note (or in the  case of  mutilated,  destroyed,  lost or
stolen  Notes,  a  certificate  to that effect and an  indemnity  (or  unsecured
agreement  of  indemnity)  as  provided  in Section  2.8 hereof) on or after the
Payment Date therefor at the corporate  trust office of the Trustee for payment;
provided,  however, that this requirement of presentation shall not apply to the
Purchaser if it furnishes to the Trustee its unsecured agreement of indemnity in
the same manner as is permitted by Section 2.8 hereof.

      SECTION 2.10 Persons Deemed Owners.  The Issuer,  the Trustee and the Note
Registrar  may  deem and  treat  the  Person  in  whose  name any Note  shall be
registered  upon the Note Register as the absolute  owner of such Note,  whether
such Note shall be overdue or not, for the purpose of  receiving  payment of, or
on account  of, the  principal  of and  interest  on such Note and for all other
purposes,  and all such  payments  so made to any such  Holder or upon his order
shall be valid and effective to satisfy and  discharge  the liability  upon such
Note to the  extent of the sum or sums so paid,  and  neither  the  Issuer,  the
Trustee nor the Note Registrar shall be affected by any notice to the contrary.

      SECTION 2.11 Cancellation. All Notes surrendered upon payment of the final
installment  of  principal  pursuant  to  Section  2.9(c)  hereof  or  otherwise
surrendered  for  registration  of  transfer,  conversion  or exchange  shall be
delivered to the Trustee and shall be promptly canceled by it. The Issuer may at
any  time  deliver  to  the  Trustee  for   cancellation  any  Notes  previously
authenticated and delivered  hereunder which the Issuer may have acquired in any
manner whatsoever,  and all Notes so delivered shall be promptly canceled by the
Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes
canceled as provided in this  Section,  except as  expressly  permitted  by this
Indenture.

     SECTION 2.12 Access to List of Noteholders'  Names and Addresses.  The Note
Registrar  will furnish or cause to be  furnished to the Trustee,  the Issuer or
any  Noteholder  promptly  after  receipt  by the Note  Registrar  of a  request
therefor from the Trustee,  the Issuer or such Noteholder in writing, a list, in
such form as the Trustee,  the Issuer or such Noteholder may reasonably require,
of the primary  contacts,  names and addresses of the Noteholders as of the most
recent Record Date. Every Noteholder by receiving and holding Notes, agrees with
the Issuer,  the  Registrar  and the Trustee that  neither the Issuer,  the Note
Registrar nor the Trustee shall be held  accountable by reason of the disclosure
of any  such  information  as to the  names  and  addresses  of the  Noteholders
hereunder, regardless of the source from which such information was derived.

      SECTION 2.13   Acts of Noteholders.

            (a) Any request, demand, authorization,  direction, notice, consent,
waiver  or  other  action  provided  by this  Indenture  to be given or taken by
Noteholders  may be  embodied in and  evidenced  by one or more  instruments  of
substantially  similar tenor signed by such Noteholders in person or by an agent
duly appointed in writing,  and, except as herein otherwise  expressly provided,
such action shall become  effective  when such  instrument  or  instruments  are
delivered to the Trustee and where required to the Issuer. Proof of execution of
any  such  instrument  or of a  writing  appointing  any  such  agent  shall  be
sufficient  for any purpose of this  Indenture  and  conclusive  in favor of the
Trustee and the Issuer if made in the manner provided in this Section 2.13.

            (b) The fact and date of the execution by any Noteholder of any such
instrument or writing may be proven in any  reasonable  manner which the Trustee
deems sufficient.

                    (c)   The ownership of Notes shall be proven by the
Note Register.

           (d) Any request, demand,  authorization,  direction, notice, consent,
waiver or other act by a Noteholder shall bind every Holder of Notes issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof,
in respect of anything  done, or omitted to be done by the Trustee or the Issuer
in reliance  thereon,  whether or not  notation of such action is made upon such
Notes.

                           (e)  The Trustee may require such
additional proof of any matter referred to in this Section 2.13 as it shall deem
necessary.

      (f) Any Notes owned by the Issuer,  the Master  Servicer , or any of their
respective  Affiliates (other than Notes which have been pledged or collaterally
assigned by any of them) shall not be considered outstanding for the purposes of
determining whether any act of the Noteholders hereunder has been validly taken,
whether it shall be providing consent, granting waivers or otherwise.

                               ARTICLE 3

                          ISSUANCE OF NOTES

      SECTION 3.1 Conditions to Authentication and Delivery of Notes.  Following
execution  and delivery of this  Indenture by the Issuer and the Trustee,  Notes
shall from time to time be executed by the Issuer and  delivered  to the Trustee
for  authentication  and  delivery  together  with the  written  order  required
pursuant to Section 2.5 hereof, and, thereupon, the same shall be authenticated;
provided, however, that on or before the authentication and delivery of Notes on
the  initial  Closing  Date,  and,  as a condition  to such  authentication  and
delivery,  the Trustee, or the Collateral Agent on behalf of the Trustee,  shall
have received the following:

                   (i)  A List of Loans, certified by an Authorized
      Officer of the Master Servicer;

                (ii) The originals of each Loan Document relating to each Loan;

            (iii)  If any of the Transaction Documents include an instrument
      executed by a
Hypothecation  Borrower or a Consumer, the original instrument endorsed in blank
by the Hypothecation  Borrower or Consumer, or, if endorsed to the Originator or
the Issuer,  endorsed in blank by an Authorized Officer of the Originator or the
Issuer;

                  (iv)  The originals of all Consumer Financing
Document;

           (v) If any of the Loan Collateral  consists of real estate encumbered
by a Mortgage,  an original or copy  time-stamped by the  appropriate  recording
office of the  recorded  Mortgage  and an original or copy  time-stamped  by the
appropriate  recording  office of all  amendments  to such Mortgage and , to the
extent obtained by the Originator, a title insurance policy insuring the lien of
the mortgage;

            (vi)  A copy of an officially certified document, dated not more
      than 30 days prior to the
Closing  Date (and,  if  available,  confirmed  on the Business Day prior to the
Closing Date by telegram,  telephone or other similar means), evidencing the due
organization and good standing of the Issuer;

                     (vii) A certificate of an Authorized Officer of
      the Issuer dated as of the Closing Date,
certifying that (a) the Issuer is not in Default under this  Indenture;  (b) the
issuance  of the Notes  applied  for will not result in any breach of any of the
terms, conditions or provisions of, or constitute a default under any indenture,
mortgage,  deed of trust or other agreement or instrument to which the Issuer is
a party or by which it or its  property  is bound or any  order of any  court or
administrative  agency  entered in any Proceeding to which the Issuer is a party
or by which it or its property may be bound or may be subject; (c) the Issuer is
the owner of each Loan Granted to the  Trustee;  the Issuer has not assigned any
interest  or  participation  in any such Loan;  and the Issuer has full right to
Grant each such Loan to the  Trustee;  (d) the Issuer has Granted to the Trustee
all of its right,  title, and interest in each Loan Granted to the Trustee;  (e)
other than liens created under or pursuant to the Indenture, the Trust Estate is
free and clear of any  pledge,  charge or  encumbrance  thereon or with  respect
thereto  created by or  through  the  Issuer,  and all action on the part of the
Issuer to that end has been duly and validly  taken;  (f) after giving effect to
the issuance of the Notes,  the aggregate  outstanding  principal  amount of the
Notes will not exceed the Note Limit; and (g) all conditions  precedent provided
in this Indenture  relating to the issuance,  authentication and delivery of the
Notes applied for have been complied with;

           (viii) An Opinion of Counsel (or Opinions of Counsel) to the Issuer,
      addressed to the
Trustee  and the  Purchaser  and dated as of the date of  authentication  of the
Notes applied for, in the form attached hereto as Exhibit D;

           (ix)   A fully executed copy of each of the following agreements:

                     (A)  this Indenture;

                             (B)  the Servicing Agreement;

                     (C)  the Agency Agreements;

                     (D)  the Purchase and Sale Agreement;

                     (E)  the Deposit Account Assignment; and

                             (F)  the Payment Direction Agreement.

         (x) A certificate of an Authorized  Officer of the Issuer,  dated as of
the date of  authentication  of the Notes applied for, that the Issuer has filed
or caused to be filed UCC-1 financing  statements in the  appropriate  recording
offices executed by the Issuer,  as debtor,  and naming the Trustee,  as secured
party, and the Loans and Loan Collateral as collateral;

  (xi)  Copies of resolutions of the Board of Directors of the Master Servicer
      approving the
execution,   delivery  and  performance  of  the  Servicing  Agreement  and  the
transactions contemplated thereby,  certified by the Clerk or an Assistant Clerk
of the Master Servicer;

         (xii)  A copy of an officially certified document, dated not more
      than 30 days prior to the
date of authentication of the Notes applied for (and, if available, confirmed on
the  Business Day prior to such date by  telegram,  telephone  or other  similar
means), evidencing the due organization and good standing of the Master Servicer
in the state of its organization; and

         (xiii)  Other.  Such other documents as may be reasonably requested by
      the Trustee or the
Purchaser.   Notwithstanding  the  foregoing,   for  each  Loan  constituting  a
Participation Interest, in lieu of the foregoing documents,  the Trustee, or the
Collateral  Agent on behalf of the  Trustee,  shall have  received a copy of the
Loan Documents and the original  participation  certificate endorsed in blank by
an Authorized Officer of the Originator.

        SECTIONVI3.2    Additional Document Deliveries; Post Closing Matters

                    (a) Within 90 days of the  Closing  Date,  the Issuer  shall
deliver to the Trustee (or the  Collateral  Agent) with respect to each Mortgage
received by a Hypothecation  Borrower from a Consumer and collaterally  assigned
to the  Originator,  the  original  or  copy  time-stamped  by  the  appropriate
recording  office  of such  collateral  assignment  and an  original  collateral
reassignment of such Mortgage (which may be contained in a blanket reassignment)
from the  Originator to the Issuer and from the Issuer to the Trustee (which may
be  contained  in one  instrument),  executed in blank and in form  suitable for
recording  by the  Trustee  (or the  Collateral  Agent)  at any time an Event of
Default exists.

            (b) On or before any Closing  after the Closing Date, as a condition
to the  authentication  and delivery of Notes on the date of such  Closing,  the
Trustee,  or the Collateral Agent on behalf of the Trustee,  shall have received
(i) the documents  specified in Sections 3.1(i) through 3.1(v) above, and (ii) a
certificate  of an  Authorized  Officer  of the  Issuer  dated  the date of such
Closing, certifying as to the matters set forth in Section 3.1 (vii) above.

            (c) Within 90 days of the Closing  Date,  the Issuer shall cause all
lock-box or collection  accounts in respect of the Loans or the Loan  Collateral
which on the Closing  Date are owned or in the name of the "Master  Servicer" to
be transferred to an account or accounts in the name of the Trustee. The Trustee
shall not have any  obligations  with  respect to any such  account,  including,
without  limitation,  any obligation to direct investments in such account or to
respond to any inquiry with respect to any such account.

                               ARTICLE 4

                        COVENANTS OF THE ISSUER

      SECTION 4.1 Payment of Principal  and  Interest.  The Issuer will duly and
punctually pay the principal of and interest on the Notes in accordance with the
terms of the Notes and this Indenture.

      SECTION 4.2 Maintenance of Existence.

            (a) Except as permitted by Section  4.2(b),  the Issuer will keep in
full effect its existence, rights and franchises as a corporation under the laws
of the  State of its  organization  and the  Issuer or any  permitted  successor
hereunder 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  Indenture,  the
Notes, the Servicing  Agreement or any of the Loan Documents.  The Issuer at all
times shall hold  itself out as having an  existence  separate  from that of the
Master  Servicer,  and shall keep books and records  separate  from those of the
Master Servicer.

            (b) Any Person into which the Issuer hereunder may be merged or with
which it may be  consolidated on an involuntary  basis, or any Person  resulting
from any such merger or  consolidation  to which the Issuer hereunder shall be a
party,  shall be the successor Issuer under this Indenture without the execution
or filing of any paper,  instrument or further act to be done on the part of the
parties hereto,  anything herein, or in any agreement relating to such merger or
consolidation, by which any such successor Issuer may seek not to retain certain
powers,  rights  and  privileges  theretofore  obtaining  for any period of time
following such merger or consolidation, to the contrary notwithstanding.

      SECTION 4.3  Protection of Trust Estate.  (a) The Issuer will from time to
time execute and deliver or cause to be delivered all amendments  hereto and all
such  financing  statements,  continuation  statements,  instruments  of further
assurance and other  instruments,  and will take such other action  necessary or
advisable to:

                   (i)    Grant more effectively all or any portion of
      the Trust Estate;

                   (ii) maintain or preserve the lien (and the priority
      thereof) of this Indenture or carry out
more effectively the purposes hereof;

           (iii)  perfect, publish notice of, or protect the validity
of any Grant made or to be made by this Indenture;

             (iv)  preserve and defend title to the Trust Estate and the
      rights of the Trustee, and of the
Noteholders secured thereby, in such Trust Estate against the claims
of all Persons and parties; and

                   (v)    pay any and all taxes levied or assessed
      upon all or any part of the Trust Estate.

                   (b) The Issuer  hereby  designates  the Trustee its agent and
attorney-in-fact  to  execute,  upon the  Issuer's  failure to do so in a timely
manner,  any financing  statement,  continuation  statement or other  instrument
required pursuant to this Section 4.3. Such power of attorney is coupled with an
interest and  irrevocable,  and the Issuer hereby ratifies and confirms all that
the Trustee may do by virtue thereof.  Such  designation  shall not be deemed to
create a duty in the  Trustee to monitor the  compliance  by the Issuer with the
foregoing  covenants,  and the duty of the  Trustee  to execute  any  instrument
required  pursuant  to this  Section  4.3 shall  arise only if the  Trustee  has
knowledge of the type  described in Section  9.1(e) hereof of any Default by the
Issuer in complying with the provisions of this Section 4.3.

      SECTION 4.4 Enforcement of Servicing Agreement.

                   (a) The Noteholders agree that (i) the Issuer and the Trustee
are  hereby  authorized  to engage  the Master  Servicer  to  service  the Loans
pursuant to the Servicing  Agreement,  and (ii) the Trustee shall be entitled to
rely on the services of the Master Servicer for purposes of servicing the Loans.
Notwithstanding  the foregoing,  if the Trustee is notified by the Issuer or any
of the Noteholders that action is necessary (x) for the enforcement of the Loans
and the Loan Collateral, including without limitation, the prompt payment of all
principal and interest and all other amounts due thereunder, consistent with the
provisions of the Servicing Agreement, or (y) to defend,  enforce,  preserve and
protect the rights and privileges of the Issuer and of the Noteholders  under or
with  respect to the Loans and the related Loan  Collateral,  or (z) to preserve
the Liens of the Loans and the Loan  Collateral,  the Trustee  shall  notify the
Master Servicer and request that the Master Servicer take such action.

          The Issuer will punctually  perform and observe all of its obligations
and agreements contained in the Servicing Agreement.  The Issuer shall cause the
Master Servicer to diligently enforce all terms and covenants and to satisfy all
conditions of the Servicing Agreement, including, without limitation, the prompt
payment of all principal and interest and all other amounts due thereunder.  The
Issuer  at all  times  shall  cause  to be  defended,  enforced,  preserved  and
protected  the  rights  and  interests  of  the  Issuer,  the  Trustee  and  the
Noteholders under or with respect to the Servicing Agreement.

                  (b) If the Issuer shall have knowledge of the occurrence of an
Event of Default under the Servicing Agreement, the Issuer shall promptly notify
the Trustee  thereof,  and shall specify in such notice the action,  if any, the
Issuer is taking in respect of such Event of  Default.  If such Event of Default
arises from the  failure of the Master  Servicer to perform any of its duties or
obligations under the Servicing Agreement with respect to the Loans securing the
Notes, the Issuer may remedy such failure.  So long as any such Event of Default
under the Servicing Agreement shall be continuing, the Trustee may, and upon the
direction of (i) the Purchaser while the Purchaser is a Holder of Notes, or (ii)
the  Holders  of  Notes  representing  not less  than 51% of the then  aggregate
outstanding  principal  amount  of the  Notes  (other  than  Notes  owned by the
Originator or any Affiliate of the Originator),  the Trustee shall terminate all
of the rights and powers of the Master  Servicer  under the Servicing  Agreement
pursuant to Section 6.1 of the Servicing Agreement. Unless directed or permitted
by the  Trustee or the  Holders of Notes  representing  not less than 51% of the
then aggregate outstanding principal amount of the Notes (other than Notes owned
by the Originator or any Affiliate of the Originator),  the Issuer may not waive
any such Event of Default under the Servicing  Agreement or terminate the rights
and powers of the Master Servicer under the Servicing Agreement.

         (c) Upon any  termination  of the Master  Servicer's  rights and powers
pursuant to Section 5.1 of the Servicing Agreement,  all rights, powers, duties,
obligations  and  responsibilities  of the Master  Servicer  with respect to the
related  Loans  shall  vest in and be  assumed by a  Successor  Master  Servicer
appointed  by the  Issuer  with the  consent  of (i) the  Purchaser,  while  the
Purchaser is a Holder of Notes, and (ii) the then Holders of Notes  representing
not less  than 51% of the then  aggregate  outstanding  principal  amount of the
Notes  (provided,  that the Holder of any Notes owned by the  Originator  or any
Affiliate of the Originator  shall not be entitled to participate in any consent
of the proposed  Successor  Master Servicer as an affiliate of the  Originator),
and such Successor Master Servicer shall be the successor in all respects to the
Master Servicer in its capacity as servicer with respect to such Loans under the
Servicing Agreement.  No resignation or termination of the Master Servicer under
the Servicing Agreement shall be effective until a Successor Master Servicer has
been  appointed  and  assumed  the  duties  of the  Master  Servicer.  Upon such
appointment,  such  Successor  Master  Servicer  shall  enter  into a  servicing
agreement with the Issuer and the Trustee,  such  agreement to be  substantially
similar to the Servicing Agreement.  If, within 15 days after the termination or
resignation  of the Master  Servicer,  the Issuer shall not have obtained such a
new servicer  acceptable to the Noteholders as provided  above,  the Trustee may
appoint,  or may  petition  a court of  competent  jurisdiction  to  appoint,  a
successor   servicer  to  service  the  Loans.   In  connection  with  any  such
appointment, the Trustee may make such arrangements for the compensation of such
successor as it and such successor shall agree,  and the Issuer shall enter into
an agreement with such successor for the servicing of such Loans, such agreement
to be in form and  substance  satisfactory  to the Trustee and (i) the Purchaser
while the  Purchaser  is a Holder of Notes  and (ii) the then  Holders  of Notes
representing  not  less  than 51% of the then  aggregate  outstanding  principal
amount of the Notes. Any such  compensation of the successor  servicer shall not
be in  excess  of that  payable  to the  Master  Servicer  under  the  Servicing
Agreement,  unless the Master  Servicer or some other Person  agrees to pay such
additional compensation.

                (d) If any of the Noteholders or the Issuer notifies the Trustee
that action is  necessary in order to defend,  enforce,  preserve or protect the
rights and interests of the Issuer and the Noteholders  under or with respect to
the  Servicing  Agreement,  the  Trustee  shall  notify the Issuer or the Master
Servicer,  as the case may be,  and  direct  the  notified  party to  diligently
enforce all terms and  covenants  and satisfy all  conditions  of the  Servicing
Agreement. The Trustee may, without the consent of any Noteholder, enter into or
consent to any  amendment  or  supplement  to the  Servicing  Agreement  for the
purpose of  increasing  the  obligations  or duties of any party  other than the
Trustee or the Noteholders. The Noteholders shall be provided with notice of any
amendment of the Servicing Agreement pursuant to the preceding sentence.  Except
as provided above in this  paragraph,  the Trustee shall not consent or agree to
or permit  any  amendment,  modification  or waiver of the  Servicing  Agreement
without the prior  consent  thereto of the  Holders of 66-2/3% of the  aggregate
outstanding  principal amount of the Notes (without regard to any Notes owned by
the  Master  Servicer  or  any of  its  Affiliates).  The  Trustee  may,  in its
discretion, decline to enter into or consent to any such supplement or amendment
if its own rights, duties or immunities shall be adversely affected.

      SECTION  4.5 Books of  Account.  The  Issuer  covenants  that the books of
record  and  account  of the  Issuer  and,  pursuant  to the  provisions  of the
Servicing  Agreement,  the Master  Servicer shall at all times be subject to the
inspection  and  use of the  Trustee  and  any  Holder  of  Notes  and of  their
respective agents and attorneys.

      SECTION 4.6 Performance of Obligations. The Issuer will punctually perform
and  observe  all of its  obligations  and  agreements  under  the terms of this
Indenture and the Notes.  The Issuer will not take any action,  and will use its
best efforts not to permit any action to be taken by others, which would release
any Person's covenants or obligations under any instrument included in the Trust
Estate, or which would result in the hypothecation,  subordination,  termination
or  discharge  of,  or  impair  the  validity  or  effectiveness  of,  any  such
instrument, except as expressly provided in this Indenture.

      SECTION 4.7  Negative  Covenants.  Except as  expressly  permitted by this
Indenture or contemplated by the Servicing Agreement, the Issuer will not:

                 (a)  sell, transfer, exchange or otherwise dispose of
any of the Trust Estate;

                 (b) claim any credit on, make any deduction  from the principal
or interest  payable in respect of the Notes (other than amounts  required to be
withheld  from such  payments  under the Code or any other  applicable  state or
federal  law) or assert any claim  against any present or former  Noteholder  by
reason of the  payment  of any taxes  levied or  assessed  upon any of the Trust
Estate;

                 (c) engage in any business or activity or create, incur, assume
or in any manner  become  liable on any debt other than in  connection  with, or
relating to, the issuance of the Notes pursuant to this Indenture;

                 (d)  amend the certificate of incorporation of the
Issuer without the prior written consent of the Purchaser;

                 (e)  dissolve or liquidate in whole or in part;

                 (f) consolidate  with or merge into any other Person or convey,
transfer or lease  substantially  all of its assets as an entirety to any Person
unless (i) the Person formed by such  consolidation or into which the Issuer has
been merged or the Person which acquires  substantially all of the assets of the
Issuer as an entirety is an organization  organized under the laws of a state in
the United States,  can lawfully perform the obligations of the Issuer hereunder
and  executes and delivers to the Trustee an  agreement,  in form and  substance
reasonably  satisfactory  to the Trustee,  which  contains an assumption by such
successor  entity of the due and punctual  performance  and  observance  of each
representation,  warranty,  covenant  and  obligation  to be made,  performed or
observed by the Issuer under this Indenture;  and (ii) Noteholders  representing
51%  of  the  outstanding   principal  amount  of  the  Notes  consent  to  such
consolidation, merger or transfer of assets;

         (g) (i) permit the validity or  effectiveness  of this  Indenture to be
impaired or permit the lien of this  Indenture  with respect to the Trust Estate
to be  subordinated,  terminated  or  discharged,  or  permit  any  Person to be
released from any covenants or obligations  under this  Indenture,  the Loans or
the Loan  Collateral,  (ii)  permit any lien,  pledge,  charge,  adverse  claim,
security interest, mortgage or other encumbrance (other than liens created under
or pursuant to this  Indenture) to be created on or extend to or otherwise arise
upon or burden the Trust Estate or any part  thereof or any interest  therein or
the  proceeds  thereof,  or  (iii)  permit  the  lien of this  Indenture  not to
constitute a perfected security interest in the Trust Estate;

                 (h)  permit any material amendment to the Loan
Documents or waive any payment default thereunder;

                 (i)   permit any amendment or modification to the
Servicing Agreement; or

                 (j)  permit any amendment or modification to any
Consumer Financing Document.

      SECTION 4.8   Protection of Security: Power to Issue Notes and
Grant Trust Estate; Indenture to Constitute Contract.  The Issuer
represents, warrants and covenants that:

                 (a) The  Issuer  is,  and at all times  during the term of this
Indenture  will be, a corporation  duly  organized and validly  existing in good
standing under the laws of the State of Delaware;  and the Issuer is, and at all
times during the term of this  Indenture  will be, duly qualified to do business
as  a  foreign  corporation  and  in  good  standing  under  the  laws  of  each
jurisdiction where the character of its property,  the nature of its business or
the performance of its obligations under this Indenture makes such qualification
necessary  except where the failure to be so qualified  will not have a material
adverse  effect on the  business  of the Issuer or its  ability  to perform  its
obligations  under  this  Indenture  or  any  other  documents  or  transactions
contemplated hereunder or the validity or enforceability of the Loans;

                 (b) The Issuer holds,  and at all times during the term of this
Indenture will hold, all material licenses, certificates, franchises and permits
from all governmental  authorities necessary for the conduct of its business and
has received no notice of  proceedings  relating to the  revocation  of any such
license, certificate,  franchise or permit, which singly or in the aggregate, if
the subject of an unfavorable decision,  ruling or finding, would materially and
adversely affect its ability to perform its obligations  under this Indenture or
any other  documents or transactions  contemplated  hereunder or the validity or
enforceability of the Loans;

         (c) The Issuer has, and at all times during the term of this  Indenture
will have, all requisite power and authority to own its  properties,  to conduct
its  business,  to execute and deliver  this  Indenture  and all  documents  and
transactions  contemplated  hereunder,  to perform all of its obligations  under
this Indenture and any other documents or transactions  contemplated  hereunder,
to issue the Notes and to Grant the Trust Estate in the manner and to the extent
provided  herein.  The Issuer has all requisite  power and authority to acquire,
own, sell and convey to the Trustee the Trust Estate;

                (d) This  Indenture,  the  Notes  and all  other  documents  and
instruments  required or contemplated hereby to be executed and delivered by the
Issuer have been duly  authorized,  executed  and  delivered  by the Issuer and,
assuming the due execution and delivery by the other party or parties hereto and
thereto,  if any,  constitute legal,  valid and binding  agreements  enforceable
against the Issuer in accordance with their respective terms subject,  as to the
enforcement of remedies, to bankruptcy, insolvency,  reorganization,  moratorium
and other  similar  laws  affecting  the  enforceability  of  creditors'  rights
generally   applicable   in  the  event  of  the   bankruptcy,   insolvency   or
reorganization of the Issuer and to general principles of equity;

                (e) The  execution,  delivery and  performance  by the Issuer of
this Indenture, the Notes and any other documents and transactions in connection
herewith  to which the Issuer is a party do not and will not (i)  violate any of
the provisions of the  organizational  documents or by-laws of the Issuer;  (ii)
violate any provision of any law,  governmental rule or regulation  currently in
effect  applicable to the Issuer or its properties or by which the Issuer or its
properties may be bound or affected,  (iii) violate any judgment,  decree, writ,
injunction,  award, determination or order currently in effect applicable to the
Issuer or its  properties or by which the Issuer or its  properties are bound or
affected,  (iv) conflict with, or result in a breach of, or constitute a default
under, any of the provisions of any indenture, mortgage, deed of trust, contract
or other  instrument  to which the  Issuer is a party or by which it is bound or
(v) except for the Grant hereunder,  result in the creation or imposition of any
lien upon any of its  properties  pursuant  to the terms of any such  indenture,
mortgage, deed of trust, contract or other instrument;

                (f)  Except  for the  filing  of  financing  statements  and the
recording of assignments  contemplated  hereby, no consent,  approval,  order or
authorization  of,  and no  filing  with  or  notice  to,  any  court  or  other
governmental  authority in respect of the Issuer is required in connection  with
the  authorization,  execution,  delivery or  performance  by the Issuer of this
Indenture, the Notes or any of the other documents or transactions  contemplated
hereunder;

                (g) The Issuer is not in default under any agreement,  contract,
instrument  or  indenture  to which the  Issuer is a party or by which it or its
properties  is or are  bound,  or  with  respect  to  any  order  of any  court,
administrative  agency,  arbitrator  or  governmental  body  which  would have a
material adverse effect on the transactions contemplated hereunder; and no event
has occurred which with notice or lapse of time or both would  constitute such a
default with respect to any such agreement,  contract,  instrument or indenture,
or  with  respect  to any  such  order  of  any  court,  administrative  agency,
arbitrator or governmental body;

                (h)  There  is no  pending  or,  to the  best  of  the  Issuer's
knowledge,  threatened  action,  suit,  proceeding or  investigation  before any
court,  administrative  agency,  arbitrator  or  governmental  body  against  or
affecting the Issuer which, if decided adversely, would materially and adversely
affect (i) the condition (financial or otherwise), business or operations of the
Issuer,  (ii) the ability of the Issuer to perform its obligations under, or the
validity  or  enforceability  of,  this  Indenture  or any  other  documents  or
transactions contemplated under this Indenture, (iii) any Loan Collateral,  (iv)
the Master Servicer's ability to service the Loans;

                (i) No document,  certificate or report furnished or required to
be furnished by the Issuer  pursuant to this Indenture  contains or will contain
when furnished any untrue  statement of a material fact or fails or will fail to
state a  material  fact  necessary  in order to make  the  statements  contained
therein not misleading;

                (j)  Other  than  liens   created  under  or  pursuant  to  this
Indenture,  the Trust Estate is and will be free and clear of any pledge, charge
or encumbrance thereon or with respect thereto created by or through the Issuer,
and all action on the part of the  Issuer to that end has been duly and  validly
taken;

                (k) The Issuer  shall at all times,  to the extent  permitted by
law,  defend,  preserve  and protect  the Grant of the Trust  Estate and all the
rights of Noteholders under this Indenture against all claims and demands of all
Persons  whomsoever  claiming by, through or under the Issuer (except claims and
demands of the Trustee under or pursuant to this Indenture);

                (l) The Issuer shall at all times hold itself out to the public,
including  creditors of the  Originator,  and carry out its business and conduct
its affairs  under the Issuer's  own name and as a separate and distinct  entity
from the Originator or any of its Affiliates;

                (m) The Issuer shall at all times be responsible for the payment
of all its obligations and indebtedness,  shall at all times maintain a business
office,  records,  books of account and funds  separate from the  Originator and
shall observe all customary formalities of independent existence;

                (n) The  Issuer  shall make its books and  records  and the Note
Register available to the Noteholders and the Trustee, at their own expense, for
purposes of inspection and copying and shall, at the Issuer's expense,  furnish,
or cause to be  furnished,  to the  Trustee or any  Noteholder,  promptly  after
receipt by the Issuer of a request  therefor from the Trustee or such Noteholder
in  writing,  a  list  of the  primary  contacts,  names  and  addresses  of the
Noteholders as of the Record Date immediately preceding such request;

                (o) As long as any Note is  outstanding,  the  Issuer  shall not
issue,  incur,  assume or guarantee any indebtedness or other obligation  except
for  such  indebtedness  as may be  incurred  by the  Issuer  pursuant  to  this
Indenture and related documents or instruments;

                (p) Each of the representations and warranties of the Originator
set forth in the Purchase and Sale Agreement are true and correct as of the date
when made,  and the Issuer hereby makes such  representations  and warranties to
the Trustee for the benefit of the Noteholders; and

                (q) The Issuer shall  provide to each  Noteholder  (i) within 60
days of the end of each fiscal quarter the unaudited financial statements of the
Issuer as of the end of such fiscal quarter, and (ii) within 135 days of the end
of each fiscal year of the Issuer,  the  unaudited  financial  statements of the
Issuer as of the end of such fiscal year.

      SECTION 4.9 Maintenance of Offices or Agency.  The Issuer will maintain an
office or agency,  which may be changed in the discretion of the Issuer,  within
the United States of America at which Notes may be presented or surrendered  for
payment,  Notes may be surrendered for  registration of transfer or exchange and
notices  and  demands  to or upon the  Issuer in  respect  of the Notes and this
Indenture may be served. The Issuer hereby initially appoints the Trustee at its
corporate  trust  office  such  office or agency.  The Issuer  will give  prompt
written  notice  to the  Trustee  of the  location,  and  of any  change  in the
location,  of any such office or agency. If at any time the Issuer shall fail to
maintain any such office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the  corporate  trust office,  and the Issuer  hereby  appoints the
Trustee  at  its   corporate   trust  office  its  agent  to  receive  all  such
presentations, surrenders, notices and demands.

      SECTION 4.10 Further  Assurances.  The Issuer will execute and deliver, or
cause to be executed and delivered,  all such additional  instruments and do, or
cause to be done, all such additional actions as (i) may be necessary or proper,
consistent  with the Granting  Clause hereof,  to carry out the purposes of this
Indenture and to make subject to the lien hereof any property  intended so to be
subject,  (ii) may be necessary or proper to transfer to any  successor  trustee
the estate, powers, instruments and funds held in trust hereunder and to confirm
the lien of this Indenture with respect to any series of the Notes, or (iii) the
Trustee may  reasonably  request for any of the foregoing  purposes.  The Issuer
hereby authorizes the Trustee to execute and file all such financing statements,
continuation statements and other documents as the Trustee may deem necessary or
advisable  to  make  or  keep  effective  the  lien  of  this  Indenture  or any
supplemental  indenture and the priority thereof. The Trustee shall have no duty
to monitor compliance by the Issuer with the foregoing covenants or to determine
whether  the  execution  or  filing  of any  financing  statements  or any other
document is necessary or advisable in connection with the foregoing.

                              ARTICLE 5

                ACCOUNTS, DISBURSEMENTS AND RELEASES

      SECTION 5.1 Collection of Money.  Except as otherwise  expressly  provided
herein,  the Trustee may demand  payment or delivery  of, and shall  receive and
collect,  directly and without  intervention or assistance from any fiscal agent
or other  intermediary,  pursuant  to the  terms  hereof,  all  money  and other
property  payable to or  receivable by the Trustee  pursuant to this  Indenture,
including all payments due on the Loans, in accordance with the respective terms
and  conditions  of such  Loans and the Loan  Collateral.  Except  as  otherwise
expressly  provided  herein,  the Trustee shall hold all such money and property
received  by it as part of the Trust  Estate and shall  apply it as  provided in
this Indenture.

      SECTION 5.2  Payment Account.

                (a) On or prior to the Closing Date, the Trustee shall establish
and  thereafter  maintain a separate trust account under the sole control of the
Trustee entitled "The Chase Manhattan Bank, as trustee, in trust for the benefit
of the holders of the Litchfield  Hypothecation Corp. 1998-B  Hypothecation Loan
Collateralized  Notes--Payment Account." The Trustee shall make withdrawals from
the Payment Account only as provided in this Indenture. Monies on deposit in the
Payment Account shall be invested in accordance with Section 5.4 hereof.

                (b) Not  later  than  the  Business  Day  immediately  following
receipt  thereof,  the Trustee shall  deposit or cause to be deposited  into the
Payment  Account  all  monies  received  by the  Trustee in respect of the Loans
(including all payments, insurance proceeds,  condemnation proceeds,  recoveries
and Servicer Advances, if any) in immediately available funds;

                (c) On each Payment Date,  the Trustee,  in accordance  with the
Master  Servicer's  Certificate,  shall  withdraw and  distribute or cause to be
distributed all monies received in the related  Collection  Period on deposit in
the Payment Account (including any Investment Income with respect to such monies
on deposit in the Payment Account) in the following order of priority:

              (i)  To the Trustee, all accrued and unpaid fees and
reimbursable expenses due and payable to the Trustee pursuant to
Section 9.7 hereof;

              (ii) If the Master  Servicer is not the Originator or an Affiliate
of the  Originator,  to the Master  Servicer  by wire  transfer  of  immediately
available  funds,  an amount equal to the  Servicing Fee due and payable on such
Payment Date plus all Servicer  Advances made by the Master Servicer on previous
Payment Dates to the extent the Master Servicer has not been reimbursed for such
Servicer Advances;

              (iii)  To the Holders of Notes on the Record Date
      relating to such Payment Date, interest
accrued on the Notes in the related Payment Period;

         (iv) Pro rata to the  Holders of Notes on the Record  Date  relating to
such Payment Date, the Principal  Payment  Amount due and payable,  if any, with
respect to the Notes;

              (v)    If the Master Servicer is the Originator or an
      Affiliate of the Originator, to the Master
Servicer by wire transfer of immediately available funds, an amount equal to the
Servicing  Fee due and payable on such Payment  Date plus all Servicer  Advances
made by the Master  Servicer on previous  Payment Dates to the extent the Master
Servicer has not been reimbursed for such Servicer Advances; and

                 (vi)   Provided  no  Payment   Default  has   occurred  and  is
continuing,  to the  Issuer,  all  remaining  amounts on deposit in the  Payment
Account, plus all Investment Income, if any, then held in the Payment Account to
the extent not needed to make the distributions  required by clauses (i) through
(v) of this Section 5.2(c);

      SECTION 5.3 Servicer  Advances.  If on the date which is two Business Days
prior  to a  Payment  Date,  amounts  on  deposit  in the  Payment  Account  are
insufficient to make the distributions  required to be made on such Payment Date
pursuant to paragraphs (iii) and (iv) of Section 5.2 hereof, the Master Servicer
shall be  required  to make a deposit in the amount of such  shortfall  into the
Payment Account (each, a "Servicer  Advance") on such date;  provided,  however,
that the Master Servicer shall not be obligated to make any Servicer  Advance if
the Master  Servicer  determines  that the Master  Servicer  will not be able to
ultimately  recover the full amount of such  Servicer  Advance;  and,  provided,
further  that at no time  shall  outstanding  unreimbursed  Future  Advances  in
respect of any particular  Loan exceed  $100,000.  The Master  Servicer shall be
entitled to  reimbursement  for any Servicer  Advance as provided in Section 5.2
hereof.

      SECTION 5.4 Investment of Funds. Amounts on deposit in the Payment Account
shall, if and to the extent then permitted by law, be invested by the Trustee in
Eligible  Investments,  at the written direction of an Authorized Officer of the
Issuer.  Such  investments  shall mature on or before the Business Day preceding
the  Payment  Date  following  the date of such  investment.  Net income or gain
received  and  collected  from such  investments  shall be  credited  and losses
charged to the Payment Account.

      SECTION 5.5  Repayment to the Issuer from the  Accounts.  After payment in
full of the  principal  of,  interest on, and all other  amounts due and payable
with  respect to the Notes (in  accordance  with  Section  7.1  hereof)  and the
payment of all fees,  reimbursable charges and expenses of or other amounts owed
to the  Issuer,  the  Trustee,  and the Note  Registrar  and all  other  amounts
required to be paid  hereunder,  all amounts  remaining  in the Payment  Account
shall be paid to the Issuer on its written order.

      SECTION 5.6 Reports to the Noteholders.  On each Payment Date, the Trustee
will  furnish to the  Issuer  and will  include  with each  distribution  to the
Noteholders  the Master  Servicer's  Certificate  delivered  pursuant to Section
3.1(a) of the Servicing Agreement.

                               ARTICLE 6

                               [RESERVED]

                               ARTICLE 7

                   EVENTS OF DEFAULT AND REMEDIES

      SECTION 7.1 Events of Default. Each of the events described in clauses (a)
through (l) below shall  constitute  an "Event of Default"  with  respect to the
Notes  (whatever  the reason for such Event of Default  and  whether it shall be
voluntary or  involuntary  or be effected by operation of law or pursuant to any
judgment,  decree or order of any court or any order,  rule or regulation of any
administrative or governmental body):

                (a) The Issuer  shall fail to make any payment of  principal  on
the Notes within two Business  Days of the day the same becomes due and payable;
or

        (b) The Issuer  shall fail to make any  payment of interest on the Notes
within two Business Days of the day the same becomes due and payable; or

                (c) The Issuer  shall fail to observe or perform in any material
respects any of the  covenants of the Issuer under  Sections 4.2, 4.3, 4.4, 4.5,
4.6 or 4.9 hereof, which failure has continued for a period of 30 days; or

                (d)  The Issuer shall fail to observe or perform its
covenants under Section 4.7 hereof; or

                (e) Any  representation  or  warranty of the Issuer set forth in
Section 4.8 of this Indenture shall prove to be false in any material respect as
of the date when made; or

                (f)  The Issuer makes an assignment for the benefit of
creditors or is generally not paying its debts as such debts become
due; or

                (g) The Issuer  petitions  or applies to any  tribunal  for,  or
consents to, the appointment of, or taking  possession by, a trustee,  receiver,
custodian,  liquidator or similar official of the Issuer,  or of any substantial
part of the  assets of the  Issuer,  or  commences  a  voluntary  case under the
Bankruptcy Law of the United States or any  proceedings  relating to the Issuer,
under the Bankruptcy Law of any other jurisdiction; or

                (h) Any such  petition  or  application  is  filed,  or any such
proceedings  are  commenced,  against  the  Issuer  and  the  Issuer  by any act
indicates its approval thereof,  consent thereto or acquiescence therein, or any
order,  judgment or decree is entered  appointing  any such  trustee,  receiver,
custodian, liquidator or similar official, or approving the petition in any such
proceedings  and such order,  judgment or decree remains  unstayed and in effect
for more than 30 days; or

                (i) Any order,  judgment or decree is entered in any proceedings
against  the Issuer  decreeing  the  dissolution  of the Issuer and such  order,
judgment or decree remains unstayed and in effect for more than 60 days; or

                (j) A final  judgment  in an  amount in  excess  of  $50,000  is
rendered  against  the  Issuer,  and within 60 days after  entry  thereof,  such
judgment is not discharged or execution thereof stayed pending appeal, or within
60 days after the expiration of any such stay,  such judgment is not discharged;
or

       (k) Any  assignment  by the Issuer to a delegate  of its duties or rights
hereunder,  except as specifically  permitted hereunder,  or any attempt to make
such an assignment; or

                (l) Any  occurrence  or  existence  of any Event of Default  (as
defined in the Servicing Agreement) under the Servicing Agreement.

      SECTION  7.2  Acceleration  of  Maturity.  (a)  Upon  the  occurrence  and
continuance  of an Event of  Default,  (i) if such  event is an Event of Default
specified in clause (h), (i), (j) or (k) of Section 7.1, all of the Notes at the
time outstanding shall  automatically  become immediately due and payable at par
together with interest accrued thereon, without presentment,  demand, protest or
notice of any kind,  all of which are hereby  waived by the Issuer,  and (ii) if
such event is any other Event of Default, the Trustee may, and, upon the written
request of over 25% in aggregate  outstanding  principal amount of the Notes (by
notice in writing to the Issuer and the Trustee), shall declare all of the Notes
to be, and all of the Notes shall  thereupon be and become,  immediately due and
payable  together with interest accrued thereon,  without  presentment,  demand,
protest  or other  notice of any kind,  all of which  are  hereby  waived by the
Issuer.

                (b) At any time after a declaration  pursuant to Section 7.2(a),
but before any  judgment or decree for the payment of monies due shall have been
obtained or entered,  unless the same has been discharged,  and before the Notes
have matured by their terms,  or as otherwise  provided  herein,  if all overdue
payments of principal and interest upon such Notes, together with the reasonable
and proper  charges,  expenses and liabilities of the Trustee and the Holders of
such Notes and their  respective  agents and  attorneys  and all other sums then
payable by the Issuer under this Indenture (except the principal of and interest
accrued since the next  preceding  Payment Date on such Notes or due and payable
solely by virtue of such declaration) shall either be paid by or for the account
of the Issuer or provisions  satisfactory to the Holders of 51% of the aggregate
outstanding  principal  amount of the Notes shall be made for such payment,  and
all Events of Default under such Notes and under this Indenture  (other than the
payment of  principal  and  interest  due and  payable  solely by reason of such
declaration)  have been cured to the  satisfaction  of the Holders of 51% of the
aggregate  outstanding  principal amount of the Notes or provision deemed by the
Holders of 51% of the aggregate  outstanding principal amount of the Notes to be
adequate has been made therefor,  then and in every such case the Holders of 51%
of the aggregate  outstanding principal amount of the Notes by written notice to
the Issuer and to the Trustee,  shall have the right,  but not be obligated  to,
rescind such  declaration  and annul such Event of Default in its entirety.  For
purposes  of the  foregoing  sentence,  the  Holders  of  51%  of the  aggregate
outstanding  principal amount of the Notes shall be determined without regard to
any Notes owned by the Originator or any of its  Affiliates.  No such rescission
and  annulment  shall  extend to or affect  any  subsequent  Event of Default or
impair or exhaust any right or power consequent thereon.

      SECTION 7.3 Enforcement of Remedies. (a) If an Event of Default shall have
occurred and be continuing  and the Notes have been declared due and payable and
such declaration and its consequences have not been rescinded and annulled,  the
Trustee  may,  and  upon  the  written  request  of the  Holders  of over 25% in
aggregate  outstanding  principal amount of the Notes shall,  proceed to protect
and  enforce  its rights and the rights of the  Noteholders  under the Notes and
this Indenture and take one or more of the following actions without limitation:

        (i)  proceed to protect and enforce its rights and the rights of
      the Noteholders by appropriate
Proceedings whether by the specific  enforcement of any covenant or agreement in
this Indenture or in the aid of the exercise of any power granted herein,  or to
enforce any other property remedy;

                     (ii)      institute Proceedings for the
collection of all amounts then payable on the Notes,  whether by  declaration or
otherwise, enforce any judgment obtained, and collect any monies adjudged due;

(iii) in  accordance  with  Section  7.13,  sell the Trust Estate or any portion
thereof or rights or interest  therein,  at one or more public or private  sales
called and conducted in any manner permitted by law;

              (iv) institute  Proceedings  from time to time for the complete or
partial foreclosure of this Indenture with respect to the Trust Estate; and

              (v)    exercise any remedies of a secured party under the
      Uniform Commercial Code and take
any other  appropriate  action or protect and enforce the rights and remedies of
the Trustee or the Noteholders hereunder.

                (b) In the enforcement of any right or remedy under the Notes or
this Indenture, the Trustee shall be entitled to sue for, enforce payment on and
receive any and all amounts  then or during any Event of Default  becoming,  and
any  time  remaining,  due from the  Issuer,  for  principal  and  interest,  or
otherwise,  under  any of the  provisions  of the Notes or this  Indenture,  and
unpaid,  with  interest  on overdue  payments  at the rate or rates of  interest
specified  in the  Notes,  together  with  any and all  costs  and  expenses  of
collection  and of all  Proceedings  under the Notes or the  Indenture,  without
prejudice to any other right or remedy of the Trustee or the  Noteholders and to
recover  and enforce  judgments  or decrees  against  the Issuer,  but solely as
provided in this  Indenture and in the Notes for any amounts  remaining  unpaid,
with  interest,  costs and  expenses,  and to collect  (but  solely  from moneys
available  therefor  to the extent  provided  in this  Indenture)  in any manner
provided by law, the moneys adjudged or decreed to be payable. The Trustee shall
file such proof of claim and other  papers or  documents  as may be necessary or
advisable in order to have the claims of the Trustee and the Noteholders allowed
in any judicial proceeding, relative to the Issuer or its creditors or property.

                (c) The Trustee  may, and if requested in writing by the Holders
of over 51% in aggregate outstanding principal amount of the Notes and furnished
with reasonable  security and indemnity (an unsecured  agreement of indemnity of
the Purchaser being deemed  sufficient for such purpose),  shall,  institute and
maintain such suits and proceedings or take such other acts as it may be advised
shall be necessary or expedient to prevent any  impairment of the security under
this Indenture or under any Loan Collateral by any acts which may be unlawful or
in violation of this  Indenture or of such Loan  Collateral,  and such suits and
proceedings  as the Trustee may be advised  shall be  necessary  or expedient to
preserve  or  protect  its  interests  and  the  interests  of the  Noteholders;
provided,  that such request shall not be otherwise than in accordance  with the
provisions of law and of this Indenture.

      SECTION 7.4 Application of Money Collected Upon Acceleration. If the Notes
have been  declared due and payable  pursuant to Section 7.2 hereof,  any moneys
collected by the Trustee  pursuant to this  Article 7 or  otherwise  held by the
Trustee as part of the Trust Estate shall be applied in the  following  order at
the date or dates fixed by the Trustee and, in case of the  distribution of such
moneys on account of principal  of and  interest on the Notes upon  presentation
and surrender thereof:

                   FIRST:  To the  payment  of amounts  due the  Trustee
       pursuant to Section 9.7 hereof  including  amounts payable to the
       Trustee acting as Master Servicer;

            SECOND:  To the payment of all the amounts then due and
unpaid upon the Notes for:

       (a)   all interest payable on the Notes through the Acceleration
      Date;

               (b)  interest from the first day following the
Acceleration Date to the date of payment in full of the aggregate
principal amount of the Notes; and

               (c) interest on any overdue installments of interest on the Notes
from the due date of any such  installments  to the date of payment  but only to
the extent that payment of such interest shall be legally enforceable;

such funds to be allocated in proportion to the total amount of
interest otherwise payable on the Notes;

      THIRD:  To the payment of all amounts then due and unpaid upon
the Notes for principal ratably, without preference or priority of any
kind;

     FOURTH:  To  the  payment  of all  other  amounts  to  the  persons
entitled thereto in accordance with this Indenture.

      SECTION 7.5  Unconditional  Rights of Noteholders To Receive Principal and
Interest.  Notwithstanding any other provision in this Indenture,  the Holder of
any Note shall have an absolute and  unconditional  right to receive  payment of
the principal of and interest on such Note (subject to Section 2.9 hereof) on or
after the respective  Payment Dates expressed in such Note, and such right shall
not be impaired without the consent of such Holder.

      SECTION  7.6  Restoration  of Rights and  Remedies.  If the Trustee or any
Noteholder  has  instituted  any Proceeding to enforce any right or remedy under
this Indenture and such  proceeding has been  discontinued  or abandoned for any
reason,  or has been determined  adversely to the Trustee or to such Noteholder,
then and in every such case the Issuer,  the Trustee and the Noteholders  shall,
subject to any  determination  in such  proceedings,  be restored  severally and
respectively to their former positions hereunder,  and thereafter all rights and
remedies  of the Trustee and the  Noteholders  shall  continue as though no such
Proceeding had been instituted.

      SECTION  7.7 Rights and  Remedies  Cumulative.  No right or remedy  herein
conferred  upon or reserved to the Trustee or to the  Noteholders is intended to
be exclusive of any other right or remedy,  and every right and remedy shall, to
the extent  permitted by law, be cumulative and in addition to every other right
and remedy given  hereunder or now or hereafter  existing at law or in equity or
otherwise;  the  assertion or employment  of any right or remedy  hereunder,  or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.

      SECTION  7.8 Delay or  Omission  Not  Waiver.  No delay or omission of the
Trustee or any Holder to exercise any right or remedy accruing upon any Event of
Default shall impair any such right or remedy or constitute a waiver of any such
Event of Default or an acquiescence  therein.  Every such right and remedy given
by  this  Article  7 or by law  to the  Trustee  or to  the  Noteholders  may be
exercised  from time to time,  and as often as may be deemed  expedient,  by the
Trustee or by the Noteholders, as the case may be.

      SECTION 7.9 Control by  Noteholders  Subject to the  provisions of Section
      7.2,  Section  7.3 and  Section  7.7,  the  Holders of at least 51% of the
      aggregate  outstanding  principal amount of the Notes shall have the right
      to direct the time,  method and place of conducting any proceeding for any
      remedy  available to the Trustee  with respect to the Notes or  exercising
      any trust or power  conferred  on the Trustee  with  respect to the Notes;
      provided that:

                (a)  such direction shall not be in conflict with any
rule of law or with this Indenture;

                (b)  the Trustee shall have been provided with
indemnity reasonably satisfactory to it;

                (c)  subject  to (d)  below,  any  direction  to the  Trustee to
undertake a sale of the Trust Estate or any part thereof shall be by the Holders
of Notes  representing  not  less  than  66-2/3%  of the  aggregate  outstanding
principal amount of the Notes; and

                (d) the Trustee may take any other action  deemed  proper by the
Trustee which is not inconsistent with such direction;  provided, however, that,
subject to Section 9.1 hereof,  the  Trustee  need not take any action  which it
determines  might involve it in liability or may be unjustly  prejudicial to the
Noteholders not consenting.

      SECTION  7.10  Waiver  of Past  Events  of  Default.  Prior  to the time a
judgment  or  decree  for  payment  of the money  due has been  obtained  by the
Trustee,  as provided in this  Article VII, the Trustee may waive any past Event
of Default  with  respect to the Notes and its  consequences  except an Event of
Default  (a) in the payment of  principal  of or interest on any of the Notes or
(b) in respect of a covenant or  provision  hereof  which  cannot be modified or
amended  without the consent of the Holder of each Note affected.  Upon any such
waiver,  such Event of Default  shall  cease to exist and be deemed to have been
cured and not to have occurred, and any Event of Default arising therefrom shall
be deemed to have been cured, and not to have occurred for every purpose of this
Indenture.  In the case of any such  waiver,  the  Issuer,  the  Trustee and the
Holders of the Notes  shall be  restored to their  former  positions  and rights
hereunder,  respectively;  but no such waiver shall extend to any  subsequent or
other Event of Default or impair any right consequent thereon.

      SECTION 7.11  Undertaking for Costs. The Issuer and the Trustee agree, and
each  Noteholder  by such  Noteholder's  acceptance of a Note shall be deemed to
have agreed,  that any court may in its discretion  require, in any suit for the
enforcement  of any right or  remedy  under  this  Indenture  undertaken  by the
Trustee at the direction of the Noteholders,  or in any suit against the Trustee
for any action  taken,  suffered or omitted by it as Trustee,  the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit, and
that  such  court  may in its  discretion  assess  reasonable  costs,  including
reasonable  attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant;  but the  provisions  of this Section 7.11 shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Noteholder, or group of
Noteholders,  holding in the aggregate at least 51% of the aggregate outstanding
principal  amount of the Notes,  or to any suit instituted by any Noteholder for
the  enforcement  of the payment of principal of or interest on any Note,  which
principal or interest is due and payable.

      SECTION 7.12 Issuer Waiver of Stay or Extension Laws; Waiver of Jury Trial
(i) The Issuer covenants (to the extent that it may lawfully do so) that it will
not at any time insist upon,  plead, or in any manner  whatsoever  claim or take
the benefit or advantage of, any stay or extension law wherever enacted,  now or
at  any  time  hereafter  in  force,  which  may  affect  the  covenants  or the
performance  of this  Indenture;  and the  Issuer  (to  the  extent  that it may
lawfully do so) hereby  expressly  waives all benefit or  advantage  of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.

                      (ii)  The Issuer and the Trustee each hereby
waives the right to trial by jury in any  Proceeding  of any kind arising out of
or in respect of this Indenture or any Note.

      SECTION 7.13   Sale of Trust Estate.

                 (a) The power to effect  any sale of any  portion  of the Trust
Estate  pursuant to Section 7.3 hereof shall not be exhausted by any one or more
sales as to any portion of the Trust Estate remaining unsold, but shall continue
unimpaired  until  either the entire  Trust  Estate  shall have been sold or all
amounts  payable  on the Notes and under  this  Indenture  shall  have been paid
pursuant to Section 7.4. The Trustee may from time to time  postpone any sale by
public  announcement made at the time and place of such sale. The Trustee hereby
expressly  waives its right to any amount fixed by law as  compensation  for any
sale; provided, however, that such waiver does not apply to any amounts to which
the Trustee is otherwise entitled under Section 9.7 hereof.

                  (b) The  Trustee  may bid for and  acquire  any portion of the
Trust  Estate in  connection  with a public sale or, to the extent  permitted by
law, a private sale thereof,  and in lieu of paying cash to the Issuer therefor,
may make  settlement  for the purchase price by applying to the gross sale price
in payment therefor the sum of (i) the amount of unpaid principal of and accrued
interest on the Notes,  and (2) the expenses of the sale and of any  proceedings
in connection  therewith  which are  reimbursable  to it pursuant to Section 9.7
hereof and other  amounts due  hereunder  and secured by the Trust  Estate.  The
Notes need not be produced to complete any such sale. Any Noteholder may bid for
and  purchase  any  portion of the Trust  Estate at any  private or public  sale
thereof.

                  (c) The  Trustee  shall  execute  and  deliver an  appropriate
instrument of conveyance  transferring  its interest in any portion of the Trust
Estate in  connection  with a sale hereof.  In  addition,  the Trustee is hereby
irrevocably  appointed an agent and  attorney-in-fact  of the Issuer to transfer
and  convey  the  Issuer's  interest  in any  portion  of the  Trust  Estate  in
connection with a sale thereof,  and to take all action necessary to effect such
sale.  No purchaser or  transferee  at such a sale shall have any  obligation to
ascertain  the  Trustee's  authority,  inquire  into  the  satisfaction  of  any
conditions precedent or see to the application of any moneys.

      SECTION  7.14  Action on Notes.  The  Trustee's  right to seek and recover
judgment  on the Notes or under  this  Indenture  shall not be  affected  by the
seeking,  obtaining or  application of any other relief under or with respect to
this Indenture. Neither the lien of this Indenture nor any rights or remedies of
the Trustee or the Noteholders shall be impaired by the recovery of any judgment
by the  Trustee  against the Issuer or by the levy of any  execution  under such
judgment  upon any portion of the Trust  Estate or upon any of the assets of the
Issuer.

                               ARTICLE 8

                       SATISFACTION AND DISCHARGE

      SECTION 8.1 Satisfaction and Discharge of Indenture.  This Indenture shall
cease to be of  further  effect  except  as to (a)  rights  of  registration  of
transfer and exchange,  (d) rights of  substitution  of new Notes for mutilated,
destroyed,  lost or stolen Notes,  (e) rights of Noteholders to receive payments
of  principal  thereof and interest  thereon,  (f) the rights,  obligations  and
immunities  of the  Trustee  hereunder,  and (g) the  rights of  Noteholders  as
beneficiaries  hereof with respect to the property so deposited with the Trustee
and  payable to them,  and the  Trustee,  on demand of and at the expense of the
Issuer,  shall  execute  proper  instruments   acknowledging   satisfaction  and
discharge of this Indenture, when:

                  (a) all Notes  theretofore  authenticated and delivered (other
than Notes  which  have been  mutilated,  destroyed,  stolen and which have been
replaced,  or paid as provided in Section 2.8 hereof) have been delivered to the
Trustee for cancellation; and

                  (b) the  Issuer has  delivered  to the  Trustee  an  Officer's
Certificate stating that there has been compliance with all conditions precedent
herein provided for the satisfaction and discharge of this Indenture.

                         Notwithstanding  the satisfaction and discharge of this
       Indenture, the obligations of the Issuer to the Trustee under Section 9.7
       hereof and of the Trustee to the Issuer and the Noteholders,  as the case
       may be, under Section 8.2 hereof and the  provisions of Article II hereof
       with respect to lost, stolen, destroyed or mutilated Notes,  registration
       of  transfer  and  exchange of Notes,  and rights to receive  payments of
       principal of or interest on the Notes shall survive.

      SECTION 8.2  Application  of Trust Money.  All moneys  deposited  with the
Trustee  pursuant to Article V hereof shall be held in trust by the Trustee,  in
its trust  capacity  and not in its  commercial  capacity,  and  applied  by the
Trustee in accordance  with the provisions of the Notes and this  Indenture,  to
the payment to the Holders of the Notes,  and,  if  required  hereunder,  to the
Issuer.

      SECTION 8.3 Release of Trust Estate.

                  (a) Subject to the payment of its fees and  expenses  pursuant
to Section 9.7 hereof and only when and to the extent required by the provisions
of this  Indenture,  the Trustee (or any  Collateral  Agent on its behalf) shall
execute  instruments  to release  property from the lien of this  Indenture,  or
convey the Trustee's  interest in the same, in a manner and under  circumstances
which are not  inconsistent  with the  provisions  of this  Indenture.  No party
relying upon an  instrument  executed by the Trustee as provided in this Article
VIII shall be bound to  ascertain  the  Trustee's  authority,  inquire  into the
satisfaction  of any  conditions  precedent  or see  to the  application  of any
moneys.

                  (b) The  Trustee  shall,  at such  time as there  are no Notes
outstanding  and all sums due the  Trustee  pursuant  to Section 9.7 hereof have
been paid, release the Trust Estate from the lien of this Indenture.

                  (c) Upon  receipt of an  Officer's  Certificate  of the Master
Servicer  substantially  in the form of  Exhibit E stating  either  (i) that all
payments  of  principal  and  interest  have been made upon any Loan held by the
Trustee,  or the  Collateral  Agent on  behalf  of the  Trustee,  hereunder  and
deposited  into the Payment  Account or (ii) that the  Trustee  has  received an
amount  sufficient  to  prepay a  principal  amount  of the  Notes  equal to the
outstanding   principal   amount   of  a  Loan  in   accordance   with   Section
2.9(c)(ii)(B)(iv)  hereof, the Trustee, or the Collateral Agent on behalf of the
Trustee, shall promptly release, reassign without representation or recourse and
deliver the Loan Documents with respect to such Loan to the Issuer.

                               ARTICLE 9

                              THE TRUSTEE

      SECTION 9.1   Certain Duties and Responsibilities

                  (a)  Except during the continuance of an Event of
Default:

                         (ii)  the duties of the Trustee shall be
determined  solely by the express  provisions of this  Indenture and the Trustee
need perform only those duties and no others;  the Trustee undertakes to perform
such  duties  and  only  such  duties  as are  specifically  set  forth  in this
Indenture,  and no  implied  covenants  or  obligations  shall be read into this
Indenture against the Trustee; and

                         (iii)  in the absence of bad faith on its
part, the Trustee may conclusively rely upon certificates or opinions  furnished
to the Trustee and conforming to the  requirements of this Indenture,  including
investment instructions received pursuant to Section 5.4 hereof, as to the truth
of the statements and the correctness of the opinions expressed therein;  but in
the case of any such  certificates  or opinions  which by any  provision of this
Indenture are specifically  required to be furnished to the Trustee, the Trustee
shall  be under a duty to  examine  the same to  determine  whether  or not they
conform as to form to the requirements of this Indenture.

                  (b)  In  case  an  Event  of  Default  has   occurred  and  is
continuing,  the Trustee shall  exercise such of the rights and powers vested in
it by this  Indenture,  and use the  same  degree  of care  and  skill  in their
exercise,  as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.

                  (c)  No  provision  of  this  Indenture,   including,  without
limitation,  Section  9.7,  shall be  construed  to  relieve  the  Trustee  from
liability for its own negligent action, its own negligent failure to act, or its
own willful misconduct, except that:

                 (i)      this subsection shall not be construed to
      limit the effect of subsection (a) of this
Section 9.1;

                 (ii)     the Trustee shall not be liable for any
      error of judgment made in good faith by an
Authorized  Officer of the  Trustee,  unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts; and

                     (iii)  the Trustee shall not be personally liable
      with respect to any action taken or omitted to
be taken by it in good faith in accordance  with any  direction  received by the
Trustee in accordance  with the terms of this  Indenture  from the Holders of at
least 51% (or such other  percentage  as may be required by the terms hereof) of
the then  aggregate  outstanding  principal  amount of the Notes relating to the
time,  method and place of conducting any Proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred upon the Trustee,  under
this Indenture.

                  (d)  Whether  or not  therein  expressly  so  provided,  every
provision of this Indenture  relating to the conduct of, affecting the liability
of or affording  protection to the Trustee shall be subject to the provisions of
this Section.

                  (e) For all purposes under this  Indenture,  the Trustee shall
not be deemed to have notice of any  Default or Event of Default  (other than an
Event of Default  described  in  Sections  7.1(a) or (b) hereof) or a Default or
Event of Default  under any  document  included in the Trust  Estate,  unless an
Authorized  Officer of the  Trustee has actual  knowledge  thereof or unless the
Trustee has received  written notice thereof at the Trust Office and such notice
references the Notes generally,  the Issuer, the Trust Estate or this Indenture.
For  purposes  of  determining  the  Trustee's   responsibility   and  liability
hereunder, whenever reference is made in this Indenture to a Default or an Event
of Default,  such  reference  shall be construed to refer only to the Default or
the Event of Default of which the Trustee is deemed to have  notice  pursuant to
this Section 9.1(e).

                  (f) No provision of this  Indenture  shall require the Trustee
to expend or risk its own funds or otherwise  incur  financial  liability in the
performance  of any of its duties  hereunder,  or in the  exercise of any of its
rights or  powers,  if there  shall be  reasonable  ground  for  believing  that
repayment of such funds or adequate  indemnity against such risk or liability is
not  reasonably  assured  to it,  the  Trustee  having  the right to  require an
indemnity pursuant to subparagraph (g) below.

                  (g) The Trustee shall not be under any obligation to institute
any suit, or to take any remedial  Proceeding under this Indenture,  or to enter
any  appearance  in or in any  way  defend  any  suit  in  which  it may be made
defendant,  or to take any steps in the execution of the trusts hereby  created,
the  performance  of any of its duties  hereunder or in the  enforcement  of any
rights and powers  hereunder  until it shall be  indemnified  to its  reasonable
satisfaction  against any and all costs and  expenses,  outlays and counsel fees
and other reasonable  disbursements and against all liability,  except liability
which is  adjudicated  to have  resulted  from  its own  negligence  or  willful
misconduct, in connection with any action so taken.

                  (h) Notwithstanding any extinguishment of all right, title and
interest of the Issuer in and to the Trust Estate  following an Event of Default
and a  consequent  declaration  of  acceleration  of the  maturity of the Notes,
whether such extinguishment occurs through a sale of the Trust Estate to another
person,  the  acquisition  of the Trust Estate by the Trustee or otherwise,  the
rights,  powers and duties of the Trustee  with  respect to the Trust Estate (or
the proceeds  thereof)  and the  Noteholders  and the rights of the  Noteholders
shall continue to be governed by the terms of this Indenture.

                  (i) The Trustee shall keep and maintain proper books of record
and accounts  relating to the Notes in which full, true and correct entries will
be made of all dealings or transactions of the Trustee in relation to the Notes,
the  Accounts  and the Issuer.  The Trustee  shall keep such books of record and
accounts available for inspection by the Issuer or by any Holder of Notes during
reasonable  business hours and under reasonable  circumstances.  For purposes of
preparing  such books and records,  the Trustee is authorized to retain  outside
accountants at the expense of the Issuer.

      SECTION 9.2 Notice of Events of Default.  Promptly after the Trustee shall
have notice of the  occurrence  of any Default or Event of Default,  the Trustee
shall  transmit by mail to all  Holders  and the Issuer  notice of such Event of
Default known to the Trustee.

      SECTION 9.3 Certain Rights of the Trustee.  Except as otherwise  expressly
provided in Section 9.1 hereof:

                  (a) in the  absence  of bad faith or  negligence  the  Trustee
conclusively  may rely on and shall be  protected in acting or  refraining  from
acting  when  doing  so,  in  each  case  in  accordance  with  any  resolution,
certificate, statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, note or other paper or document believed by the Trustee to
be genuine and to have been signed or  presented by the proper party or parties,
and the Trustee need not investigate any facts stated therein;

                  (b)  whenever  in the  administration  of this  Indenture  the
Trustee shall deem it desirable that a matter be proved or established  prior to
taking,  suffering or omitting any action  hereunder,  the Trustee (unless other
evidence be herein specifically  prescribed) may, in the absence of bad faith on
its part, rely upon an Officer's Certificate;

                  (c) before the Trustee acts or refrains  from  acting,  it may
require an Officer's Certificate or Opinion of Counsel, or both, and the Trustee
shall not be liable for any action it takes,  suffers  or omits in  reliance  on
either thereof;  the Trustee may consult with counsel, and the written advice of
such counsel or any Opinion of Counsel shall be full and complete  authorization
and  protection  in respect of the  legality  of any action  taken,  suffered or
omitted by the Trustee hereunder in good faith and in reliance thereon;

                  (d) the Trustee shall not be under any  obligation to exercise
any of the rights or powers  vested in it by this  Indenture  at the  request or
direction  of any of the  Noteholders  pursuant to this  Indenture,  unless such
Noteholders shall have offered to the Trustee  reasonable  security or indemnity
against the costs,  expenses  and  liabilities  which might be incurred by it in
compliance with such request or direction;

                  (e) the Trustee  shall not be bound to make any  investigation
into the facts or  matters  stated in any  resolution,  certificate,  statement,
instrument,  opinion, report, notice, request, direction,  consent, order, bond,
note or other paper or document, but the Trustee in its discretion may make such
further inquiry or  investigation  into such facts or matters as it may see fit,
and  if  the  Trustee   shall   determine  to  make  such  further   inquiry  or
investigation,  it shall be entitled,  on reasonable prior notice to the Issuer,
to examine the books, records and premises of the Issuer, personally or by agent
or attorney,  during the  Issuer's  normal  business  hours;  provided  that the
Trustee  shall  and  shall  cause  its  agents  to hold in  confidence  all such
information except to the extent disclosure may be required by law and except to
the extent that the  Trustee,  in its sole  judgment,  may  determine  that such
disclosure is consistent with its obligations hereunder;

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

                  (g) the Trustee shall not be liable for any action it takes or
omits to take in good faith  which it believes  to be  authorized  or within the
rights or powers conferred upon it by this Indenture;

                  (h) to the extent a Person other than the Trustee is appointed
by the Issuer to act as Note  Registrar,  such  Person  shall be an agent of the
Issuer,  and the Trustee shall not be liable or responsible by reason of any act
or omission of any such Person; and

            (i)  the  Trustee  shall  not be  responsible  for  recalculating  ,
recomputing,  or verifying any information provided to it by the Master Servicer
or any Sub-Servicer.

      SECTION  9.4 Not  Responsible  for  Recitals  or  Issuance  of Notes.  The
recitals contained herein and in the Notes, except any such recitals relating to
the Trustee,  shall be taken as the  statements  of the Issuer,  and the Trustee
assumes  no  responsibility  for their  correctness.  The  Trustee  shall not be
responsible for and makes no representation as to the validity or sufficiency of
this  Indenture,  the  Notes or the  Trust  Estate.  The  Trustee  shall  not be
accountable  for the Issuer's  issue of the Notes or application of the proceeds
thereof or for any money paid to the Issuer or upon the Issuer's direction under
any of the provisions of this Indenture.  The Trustee is not responsible for the
use or application of any moneys by any agent other than the Trustee, including,
without  limitation,  the Master Servicer.  The Trustee shall not be responsible
for any statement in the Notes or in any other  document  prepared,  executed or
delivered in connection with the sale and issuance of the Notes or the execution
and delivery of this Indenture except its certificate of authentication.

      SECTION 9.5 May Hold Notes.  The Trustee,  in its  individual or any other
capacity,  may become the owner or pledgee of Notes and may otherwise  deal with
the Issuer with the same rights it would have if it were not Trustee.

      SECTION 9.6   Money Held in Trust.  Money held by the Trustee in
      trust hereunder will be held
by the Trustee in its trust  capacity and not in its commercial  capacity,  in a
segregated account in accordance with the Indenture.  The Trustee shall be under
no  liability  for  interest  on any money  received by it  hereunder  except as
otherwise  agreed in writing  with the Issuer and except to the extent of income
or other gain on  Eligible  Investments  which are  obligations  of the  Trustee
(excluding  obligations  of  Affiliates of the Trustee) and income or other gain
actually  received by the Trustee on Eligible  Investments which are obligations
of a third party.

      SECTION 9.7  Compensation and Reimbursement

       (b)  The Issuer agrees:

          (4)    subject to any separate written agreement with the
             Trustee, to pay the Trustee from
 time to time reasonable  compensation for all services rendered by it or any of
its agents,  including,  without  limitation,  the Collateral  Agent (each,  the
"Trustee" for the purposes of this Section 9.7(a)) hereunder (which compensation
shall not be limited by any provision of law in regard to the  compensation of a
trustee of an express trust);

          (5)    to reimburse the Trustee upon its request for all
             reasonable expenses, disbursements
and advances incurred or made by the Trustee in accordance with any
provision of this Indenture; and

          (6)     to indemnify the Trustee for, and to hold the Trustee
             harmless against, any loss,
liability  or  expense  incurred  without  negligence  or bad faith on its part,
arising out of or in connection  with the acceptance or  administration  of this
trust (other than taxes,  penalties or other  liabilities  arising in connection
with the  Trustee's  failure to withhold from payments with respect to the Notes
amounts  required to be withheld  under the Code, or the  Trustee's  withholding
from such  payments  amounts not required or permitted to be withheld  under the
Code),  including  the  reasonable  costs  and  expenses,  including  reasonable
attorneys'  fees,  of  defending  themselves  against any claim or  liability in
connection  with the  exercise or  performance  of any of their powers or duties
hereunder; provided that:

            (j)   with respect to any such claim, the Trustee shall
               have given the Issuer written
notice  thereof  promptly  after  the  Trustee  shall  have  knowledge  thereof,
provided, however, that the failure of the Trustee to so notify the Issuer shall
not relieve the Issuer of its obligations pursuant to this subparagraph;

            (v)  the Issuer shall assume the defense of any such claim,
                 provided that if the Issuer
shall not have employed counsel reasonably satisfactory to the Trustee to direct
the  defense of such claim  within a  reasonable  time after such  notice of the
claim  pursuant to  paragraph  (i) above,  the  Trustee  shall have the right to
direct the defense of such claim;

            (vi)  the Trustee shall have the right to employ separate
                 counsel with respect to any
claim and to  participate in the defense  thereof,  but the fees and expenses of
such counsel  shall be at the expense of the Trustee  unless the payment of such
counsel  has been  specifically  authorized  by the  Issuer;  provided  further,
however,  that if the Trustee  shall assume the defense of any claim as a result
of the  Issuer's  failure to assume the  defense of such claim as  described  in
paragraph (ii) above,  the Issuer shall pay the reasonable  fees and expenses of
Trustee's counsel in connection with the defense of such claim; and

            (vii) notwithstanding anything to the contrary in this
                 Section   9.7(a)(3),   the  Issuer  shall  not  be  liable  for
settlement  of any such claim by the  Trustee  entered  into  without  the prior
consent of the Issuer.

              Nothing  in this  Section  9.7  shall be  construed  to limit  the
exercise by the Trustee of any right or remedy permitted under this Indenture or
otherwise in the event of the  Issuer's  failure to pay any sums due the Trustee
pursuant to this Section 9.7.

                       (b) The  provisions  of this  Section  9.7  shall
govern all other provisions of this Indenture  regarding the payment of the fees
and expenses of the Trustee.

                       (c)  To secure the Issuer's payment obligations
under this Section 9.7, the Trustee  shall have a lien prior to the  Noteholders
on the Trust Estate,  except with respect to such moneys as are held in trust to
pay principal of and interest on particular  Notes.  Such lien shall survive the
satisfaction and discharge of this Indenture.

                       (d)  The payment obligations of the Issuer
under this  Section 9.7 shall  survive the  satisfaction  and  discharge of this
Indenture.

      SECTION 9.8 Trustee  Eligibility.  The Trustee shall be a  corporation  or
national banking association or trust company organized and doing business under
the laws of the United States of America or of any State,  authorized under such
laws to exercise  corporate trust powers,  having a combined capital and surplus
of at least  $250,000,000,  subject to supervision or examination by any federal
or state banking authority  (except as provided in Section 9.9 hereof).  If such
Trustee publishes reports of condition annually, or more frequently, pursuant to
law or to the requirements of the aforesaid  supervising or examining authority,
then for the purposes of this  Section 9.8, the combined  capital and surplus of
such  corporation  shall be deemed to be the respective  amount set forth in its
most recently published report of condition. The Trustee shall provide copies of
such  reports to the Issuer or any  Noteholder  upon  request at the  requesting
party's  expense.  If at any time the  Trustee  shall  cease to be  eligible  in
accordance with the provisions of this Section 9.8, it shall resign  immediately
in the manner and with the effect hereinafter specified in this Article IX.

      SECTION 9.9 Resignation and Removal; Appointment of Successor.

                (a) No  resignation or removal of the Trustee and no appointment
of a successor  trustee pursuant to this Article IX shall become effective until
the  acceptance  of  appointment  by the  successor  trustee  under Section 9.10
hereof. Any successor Trustee appointed  hereunder is subject to the approval of
the Holders of at least 51% of the aggregate outstanding principal amount of the
Notes,  which  approval,  in neither  case,  shall be  unreasonably  withheld or
delayed.

                (b) The Trustee or any trustee hereafter appointed may resign at
any time by giving written  notice of resignation to the Issuer,  and by mailing
notice of  resignation  by  first-class  mail,  postage  prepaid,  to all of the
Noteholders,  at their addresses appearing on the Note Register.  Upon receiving
notice of  resignation  of the  Trustee,  the Issuer  shall  promptly  appoint a
successor  trustee,  by  written  instrument,  in  duplicate,  one copy of which
instrument  shall be  delivered  to the  resigning  Trustee  and one copy to the
successor  trustee or  trustees.  The Trustee  shall serve as trustee  hereunder
until a successor trustee shall have been appointed and shall have accepted such
appointment;  provided,  however,  that if no successor  trustee shall have been
appointed and have accepted  appointment within 30 days after the giving of such
notice of resignation, the resigning Trustee may, or any

Noteholder who has been a bona fide Holder for at least six months may on behalf
of himself or herself and all others similarly situated, petition any such court
of competent jurisdiction for the appointment of a successor trustee. Such court
may thereupon,  after such notice,  if any, as it may deem proper and prescribe,
appoint a successor trustee.

                       (c)  If at any time:

           (i) the Trustee  shall cease to be eligible  under Section 9.8 hereof
and shall fail to resign, after written request therefor by the Issuer or by any
Noteholder who has been a bona fide Holder for at least six months; or

      (b) (A) the Trustee shall become  incapable of acting,  (B) a court having
jurisdiction  in the premises in respect of the Trustee in an  involuntary  case
under the federal bankruptcy laws, as now or hereafter constituted, or any other
applicable  federal or state bankruptcy,  insolvency or other similar law, shall
have  entered  a decree  or order  granting  relief or  appointing  a  receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) for
the Trustee or for any substantial part of the Trustee's  property,  or ordering
the winding-up or liquidation of the Trustee's affairs, provided any such decree
or order  shall  have  continued  unstayed  and in  effect  for a  period  of 60
consecutive days or (C) the Trustee commences a voluntary case under the federal
bankruptcy  laws,  as now or  hereafter  constituted,  or any  other  applicable
federal or state bankruptcy, insolvency or other similar law, or consents to the
appointment  of  or  taking  possession  by a  receiver,  liquidator,  assignee,
trustee, custodian,  sequestrator (or other similar official) for the Trustee or
for any substantial part of the Trustee's property,  or makes any assignment for
the  benefit  of  creditors  or fails  generally  to pay its debts as such debts
become due or takes any corporate action in furtherance of any of the foregoing;
then,  in any such case the Issuer hereby  agrees with the  Noteholders  that it
shall remove the Trustee by written  request and appoint a successor  trustee by
written  instrument,  in  duplicate,  one  copy of  which  instrument  shall  be
delivered to the Trustee so removed and one copy to the  successor  trustee,  or
any  Noteholder  who has been a bona fide Holder for at least six months may, on
behalf of  himself  and all others  similarly  situated,  petition  any court of
competent jurisdiction for the removal of the Trustee and for the appointment of
a successor trustee.  Such court may hereupon,  after such notice, if any, as it
may prescribe, remove the Trustee and appoint a successor trustee.

                 (d) The  Trustee  may also be removed at any time by act of the
Holders of at least 51% of the  aggregate  outstanding  principal  amount of the
Notes.

                 (e) The Issuer shall give notice of the  resignation or removal
of the  Trustee by mailing  notice of such event by  first-class  mail,  postage
prepaid,  to the Holders of the Notes as their names and addresses appear in the
Note Register.  Each notice shall include the name of the successor  trustee and
the address of its trust  division or  department.  The notice  required by this
paragraph  (e) may be given at the same time as the notice  required  by Section
9.10.

      SECTION 9.10  Acceptance  of  Appointment  by Successor.  Every  successor
trustee appointed hereunder shall execute, acknowledge and deliver to the Issuer
and its predecessor trustee an instrument accepting such appointment  hereunder.
Upon the delivery and execution of the required instruments,  the resignation or
removal of the  predecessor  trustee shall become  effective and such  successor
trustee,  without any further act, need or conveyance,  shall become vested with
all the  rights,  powers,  trusts,  duties and  obligations  of its  predecessor
hereunder.  Notwithstanding  the  foregoing,  on  request  of the  Issuer or the
successor  trustee,  such  predecessor  trustee shall,  upon payment of its then
unpaid charges due and payable under Section 9.7 hereof,  execute and deliver an
instrument  transferring to such successor trustee all of the rights, powers and
trusts of the predecessor trustee and shall duly assign, transfer and deliver to
such successor  trustee all property and money held by such predecessor  trustee
hereunder.  Upon request of any such successor trustee, the Issuer shall execute
any and all  instruments  providing  for more full and  certain  vesting  in and
confirming to such successor trustee all such rights,  powers and trusts of this
Indenture.

      Upon acceptance of appointment by a successor  trustee as provided in this
Section 9.10, the Issuer shall mail notice thereof by first-class mail,  postage
prepaid,  to the  Holders  at the  Holders'  addresses  appearing  upon the Note
Register.  If the  Issuer  fails  to mail  such  notice  within  10  days  after
acceptance of appointment by the successor trustee,  the successor trustee shall
cause such notice to be mailed at the expense of the Issuer.

      Any successor trustee must, at the time of such successor's  acceptance of
its appointment, meet the eligibility requirements set forth in this Article IX,
and  otherwise  exercise  the  rights,  remedies,  powers and  authority  of the
predecessor trustee with respect to the Trust Estate.

        Notwithstanding  the replacement of the Trustee or any successor trustee
       pursuant to the provisions of this  Indenture,  the Issuer's  obligations
       set forth in Section  9.7  hereof  shall  survive  such  replacement  and
       continue for the benefit of the resigning or replaced trustee.

      SECTION 9.11 Merger,  Conversion,  Consolidation or Succession to Business
of Trustee. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion  or  consolidation  to which  the  Trustee  shall be a party,  or any
corporation  succeeding  to all or  substantially  all  of the  corporate  trust
business of the Trustee shall be the successor of the Trustee  hereunder without
the  execution  or filing of any paper or any  further act on the part of any of
the parties hereto;  provided such corporation shall be otherwise  qualified and
eligible under this Article IX. In case any Notes have been  authenticated,  but
not  delivered,  by the  Trustee  then  in  office,  any  successor  by  merger,
conversion or consolidation to such authenticating Trustee may deliver the Notes
so  authenticated  with the same effect as if such successor  trustee had itself
authenticated such Notes.

      SECTION 9.12  Co-trustees  and Separate  Trustees.  The Trustee shall have
power, with the consent of the Holders of Notes representing at least 51% of the
then aggregate  outstanding  principal  amount of the Notes, to appoint,  one or
more  Persons  approved  by the  Issuer  either  to act as  Collateral  Agent or
co-trustee of all or any part of the Trust Estate, or to act as separate trustee
of any such property,  in either case with such powers as may be provided in the
instrument of appointment, and to vest in such Person or Persons in the capacity
aforesaid,  any property,  title,  right or power deemed necessary or desirable,
subject to the other  provisions of this Section.  The Issuer hereby directs the
Trustee to appoint  BankBoston as the initial  Collateral  Agent pursuant to the
Collateral  Agent  Agreement.  If the Issuer does not approve  such  appointment
within 15 days  after  the  receipt  by it of a request  so to do, or in case an
Event of Default has occurred and is  continuing,  the Trustee  alone shall have
power to make such appointment.

      Should  any  written  instrument  from  the  Issuer  be  required  by  any
Collateral  Agent,  co-trustee  or separate  trustee so appointed for more fully
confirming  to such  Collateral  Agent,  co-trustee  or  separate  trustee  such
property, title, right or power, any and all such instruments shall, on request,
be executed, acknowledged and delivered by the Issuer.

      Every  Collateral  Agent,  co-trustee or separate  trustee  shall,  to the
extent  permitted by law, but to such extent only,  be appointed  subject to the
following terms, namely:

       3.  The Notes shall be authenticated and delivered and all
          rights, powers, duties and
obligations hereunder in respect of the custody of securities or cash held by or
required  to be  deposited  with the Trustee in an Account  hereunder,  shall be
exercised, solely by the Trustee.

       4.  The rights, powers, duties and obligations hereby conferred
          or imposed upon the Trustee
shall be conferred or imposed upon and  exercised or performed by the Trustee or
by the  Trustee  and such  Collateral  Agent,  co-trustee  or  separate  trustee
jointly,  as shall be  provided in the  instrument  appointing  such  Collateral
Agent,  co-trustee or separate trustee,  except to the extent that under any law
of any jurisdiction in which any particular act is to be performed,  the Trustee
shall be  incompetent  or  unqualified  to perform such act, in which event such
rights,  powers, duties and obligations shall be exercised and performed by such
Collateral Agent, co-trustee or separate trustee.

          3. The Trustee at any time, by an  instrument  in writing  executed by
it, with the concurrence of the Issuer,  may accept the resignation of or remove
any  Collateral  Agent,  co-trustee  or separate  trustee  appointed  under this
Section 9.12,  and, in case an Event of Default has occurred and is  continuing,
the Trustee shall have power to accept the resignation  of, or remove,  any such
Collateral Agent,  co-trustee or separate trustee without the concurrence of the
Issuer. Upon the written request of the Trustee,  the Issuer shall join with the
Trustee in the  execution,  delivery  and  performance  of all  instruments  and
agreements  necessary or proper to effectuate  such  resignation  or removal.  A
successor to any Collateral Agent, co-trustee or separate trustee so resigned or
removed may be appointed in the manner provided in this Section 9.12.

           4. No  Collateral  Agent,  co-trustee or separate  trustee  hereunder
shall be personally  liable by reason of any act or omission of the Trustee,  or
any other such trustee hereunder.

            5. Any act of  Noteholders  delivered to the Trustee shall be deemed
to have been delivered to each such  Collateral  Agent,  co-trustee and separate
trustee.

                             ARTICLE 10

                             AMENDMENTS

      SECTION  10.1  Amendments  Without  Consent of  Noteholders.  Without  the
consent of, or notice to, the Holders of any Notes,  the Issuer and the Trustee,
may  amend  this  Indenture  at any time  and  from  time to time for any of the
following purposes:

         (a) to correct or amplify the  description  of any property at any time
subject to the lien of this Indenture,  or better to assure,  convey and confirm
unto the Trustee any property subject or required to be subjected to the lien of
this Indenture, or to subject to the lien of this Indenture additional property;
or

         (b) to evidence the  succession,  in compliance  with the provisions of
Section  4.2(b) hereof,  of another person to the Issuer,  and the assumption by
any such  successor of the covenants of the Issuer  contained  herein and in the
Notes; or

        (c) to add to the  covenants of the Issuer or the  Trustee,  for
the  benefit  of the  Noteholders,  or to  surrender  any right or power
herein conferred upon the Issuer; or

         (d)  to convey, transfer, assign, mortgage or pledge any
property to the Trustee to constitute additional Trust Estate; or

         (e) to cure any ambiguity,  correct or supplement any provision  herein
which may be defective or inconsistent with any other provisions herein or amend
any other  provisions  with respect to matters or questions  arising  under this
Indenture, provided that such action shall not adversely affect the interests of
the Holders; or

         (f) to evidence and provide for the acceptance of appointment hereunder
by a  successor  trustee or note  registrar,  pursuant  to the  requirements  of
Sections 9.9 or 9.10 hereof.

      The  Trustee is hereby  authorized  to join in the  execution  of any such
amendment and to make any further appropriate  agreements and stipulations which
may be therein contained or required.

      SECTION 10.2  Amendments With Consent of Noteholders . With the consent of
the Holders of at least 66-2/3% of the aggregate outstanding principal amount of
the Notes  delivered  to the Issuer and the Trustee,  the Issuer,  pursuant to a
written  request,  and the Trustee may amend this  Indenture  for the purpose of
adding to, changing or eliminating any of the provisions of this Indenture or of
modifying the rights of Holders under this Indenture; provided, however, that no
such  amendment  shall,  without the  consent of the Holder of each  outstanding
Note:

      (2)   change the maturity of the principal of, or any installment
         of principal of or interest on, any
Note,  or reduce the principal  amount  thereof,  the interest rate thereon,  or
change the provisions of this Indenture relating to the application of the Trust
Estate to payment of principal of Notes,  or change any place of payment  where,
or the coin or currency in which,  the  principal of or the interest of any Note
is payable, or impair the right to institute  Proceedings for the enforcement of
the provisions of the Indenture  requiring the  application  of funds  available
therefor,  as provided  in Article  VII, to the payment of any amount due on the
Notes on or after the maturity thereof; or

               (2) reduce the percentage of the aggregate  outstanding principal
amount of the Notes,  the consent of the  Holders of which is  required  for any
amendment,  or the consent of the Holders of which is required for any waiver of
compliance  with  certain  provisions  of this  Indenture  or  certain  defaults
hereunder and their  consequences  provided for in this Indenture;  or modify or
alter the provisions of the proviso to the definition of the term "outstanding";
or

      (3)  permit the creation of any lien ranking prior to or on a
      parity with the lien of this Indenture
with  respect  to any  part of a Trust  Estate  or  terminate  the  lien of this
Indenture on any  property at any time  subject  hereto or deprive any Holder of
the  security  afforded  by the  lien  of this  Indenture  except  as  expressly
otherwise permitted hereby; or

      (4)  reduce the percentage of the aggregate outstanding
      principal amount of the Notes, the
consent of the Holders of which is required to direct the Trustee to
sell the Trust Estate pursuant to Section 7.13 hereof; or

      (5)  modify any of the provisions of this Section 10.2, except
      to increase any percentage
specified  herein or to  provide  that  certain  additional  provisions  of this
Indenture  cannot be modified or waived without the consent of each Holder of an
outstanding Note affected thereby; or

                (6) modify any of the  provisions  of this  Indenture  in such a
manner as to affect the  calculation of the amount of any payment of interest or
Principal  Payment  Amount due on any Note on any Payment  Date  (including  the
calculation of any of the individual components of such calculation).

      Promptly  after  the  execution  by the  Issuer  and  the  Trustee  of any
amendment  pursuant to this  Section,  the  Trustee  shall mail to the Holders a
notice  setting  forth in general  terms the  substance of such  amendment.  Any
failure of the Trustee to mail such notice,  or any defect  therein,  shall not,
however, in any way impair or affect the validity of any such amendment.

      SECTION 10.3 Effect of  Amendment.  Upon the execution of any amendment of
this Indenture pursuant to the provisions  hereof,  this Indenture shall be, and
be deemed to be,  modified and amended in accordance  therewith  with respect to
each  Note  and  the  respective  rights,  limitations,   obligations,   duties,
liabilities and immunities  under this Indenture of the Trustee,  the Issuer and
the Holders shall  thereafter be  determined,  exercised and enforced  hereunder
subject in all respects to such modifications and amendments,  and all the terms
and  conditions of any such  amendment  shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.

      SECTION 10.4 Reference in Notes to  Amendments.  Notes  authenticated  and
delivered  after the  execution of any amendment of this  Indenture  pursuant to
this  Article X may,  and, if required by the Issuer  shall,  bear a notation in
form approved by the Trustee as to any matter provided for in such amendment. If
the Issuer shall so require, new Notes so modified as to conform, in the opinion
of the  Trustee  and the  Issuer,  to any such  amendment  may be  prepared  and
executed  by the  Issuer  and  authenticated  and  delivered  by the  Trustee in
exchange for outstanding Notes.

                             ARTICLE 11

                            MISCELLANEOUS

      SECTION  11.1 Form of Documents  Delivered  to Trustee.  In any case where
several  matters are required to be  certified  by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or  covered by only one  document,  but one such  Person may  certify or give an
opinion  with  respect to some  matters and one or more other such Persons as to
other  matters,  and any such  Person may  certify or give an opinion as to such
matters in one or several documents.  Where any Person is required to make, give
or  execute  two  or  more  applications,   requests,  consents,   certificates,
statements,  opinions or other instruments  under this Indenture,  they may, but
need not, be consolidated and form one instrument.

      Any  certificate  or opinion may be based,  insofar as it relates to legal
matters,  upon an opinion of, or representations by, counsel,  unless the Issuer
knows,  or in the exercise of reasonable  care should know, that the certificate
or  opinion  or  representations  with  respect  to the  matters  upon which his
certificate  or opinion is based are  erroneous.  Any Officer's  Certificate  or
Opinion of Counsel may be based, without independent  investigation,  insofar as
it  relates  to  factual   matters,   upon  a  certificate  or  opinion  of,  or
representations  by the Trustee or other  appropriate  Person,  stating that the
information  with respect to such factual  matters is in the  possession  of the
Issuer, the Trustee or other appropriate Person, as the case may be, unless such
Person  knows,  or in the  exercise of  reasonable  care should  know,  that the
certificate  or opinion or  representations  with  respect to such  matters  are
erroneous. Any opinion of counsel may be based upon such assumptions as shall be
deemed appropriate by counsel rendering such Opinion of Counsel.

      In connection with any application,  certificate or report to the Trustee,
whenever this Indenture provides that the Issuer shall deliver any document as a
condition  of the granting of such  application,  or as evidence of the Issuer's
compliance with any terms hereof,  it is intended that the truth and accuracy of
the facts and opinions  stated in such document,  at the time of the granting of
such  application or at the effective date of such certificate or report (as the
case may be),  shall in such case be  conditions  precedent  to the right of the
Issuer  to  have  such  application  granted  or  to  the  sufficiency  of  such
certificate or report. The foregoing shall not, however,  be construed to affect
the  Trustee's  right to rely upon the truth and  accuracy of any  statement  or
opinion  contained  in any such  document as provided in Article IX hereof or to
impose a duty on the Trustee to ascertain such truth or inaccuracy.

        Whenever this Indenture  provides that the absence of the occurrence and
       continuation of a Default or Event of Default as a condition precedent to
       the taking of any action by the  Trustee at the request or  direction  of
       the Issuer, then, notwithstanding that the satisfaction of such condition
       is a condition  precedent to the  Issuer's  right to make such request or
       direction,  the Trustee shall be protected in acting in  accordance  with
       such request or direction if it does not have knowledge of the occurrence
       and  continuance  of such  Default  or Event of Default  as  provided  in
       Section 9.1(e) hereof.

      SECTION 11.2  Notices,  etc., to Parties.  All notices,  requests or other
communications  desired or required to be given under this Indenture shall be in
writing and shall be sent by (a) certified or registered  mail,  return  receipt
requested, postage prepaid, (b) national prepaid overnight delivery service, (c)
telecopy or other facsimile transmission  (following with hard copies to be sent
by national prepaid  overnight  delivery  service) or (d) personal delivery with
receipt acknowledged in writing, as follows:

           (a)  If to the Trustee:

                The Chase Manhattan Bank
                450 West 33rd Street
                New York, New York  10001
                Attention:  Global Trust Services,
                                   Structured Finance Services

           (b)  If to the Issuer:

                Litchfield Hypothecation Corp. 1998-B
                c/o Litchfield Financial Corporation
                430 Main Street
                Williamstown, MA 01267
                Attention:  President

with a copy of any letter,  notice,  communication or direction hereunder to the
Originator at the address set forth below.

           (c)  If to the Purchaser:

                BankAtlantic, a Federal Savings Bank
                1750 East Sunrise Boulevard
                Fort Lauderdale, Florida 33304-3013
                Attention: Marcia K. Synder


           (d)  If to the Originator or the Master Servicer:

                Litchfield Financial Corporation
                430 Main Street
                Williamstown, MA  01267
                Attention:  President

           (f)   Notices required under this Indenture to be sent to
                the Noteholders shall in
addition be sent to the Issuer.  All notices shall be deemed given when actually
received  or  refused by the party to whom the same is  directed  (except to the
extent sent by certified or registered mail, return receipt  requested,  postage
prepaid,  in which event such notice  shall be deemed given three days after the
date of mailing).  Each party may designate a change of address or  supplemental
addressee(s) by notice to the other parties,  given at least 15 days before such
change  of  address  is to  become  effective.  Any  notice  received  from  any
Noteholder  by  any  party  listed  in  this  Section  11.2  shall  be  promptly
transmitted by such party to all other parties listed in this Section 11.2.

      SECTION 11.3 Notices and  Information  to  Noteholders;  Waiver.  Upon the
request  of any  Noteholder  holding  51% or more of the  aggregate  outstanding
principal  amount of all Notes,  the  Trustee  shall  deliver  promptly  to such
Noteholder  such  information  with  respect  to the  Loan  Collateral  as  such
Noteholder shall request.

        Where this  Indenture  provides for notice to  Noteholders of any event,
       such  notice  shall  be  sufficiently   given  (unless  otherwise  herein
       expressly  provided)  if in  writing  and  mailed,  first-class,  postage
       prepaid,  to each Noteholder affected by such event, at its address as it
       appears on the Note  Register,  not later than the latest  date,  and not
       earlier than the earliest date, prescribed for the giving of such notice.
       In any case where  notice to  Noteholders  is given by mail,  neither the
       failure to mail such notice,  nor any defect in any notice so mailed,  to
       any  particular  Noteholder  shall affect the  sufficiency of such notice
       with respect to other Noteholders,  and any notice which is mailed in the
       manner herein  provided shall  conclusively be presumed to have been duly
       given.

      Where this Indenture provides for notice in any manner, such notice may be
waived in writing by any Person  entitled to receive such notice,  either before
or after the event,  and such waiver  shall be the  equivalent  of such  notice.
Waivers of notice by Noteholders shall be filed with the Trustee but such filing
shall not be a  condition  precedent  to the  validity  of any  action  taken in
reliance upon such a waiver.

        In case, by reason of the suspension of regular mail service as a result
       of a strike,  work stoppage or similar activity,  it shall be impractical
       to mail notice of any event to  Noteholders  when such notice is required
       to be given pursuant to any provision of this Indenture,  then any manner
       of giving such notice as shall be  satisfactory  to the Trustee  shall be
       deemed to be a sufficient giving of such notice.

      SECTION  11.4 Effect of Headings  and Table of  Contents.  The Article and
Section  headings herein and the Table of Contents are for convenience  only and
shall not affect the construction hereof.

      SECTION 11.5 Successors and Assigns.  All covenants and agreements in this
Indenture  by the  Issuer  shall bind its  successors  and  assigns,  whether so
expressed or not.

 . SECTION 11.6  Severability.  In case any provision in this Indenture or in the
Notes shall be invalid,  illegal or  unenforceable,  the validity,  legality and
enforceability  of the remaining  provisions shall not in any way be affected or
impaired thereby.

      SECTION  11.7 Legal  Holidays.  If any Payment  Date or other date for the
payment of principal  of or interest on any Note is proposed to be paid,  or any
date on which  mailing  of notices  by the  Trustee  to any  Person is  required
pursuant to any provision of this  Indenture,  shall not be a Business Day, then
(notwithstanding  any other provision of the Notes or this Indenture) payment or
mailing of such notice need not be made on such date,  but may be made or mailed
on the next succeeding  Business Day with the same force and effect,  and in the
case of payments, but no interest shall accrue for the period from and after the
date on which such  payment  was due to the next  succeeding  Business  Day when
paid.

      SECTION 11.8 Governing Law. This  Indenture,  each indenture  supplemental
hereto and each Note shall be construed in  accordance  with and governed by the
laws of the State of New York, without regard to the conflict-of-law  provisions
thereof.

      SECTION 11.9  Counterparts.  This instrument may be executed in any number
of  counterparts,  each of which so executed  shall be deemed to be an original,
but all  such  counterparts  shall  together  constitute  but  one and the  same
instrument.

      SECTION  11.10  Recording of  Indenture.  If this  Indenture is subject to
recording in any appropriate  public recording  office,  such recording is to be
effected by the Issuer at its expense.

      SECTION 11.11 Limited Obligations.  No recourse for obligations  hereunder
or any other  obligation  running directly for the benefit of the Trustee may be
taken,  directly or indirectly,  against (i) any holder of a beneficial interest
in  the  Issuer,  (ii)  any  partner,  beneficiary,  agent,  officer,  director,
employee,  or successor  or assign of a holder of a  beneficial  interest in the
Issuer, or (iii) any incorporator, subscriber to the capital stock, stockholder,
officer,  director or employee of the Trustee with respect to the predecessor or
successor of the Trustee with respect to the Issuer's  obligations  with respect
to the Notes or the obligation of the Issuer or the Trustee under this Indenture
or any  certificate  or  other  writing  delivered  in  connection  herewith  or
therewith.

      SECTION 11.12  Inspection.  The Issuer  agrees that,  on reasonable  prior
notice,   during  the  Issuer's   normal  business  hours  it  will  permit  any
representative  of the  Trustee or any  Noteholder  to examine  all the books of
account,  records,  reports and other  papers of the Issuer,  to make copies and
extracts therefrom, to cause such books to be audited by independent accountants
selected by the Issuer with the consent of (i) the Purchaser, so long as it owns
any  Notes,  and  (ii)  the  Holders  of not  less  than  51%  of the  aggregate
outstanding  principal amount of the Notes; and to discuss the Issuer's affairs,
finances and accounts  with the Issuer's  officers,  employees  and  independent
accountants  all at such  reasonable  times  and as often  as may be  reasonably
requested;   provided   that  the  Issuer   shall  be   entitled   to  have  its
representatives  present at any such  discussion.  The Trustee and the Purchaser
shall  hold,  and shall  cause  their  respective  representatives  to hold,  in
confidence all such information  except to the extent disclosure may be required
by law and  except to the  extent  that the  Trustee  or the  Purchaser,  in its
respective sole judgment,  may determine that such disclosure is consistent with
its obligations hereunder.  Any expenses incident to the exercise by the Trustee
or a  Noteholder  of any right  under this  Section  11.12 shall be borne by the
Issuer.

      SECTION  11.13 Usury.  The amount of interest  payable or paid on any Note
under the terms of this Indenture shall be limited to any amount which shall not
exceed the maximum nonusurious rate of interest permitted by the applicable laws
of the State of New York (or the laws of any other jurisdiction determined to be
applicable  laws of the United States  permitting a higher  maximum  nonusurious
rate that  preempts  such  applicable  New York (or  other)  laws,  which  could
lawfully be contracted for, charged or received (the "Highest Lawful Rate")). In
the event any payment of interest on any Note  exceeds the Highest  Lawful Rate,
the Issuer  stipulates  that such excess amount will be deemed to have been paid
as a result of an error on the part of both the Trustee, acting on behalf of the
Holder,  and the Issuer,  and the Holder  receiving  such excess  payment  shall
promptly, upon discovery of such error or upon notice thereof from the Issuer or
the Trustee,  refund the amount of such excess or, at the option of the Trustee,
apply the excess to the payment of  principal  of such Note,  if any,  remaining
unpaid. In addition, all sums paid or agreed to be paid for the use, forbearance
or detention  of money shall,  to the extent  permitted  by  applicable  law, be
amortized,  prorated,  allocated  and  spread  throughout  the full term of such
Notes.

      IN WITNESS  WHEREOF,  the Issuer and the Trustee  have caused this
      Indenture to be duly
executed by their duly  authorized  officers  all as of the day and year
first above written.


                               THE CHASE MANHATTAN BANK,
                               as Trustee

                               By: /s/  Cynthia Kerpen
                               Title: Assistant Vice President


                               Title:


                               LITCHFIELD HYPOTHECATION CORP. 1998-B

                               By: /s/ Heather A. Sica
                               Title:  Executive Vice President














                                 Exhibit 10.175
      SERVICING  AGREEMENT,  dated as of June 1, 1998 (the "Agreement"),  by and
among  LITCHFIELD  HYPOTHECATION  CORP.  1998-B,  a  corporation  organized  and
existing  under the laws of the State of  Delaware  (herein,  together  with its
successors and assigns, called the "Issuer"),  LITCHFIELD FINANCIAL CORPORATION,
a  corporation  organized  and existing  under the laws of the  Commonwealth  of
Massachusetts  (herein,  together with its  successors  and assigns,  called the
"Master   Servicer"),   and  THE  CHASE  MANHATTAN  BANK,  a  New  York  banking
corporation, as trustee (the "Trustee").


                        PRELIMINARY STATEMENT


        WHEREAS,  the  Issuer  has  entered  into an  Indenture  of  Trust  (the
"Indenture")  dated  as of the  date of this  Agreement  with  the  Trustee,  as
trustee,  pursuant  to which  the  Issuer  shall  issue its  Hypothecation  Loan
Collateralized  Notes  (collectively,  the  "Notes"),  on the  terms  and in the
amounts  described  therein.  Pursuant to the  Indenture,  as  security  for the
indebtedness represented by the Notes, the Issuer is and will be Granting to the
Trustee on behalf of the Noteholders,  the Trust Estate,  which includes,  among
other  things,  the  Loans  and the  Loan  Collateral,  its  rights  under  this
Agreement, the Payment Account and all proceeds of the foregoing.

        WHEREAS,  the parties  desire to enter into this  Agreement  to provide,
among other things,  for the  servicing of the Loans and Loan  Collateral by the
Master  Servicer.  The Master  Servicer  acknowledges  that, in order to further
secure the Notes, the Issuer is and will be Granting to the Trustee, among other
things,  this  Agreement,  and the Master Servicer agrees that all covenants and
agreements made by the Master Servicer herein with respect to the Loans securing
the Notes  shall also be for the  benefit  and  security  of the Trustee and the
Noteholders.  For its services  hereunder,  the Master Servicer will receive the
Servicing Fee.

         NOW  THEREFORE,  in  consideration  of  the  premises  and  the  mutual
         agreements  hereinafter  set forth,  the Issuer,  the  Servicer and the
         Trustee agree as follows:


           ARTICLE 1

                             DEFINITIONS

         SECTION 1.1.  Defined Terms.

           (a) For all purposes of this Agreement, except as otherwise expressly
provided herein or unless the context otherwise requires,  capitalized terms not
otherwise  defined herein shall have the meanings  ascribed to such terms in the
Appendix  A  hereto  which  is  incorporated  by  reference  herein.  All  other
capitalized terms used herein shall have the meanings specified herein.

           (b) All  terms  defined  in this  Agreement  shall  have the  defined
meanings  when  used in any  certificate  or other  document  made or  delivered
pursuant hereto unless otherwise defined therein.

           (c) As  used  in  this  Agreement  and in any  certificate  or  other
document  made or delivered  pursuant  hereto or thereto,  accounting  terms not
defined in this  Agreement or in any such  certificate  or other  document,  and
accounting  terms partly defined in this Agreement or in any such certificate or
other  document to the extent not defined,  shall have the  respective  meanings
given to them under generally accepted accounting principles. To the extent that
the definitions of accounting terms in this Agreement or in any such certificate
or other  document  are  inconsistent  with the  meanings  of such  terms  under
generally  accepted  accounting  principles,  the definitions  contained in this
Agreement or in any such certificate or other document shall control.

           (d) The words  "hereof,"  "herein,"  "hereunder" and words of similar
import when used in this Agreement  shall refer to this Agreement as a whole and
not  to  any  particular  provision  of  this  Agreement;  Section  and  Exhibit
references  contained in this  Agreement are references to Sections and Exhibits
in or to this Agreement  unless  otherwise  specified;  and the term "including"
shall mean "including without limitation".


           (e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the  masculine as well
as to the feminine and neuter genders of such terms.

            (f) Any  agreement,  instrument  or statute  defined or  referred to
herein or in any  instrument or  certificate  delivered in  connection  herewith
means  such  agreement,  instrument  or  statute  as from time to time  amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all  attachments  thereto and  instruments  incorporated  therein;
references to a Person are also to its permitted successors and assigns.


                              ARTICLE 2

                ADMINISTRATION AND SERVICING OF LOANS

               SECTION 2.1.  The Master Servicer to Act as the Servicer.

           (a) Engagement of the Master Servicer.  The Master Servicer is hereby
authorized to and shall service and administer the Loans and Loan  Collateral in
accordance with the terms of this Agreement.  Subject to the provisions  herein,
including,  without  limitation,  Sections  2.6 hereof and subject to the Master
Servicer's obligations and the covenants of the Issuer under the Indenture,  the
Master  Servicer shall have full power and  authority,  acting alone and subject
only to the specific requirements and prohibitions of this Agreement,  to do and
take any and all  actions,  or to refrain from taking any such actions and to do
any and all things in connection with such servicing and administration which it
may deem necessary or desirable, including, without limitation,  calculating and
compiling  information  required in  connection  with any report to be delivered
pursuant to this  Agreement.  Without  limiting the generality of the foregoing,
but subject to the  provisions of the Indenture and this  Agreement,  the Master
Servicer  is hereby  authorized  and  empowered  by the  Issuer to  execute  and
deliver, in the Master Servicer's own name, on behalf of the Issuer and Trustee,
any and all instruments of satisfaction or  cancellation,  or of partial or full
release or discharge, and all other comparable instruments,  with respect to the
Loans and the Loan  Collateral,  including,  without  limitation,  consenting to
sales,  transfers or  encumbrances  of the Loan  Collateral or  assignments  and
assumptions of the Loans,  all in accordance with the terms of the Loans and the
Loan Collateral.  The Master Servicer agrees that (i) its servicing of the Loans
and Loan Collateral  shall be carried out in accordance with prudent,  customary
and  usual  procedures  of  financial   institutions  which  service  loans  and
collateral similar to the Loans and Loan Collateral and, (ii) to the extent more
exacting,  the procedures  which the Master Servicer would use if the Loans were
owned by the Master Servicer (the "Servicing Standard").

           (b)  List of the  Master  Servicer's  Officers.  Promptly  after  the
execution and delivery of this  Agreement,  the Master Servicer shall deliver to
the Issuer and the Trustee a list of officers  of the Master  Servicer  involved
in, or responsible  for, the  administration  and servicing of the Loans and the
Loan  Collateral,  which  list  shall from time to time be updated by the Master
Servicer on request of the Trustee.

           (c) Actions to Perfect Security Interests.  The Master Servicer shall
promptly take all actions that are necessary or desirable to maintain continuous
perfection and priority of the security  interests  granted by the Hypothecation
Borrowers in the Loan Collateral  subject to the terms of the Indenture and this
Agreement,  including,  but not  limited  to,  obtaining  the  execution  by the
Hypothecation  Borrowers and Consumers and the recording,  registering,  filing,
re-recording,   re-registering  and  refiling  of  all  mortgages,  assignments,
security  agreements,  financing  statements,  continuation  statements or other
instruments as are necessary to maintain the security  interests  granted by the
Hypothecation  Borrowers  under  the  respective  Loans.  Without  limiting  the
foregoing,  the Master  Servicer  shall file or cause to be filed the  financing
statements on Form UCC-1 and  assignments of financing  statements on Form UCC-3
required to be filed in connection  with the Purchase and Sale Agreement and the
Indenture relating to the Loans and the transactions contemplated thereby.

           (d) Servicer  Advances.  The Master  Servicer  hereby  agrees to make
Servicer  Advances at the times and in the amounts  specified  in Section 5.3 of
the  Indenture.  The  obligation of the Master  Servicer shall be subject to the
provisions of said Section 5.3 of the Indenture.

           (e) Limitation on the Master Servicer's Obligations.  Notwithstanding
anything to the contrary  herein,  other than Section 4.3(e) hereof,  the Master
Servicer may but shall not be  obligated  to incur any cost or expense  (whether
for maintaining insurance,  protecting or maintaining collateral,  or otherwise)
if the Master  Servicer,  in its  reasonable  discretion,  determines  that such
advances may not be recovered from the Hypothecation Borrowers.

               SECTION 2.2.  Collection of Loan Payments and
Remittances; Protection of Loan Collateral; Payment Account.

           (a) Collection of Payments; Protection of Loan Collateral. The Master
Servicer shall perform (or shall cause a Sub-Servicer  to perform) the following
servicing, collection supervision and collateral protection activities:

             (1)  perform standard accounting services and general
recordkeeping services with respect to the Loans and Loan Collateral;

                 (2)  respond to any telephone and written inquiries of
                Hypothecation Borrowers and
Consumers concerning the Loans and Loan Collateral;

             (3) keep  Hypothecation  Borrowers  and  Consumers  informed of the
proper  place and  method  for  making  payments  with  respect to the Loans and
Consumer Receivables;

             (4)  contact  Hypothecation   Borrowers  and  Consumers  to  effect
collection and to discourage  delinquencies in the payment of Loans and Consumer
Receivables,  doing so by any lawful means,  including,  but not limited to, the
following:

                                     (i)  transmittal of routine past
due notices;

                                     (ii)  preparing and mailing
collection letters;

                                     (iii) contacting delinquent
Hypothecation Borrowers and Consumers by telephone to encourage
payment;

                                     (iv) transmittal of reminder
notices to delinquent Hypothecation Borrowers and Consumers; and

                                     (v)   initiating and pursuing
termination or foreclosure actions deemed necessary by the Master
Servicer;

                (5) be responsible  for the receipt and  disbursement  of monies
paid by Hypothecation Borrowers and Consumers as follows:

                                     (i)   the receipt and collection
of all amounts due and payable with respect to each Loan and the proceeds of any
Loan  Collateral,  including  all monies  remitted by Consumers  with respect to
Consumer  Receivables  forming  a part of the  Loan  Collateral;  in  connection
herewith the Master  Servicer shall use its best efforts to cause the collection
of all  payments  called  for under the  terms and  provisions  of each Loan and
Consumer Receivable,  and shall use its best efforts to cause each Hypothecation
Borrower  to make  all  payments  required  to be made in  respect  of its  Loan
pursuant to the Loan  Documents  directly to the Lock Box Account at the Lockbox
Bank.

                                     (ii) the deposit of all such
payments and proceeds in the Lock Box Account in accordance with
Section 2.2(b) below;

                                     (iii)  the maintenance of
accurate and timely books and records relating to the Master Servicer's  receipt
and  collection of all such payments and proceeds and the balance due in respect
of the Loans and Consumer Receivables;

                                     (iv)   the rendering to
Hypothecation Borrowers and to Trustee, of periodic reports (not less frequently
than monthly) in which the Master  Servicer shall set forth such  information as
is customarily  reported to such borrowers under a servicing  agreement or as is
otherwise reasonably requested by the Trustee; and

                                     (v)   the maintenance of records
concerning the status of all of the Consumer Receivables.

                 (6) take such other action as may be  necessary or  appropriate
to carry  out the  duties  and  obligations  imposed  upon the  Master  Servicer
pursuant  to the terms of this  Section and of Section  4.4(a) of the  Indenture
which is incorporated herein by reference.

           (b) Deposit of Misdirected Funds; No Commingling. The Master Servicer
shall promptly remit, or cause to be remitted,  to the Lock Box Bank for deposit
in the Lock Box  Account  on the  Business  Day  immediately  following  receipt
thereof by the Master Servicer and in the form received all payments received by
the Master Servicer in respect of the Loans or Consumer Receivables  incorrectly
sent to the Master  Servicer  by, or on behalf of, a  Hypothecation  Borrower or
Consumer,  respectively.  The Master  Servicer  shall not commingle with its own
assets  and  shall  keep  separate,  segregated  and  appropriately  marked  and
identified all Loans, Loan Collateral or any property comprising any part of the
Trust  Estate,  and for such time,  if any, as such Loans,  Loan  Collateral  or
property are in the  possession  or control of the Master  Servicer,  the Master
Servicer  shall  hold the same in trust  for the  benefit  of the  Trustee,  the
Noteholders (or, following termination of the Indenture, the Issuer).

          SECTION 2.3.  Records.

               The Master Servicer shall retain (or cause to be retained, at the
principal  servicing offices of the Sub-Servicers) all data (including,  without
limitation,   computerized  records)  relating  directly  to  or  maintained  in
connection with the servicing of the Loans and Loan  Collateral,  and shall give
the Trustee access to all data at all reasonable  times upon reasonable  notice,
and, while an Event of Default shall be continuing,  the Master  Servicer shall,
on demand  of the  Trustee,  immediately  deliver  to the  Trustee  (or,  at the
Trustee's  written  instruction,  to the  Successor  Master  Servicer)  all data
(including,   without  limitation,   computerized  records)  necessary  for  the
servicing of the Loans and Loan Collateral. If the rights of the Master Servicer
shall have been  terminated in accordance  with Section 5.1 or if this Agreement
shall have been  terminated  pursuant  to Section  6.1(b),  the Master  Servicer
shall,  upon  demand of the  Trustee  or of the  successor  to the rights of the
Issuer, in the case of Section 6.1(b), deliver (or cause to be delivered) to the
Trustee all data (including, without limitation, computerized records) necessary
for the  servicing of the Loans and Loan  Collateral.  In addition to delivering
such data, the Master  Servicer  shall, at its expense (or at the expense of the
Issuer's  successor in the event of termination  under Section 6.1(b)),  use its
best efforts to effect the orderly and  efficient  transfer of the  servicing of
the Loans and Loan Collateral with respect to which such termination  shall have
occurred to the party which will be assuming  responsibility for such servicing,
including,  without limitation,  directing Hypothecation Borrowers and Consumers
to remit  scheduled  payments and all other payments in respect of the Loans and
Consumer Receivables to an account or address designated by, with the consent of
the Trustee or such new servicer.  Upon request of the Trustee while an Event of
Default shall be continuing, the Master Servicer also shall send (or cause to be
sent) to the Trustee copies of all invoices, statements or other directions with
respect to payments that are sent to the Hypothecation  Borrowers and Consumers.
The  provisions  of this  paragraph  shall not  require  the Master  Servicer to
transfer  any  proprietary  material  or  computer  programs  unrelated  to  the
servicing of the Loans and Loan Collateral.


                    SECTION 2.4.  No Offset.

                   Prior to the termination of this  Agreement,  the obligations
of the Master  Servicer  under this  Agreement  shall not be subject to, and the
Master  Servicer  hereby waives,  any defense,  counterclaim  or right of offset
which the Master  Servicer  has or may have  against the Issuer or the  Trustee,
whether in respect of this Agreement, any Loan or otherwise.

          SECTION 2.5.  Servicing Compensation;  Reimbursement for
Advances.

             As compensation  for the performance of its obligations  under this
Agreement,  the Master  Servicer  shall be entitled to receive the Servicing Fee
from the Issuer on each Payment Date out of amounts released by the Trustee from
the Payment  Account on such  Payment  Date  pursuant  to Section  5.2(c) of the
Indenture.  The Servicing Fee shall include amounts in respect of funds advanced
by the  Master  Servicer  in  respect  of the  Loans  (whether  for  maintaining
insurance,  protecting or  maintaining  collateral,  or  otherwise),  if any. In
addition,  the Master Servicer shall be entitled to reimbursements  for advances
made by the Master Servicer from recoveries. Such reimbursements from recoveries
may be made by the Master Servicer netting the unreimbursed advanced amount from
recoveries or by remittance  from the Trustee in respect of recoveries  received
by the Trustee.

                    SECTION 2.6.  Sub-Servicing Agreements.

             The Master Servicer may engage Sub-Servicers to perform some or all
of the Master Servicer's  responsibilities under this Agreement,  subject to the
following terms and conditions:

                (a) On or prior to the Closing Date,  the Master  Servicer shall
enter  into  one  or  more   subservicing   agreements  (each  a  "Sub-Servicing
Agreement")  with one or more  Sub-Servicers,  and the Master Servicer shall not
amend,  supplement or terminate  the  Sub-Servicing  Agreement,  or agree to any
assignment  of any rights or  obligations  thereunder  by the  Sub-Servicer,  or
terminate  the  Sub-Servicer,  without  the  consent  of the  Holders  of  Notes
representing at least 51% of the aggregate  outstanding  principal amount of the
Notes.

               (b)  If  the  Sub-Servicing  Agreement  with  a  Sub-Servicer  is
terminated,  the  Master  Servicer  may  enter  into  one or more  Sub-Servicing
Agreements  with another  Sub-Servicer  reasonably  acceptable to the Holders of
Notes representing at least 51% or the aggregate outstanding principal amount of
the Notes and the Issuer to assist the Master Servicer in the performance of its
duties under this Agreement.

              (c) The  Master  Servicer  shall  be  entitled  to  terminate  any
Sub-Servicing  Agreement  that  may  exist in  accordance  with  the  terms  and
conditions of such Sub-Servicing Agreement; provided, however, that in the event
of the termination of any Sub-Servicing  Agreement by the Master Servicer or the
related Sub-Servicer,  the Master Servicer shall either act directly as servicer
in  accordance  with its duties  hereunder  or shall enter into a  Sub-Servicing
Agreement with a successor Sub-Servicer.

              (d)  References in this  Agreement to actions taken or to be taken
by the  Master  Servicer  in  servicing  the Loans and Loan  Collateral  include
actions taken or to be taken by a Sub-Servicer on behalf of the Master Servicer.
Notwithstanding  any Sub-Servicing  Agreement,  or any of the provisions of this
Agreement relating to agreements or arrangements between the Master Servicer and
a Sub-Servicer,  the Master  Servicer shall remain  obligated and liable for the
servicing and  administering of the Loans and Loan Collateral in accordance with
the  provisions  of this  Agreement  without  diminution  of such  obligation or
liability by virtue of such  Sub-Servicing  Agreement and to the same extent and
under  the same  terms and  conditions  as if the  Master  Servicer  alone  were
servicing and administering the Loans and Loan Collateral. Any funds received by
any Sub-Servicer shall be deemed to be received by the Master Servicer.


                              ARTICLE 3

                       STATEMENTS AND REPORTS

                 SECTION 3.1.  Reporting by the Master Servicer.

               (a) Not later than 11:00 am on the third  Business Day  preceding
each Payment  Date,  the Master  Servicer  shall  transmit to the Issuer and the
Trustee  and upon  receipt  the  Trustee  shall  forward  to the  Noteholders  a
certificate (the "Master Servicer's  Certificate") setting forth the information
in respect of the Loans set forth in Exhibit A hereto.




                              ARTICLE 4

                        THE MASTER SERVICER

      SECTION 4.1.  Representations and Warranties Concerning the
Master Servicer

       The Master Servicer represents and warrants,  effective as of the Closing
Date, as follows:

               (a) The Master Servicer (i)has been duly organized and is validly
existing and in good  standing  under the laws of the state of its formation and
organization,  (ii) has qualified to do business and is in good standing in each
jurisdiction  where  the  character  of  its  properties  or the  nature  of its
activities  makes such  qualification  necessary and where failure to so qualify
would  have a  material  and  adverse  effect  on its  ability  to  perform  its
obligations  hereunder,  and (iii) has full power,  authority and legal right to
own its property, to carry on its business as presently conducted,  and to enter
into and perform its obligations under this Agreement.

              (b) The  execution  and  delivery  by the Master  Servicer of this
Agreement  are  within  the  power of the  Master  Servicer  and have  been duly
authorized by all necessary action on the part of the Master  Servicer.  Neither
the  execution  and  delivery of this  Agreement,  nor the  consummation  of the
transactions  herein  contemplated,  nor compliance with the provisions  hereof,
will conflict with or result in a breach of, or constitute a default under,  any
of the provisions of any law, governmental rule, regulation, judgment, decree or
order binding on the Master  Servicer or its properties or the charter or bylaws
or other organizational  documents and agreements of the Master Servicer, or any
of the provisions of any indenture,  mortgage,  contract or other  instrument to
which the  Master  Servicer  is a party or by which it is bound or result in the
creation  or  imposition  of any  lien,  charge or  encumbrance  upon any of its
property  pursuant  to the terms of any such  indenture,  mortgage,  contract or
other instrument.

             (c) The Master  Servicer  is not  required to obtain the consent of
any other party or consent, license, approval or authorization,  or registration
or declaration with, any governmental authority,  bureau or agency in connection
with  the  execution,  delivery,  performance  by the  Master  Servicer  of this
Agreement,  or validity or  enforceability  of this Agreement against the Master
Servicer.

            (d) This  Agreement  has been duly  executed  and  delivered  by the
Master  Servicer  and  constitutes  a  legal,   valid  and  binding   instrument
enforceable against the Master Servicer in accordance with its terms (subject to
applicable bankruptcy laws and to general principles of equity).

            (e) There are no actions,  suits or  proceedings  pending or, to the
knowledge of the Master  Servicer,  threatened  against or affecting  the Master
Servicer,  before  or  by  any  court,   administrative  agency,  arbitrator  or
governmental  body with respect to any of the transactions  contemplated by this
Agreement or the Indenture, or which will, if determined adversely to the Master
Servicer, materially and adversely affect it or its business, assets, operations
or condition,  financial or otherwise, or adversely affect the Master Servicer's
ability to perform its obligations under this Agreement.  The Master Servicer is
not in default  with respect to any order of any court,  administrative  agency,
arbitrator or  governmental  body so as to materially  and adversely  affect the
transactions contemplated by the above-mentioned documents.

            (f) The Master Servicer has obtained or made all necessary licenses,
registrations,  consents,  approvals,  waivers and  notifications  of creditors,
lessors and other  persons,  in each case, in connection  with the execution and
delivery of this Agreement by the Master  Servicer,  and the consummation by the
Master Servicer of all the transactions herein contemplated to be consummated by
the Master Servicer and the performance of its obligations hereunder.

           (g) The  Master  Servicer  is not in  default  under  any  agreement,
contract,  instrument or indenture to which the Master Servicer is a party or by
which it or its properties is or are bound,  or with respect to any order of any
court,  administrative agency, arbitrator or governmental body, which would have
a material adverse effect on the  transactions  contemplated  hereunder;  and no
event has occurred  which with notice or lapse of time or both would  constitute
such a material default with respect to any such agreement, contract, instrument
or  indenture,  or with  respect to any such order of any court,  administrative
agency, arbitrator or governmental body.

          (h) The collection and servicing practices used by the Master Servicer
with respect to each Loan and related Loan Collateral shall be consistent in all
material  respects  with  those  customarily  employed  by the  Master  Servicer
servicing loans which are owned by the Master Servicer.

          (i) The  Master  Servicer  (i) shall not extend or  shorten,  amend or
otherwise  modify the terms of any Loan,  or amend,  modify or waive any term or
condition of any Loan Collateral related thereto, in any manner which would have
a material  adverse  effect on the interests of the  Noteholders  or the Issuer,
including,  but not  limited  to,  extending  or  shortening  the due  date,  or
impairing  the  collectibility  of such Loan and (ii)  shall not take any action
that could  reasonably be expected to have a material  adverse effect on (x) the
collectibility  of the  Loans  taken  as a whole or (y) the  realization  on the
related  Loan  Collateral,  taken as a whole,  or (z) the  ability of the Master
Servicer to perform its obligations  hereunder,  in each case without  obtaining
the prior  written  consent of the Trustee,  the  Purchaser  and the Issuer.  In
connection  with any  amendment,  modification  or waiver  relating  to the Loan
Collateral  consented  to by the  Master  Servicer,  the Master  Servicer  shall
provide  the  Trustee  with a  certificate  to the effect  that such  amendment,
modification or waiver does not violate the provisions of this subsection (i).

             SECTION 4.2.  Existence; Status as the Master Servicer.

             The Master Servicer shall keep in full effect its existence, rights
and  franchises  under the laws of the state of its formation and  organization,
and  will  obtain  and  preserve  its  qualification  to  do  business  in  each
jurisdiction in which such qualification is or shall be necessary to protect the
validity and enforceability of the Loans and Loan Collateral,  the Indenture and
this Agreement or to perform its obligations hereunder.


             SECTION 4.3.  Performance of Obligations.

          (a)  Timely Performance. The Master Servicer shall punctually
perform and observe all of its obligations and agreements contained in
this Agreement in accordance with the terms hereof.

          (b) Prohibited Actions. The Master Servicer shall not take any action,
or permit any action to be taken by others,  which would  excuse any person from
any of its covenants or obligations under any of the Loans or Loan Collateral or
under any other instrument  included in the Trust Estate,  or which would result
in the amendment, hypothecation,  subordination, termination or discharge of, or
impair the validity,  enforceability  or  effectiveness  of, any of the Loans or
Loan  Collateral,  except  as  expressly  provided  herein  and  therein  or  as
contemplated by the Indenture.

         (c) Limitations of  Responsibility  of the Master Servicer.  The Master
Servicer will have no  responsibility  under this Agreement other than to render
the  services  called for  hereunder  in good faith.  The Master  Servicer,  its
affiliates,  its  directors,  officers,  shareholders  and employees will not be
liable to the Issuer, the Trustee,  the Noteholders or others,  except by reason
of acts  constituting  bad faith,  willful  misfeasance,  negligence or reckless
disregard of its duties.

         (d)  Right to  Receive  Instructions.  In the  event  that  the  Master
Servicer is unable to decide between alternative courses of action, or is unsure
as to the application of any provision of this  Agreement,  or such provision is
ambiguous as to its  application,  or is, or appears to be, in conflict with any
other  applicable  provision,  or in the event that this  Agreement  permits any
determination  by the Master  Servicer or is silent or is  incomplete  as to the
course of action which the Master Servicer is required to take with respect to a
particular  set of facts,  the Master  Servicer may give notice (in such form as
shall  be  appropriate  under  the  circumstances)  to  the  Trustee  requesting
instructions in accordance with the Indenture and, to the extent that the Master
Servicer  shall have acted or refrained  from acting in good faith in accordance
with any such instructions  received from the Trustee, the Master Servicer shall
not be liable on account of such action or  inaction  to any Person.  Subject to
the Servicing Standard set forth in Section 2.1(a), if the Master Servicer shall
not have received  appropriate  instructions  within ten days of such notice (or
within  such  shorter  period of time as may be  specified  in such  notice) the
Master  Servicer may, but shall be under no duty to, take or refrain from taking
such action, not inconsistent with this



Agreement,  as the Master Servicer shall deem to be in the best interests of the
Trustee and the Issuer,  and the Master  Servicer shall have no liability to any
Person for such action or inaction except for the Master  Servicer's own willful
misconduct or negligence.

         (e) No Duties Except as Specified in this Agreement or in Instructions.
Except as expressly provided by the terms of this Agreement, the Master Servicer
shall not have any duty or obligation to manage, make any payment in respect of,
register,  record, sell, reinvest, dispose of, create, perfect or maintain title
or any security interest in, or otherwise deal with the Trust Estate, to prepare
or file any report or other  document,  or to  otherwise  take or  refrain  from
taking any action under, or in connection with, any document contemplated hereby
to which the Master Servicer is a party. The Master Servicer nevertheless agrees
that it will,  at its own cost and expense,  promptly  take all action as may be
necessary to discharge any asserted  liens on any part of the Trust Estate which
result from asserted claims against the Master Servicer  personally that are not
related  to the  ownership  or the  administration  of the  Trust  Estate or the
transactions contemplated by the Indenture.

         (f) No Action Except Under  Specified  Documents or  Instructions.  The
Master Servicer shall not manage,  control,  use, sell, reinvest,  dispose of or
otherwise  deal with any part of the Trust Estate except (1) in accordance  with
the  powers  granted to and the  authority  conferred  upon the Master  Servicer
pursuant to this Agreement,  or (2) in accordance with instructions delivered to
the Master Servicer pursuant hereto.

         (g)  Limitations  on the  Master  Servicer  Liability.  Subject  to the
Servicing  Standards  set forth in  Section  2.1(a),  and  except for the Master
Servicer's own willful  misconduct or negligence,  the Master Servicer shall not
be personally liable under any circumstances, including, without limitation:

                     (1)       for any action taken or omitted to be
taken by the Master Servicer in good faith in accordance with the
instructions of the Trustee made in accordance herewith;

                     (2)       for any representation, warranty,
covenant, agreement or indebtedness of the Trust under the Notes, or
for any other liability or obligation of the Trust;

                     (3)  for or in respect of the validity or
sufficiency  of this  Agreement  or for the due  execution  hereof  by any party
hereto other than the Master Servicer, or for the form, character,  genuineness,
sufficiency,  value or validity of any part of the Trust  Estate,  including but
not limited to the Loans and Loan Collateral; and

                    (4) for any  action  or  inaction  of the  Trustee,  and the
Master  Servicer  shall not be responsible  for  performing or  supervising  the
performance  of any  obligation  under this  Agreement or the Indenture  that is
required to be performed by the Trustee.

        (h) Limitation on Expenditure  of Personal  Funds.  No provision of this
Agreement  (other than Section 2.1(d) and paragraph (e) above) shall require the
Master  Servicer to expend or risk its  personal  funds or  otherwise  incur any
financial liability in the performance of any of its rights or powers hereunder,
if the  Master  Servicer  shall  have  reasonable  grounds  for  believing  that
repayment of such funds or adequate  indemnity against such risk or liability is
not reasonably assured or provided to it.

         (i) Furnishing of Documents.  The Master  Servicer shall furnish to the
Trustee,  promptly  upon receipt  thereof,  duplicates or copies of all material
reports, notices, requests, demands, certificates,  financial statements and any
other instruments furnished to the Master Servicer hereunder.

         (j) Reliance; Advice of Counsel. In performing its duties hereunder the
Master  Servicer  may  conclusively  rely on and shall be protected in acting or
refraining  from  acting  when  doing so, in each  case in  accordance  with any
signature, instrument, notice, resolution, request, consent, order, certificate,
report,  opinion,  bond or other  document or paper believed by it to be genuine
and  believed  by it to be signed by the  proper  party or  parties.  The Master
Servicer may accept a certified  copy of a resolution  of the board of directors
or other governing body of any corporate party as conclusive  evidence that such
resolution has been duly adopted by such body and that the same is in full force
and effect. As to any fact or matter the manner or ascertainment of which is not
specifically  prescribed herein, the Master Servicer may for all purposes hereof
rely on a  certificate,  signed by the president or any vice president or by the
treasurer or any assistant treasurer or the secretary or any assistant secretary
of the relevant party,  as to such fact or matter,  and such  certificate  shall
constitute  full  protection  to the Master  Servicer  for any  action  taken or
omitted to be taken by it in good faith in  reliance  thereon  without  specific
knowledge to the contrary.

        (k) Reliance on Third Parties. Subject to the Servicing Standard, in the
exercise and performance of its duties and obligations under this Agreement, the
Master  Servicer  may,  at the  expense of the  Master  Servicer,  consult  with
counsel,  accountants  and other skilled  persons to be selected with reasonable
care and  employed  by it,  and the  Master  Servicer  shall not be  liable  for
anything  done,  suffered or omitted in good faith by it in accordance  with the
advice or opinion of any such counsel, accountants or other skilled persons.

         (l) Independent  Contractor.  In performing its obligations as servicer
hereunder the Master  Servicer acts solely as an  independent  contractor of the
Issuer and  Trustee.  Nothing in this  Agreement  shall,  or shall be deemed to,
create or constitute any joint  venture,  partnership  employment,  or any other
relationship  between  the Issuer and the Trustee on the one hand and the Master
Servicer on the other hand,  other than the independent  contractor  contractual
relationship  established hereby. The Master Servicer shall not be and shall not
be deemed to be liable for any acts or obligations of the Issuer or the Trustee,
and,  without  limiting the foregoing,  the Master  Servicer shall not be liable
under or in connection  with the Notes and all Persons having any claim under or
in  respect  of this  Agreement  or the  Indenture  shall look only to the Trust
Estate for payment or satisfaction thereof.


           SECTION 4.4.  Merger; Resignation and Assignment.

         (a) The Master  Servicer may not merge into any  corporation or convey,
transfer or lease substantially all of its assets as an entity, unless and until
the Master Servicer's  successor or a new servicer is approved in writing by the
Issuer  and the  Holders  of Notes  representing  at least 51% of the  aggregate
outstanding  principal  amount of the Notes and is willing to service  the Loans
and Loan Collateral and enter into a servicing agreement with the Issuer and the
Trustee in form and substance reasonably satisfactory to such parties.

         (b) Except as  provided  in Section  2.6  hereinabove  with  respect to
Sub-Servicers,  the Master  Servicer may not assign this Agreement or any of its
rights, powers, duties or obligations hereunder.

         (c) Except as  provided  in  Sections  4.4(a)  and (b),  the duties and
obligations of the Master  Servicer  under this  Agreement  shall continue until
this Agreement  shall have been terminated as provided in Section 6.1, and shall
survive the  exercise by the Issuer or the Trustee of any right or remedy  under
this Agreement, or the enforcement by the Issuer, the Trustee, or any Noteholder
of any provision of the Indenture, the Notes or this Agreement.

           SECTION 4.5.  Indemnities.

         (a) The Master  Servicer shall  indemnify and hold harmless the Trustee
and the Noteholders from and against any losses,  damages, claims or liabilities
arising out of the Master Servicer's breach of this Agreement.

         (b) The Master  Servicer  agrees to  indemnify  the Trustee for, and to
hold the Trustee  harmless  against,  any loss,  liability  or expense  incurred
without  negligence  or bad faith on its part,  arising out of or in  connection
with the  acceptance  or  administration  of the trust  created by the Indenture
(other than taxes, penalties or other liabilities arising in connection with the
Trustee's  failure to withhold  from  payments with respect to the Notes amounts
required to be withheld under the Code, or the Trustee's  withholding  from such
payments  amounts not  required  or  permitted  to be withheld  under the Code),
including the reasonable  costs and expenses,  including  reasonable  attorneys'
fees, of defending  themselves against any claim or liability in connection with
the exercise or performance of any of their powers or duties under the Indenture
provided that:
         (i) with  respect to any such claim,  the Trustee  shall have given the
Master  Servicer  written notice  thereof  promptly after the Trustee shall have
knowledge  thereof,  provided,  however,  that the  failure of the Trustee to so
notify  the  Master  Servicer  shall not  relieve  the  Master  Servicer  of its
obligations pursuant to this subparagraph;



         (ii) the Master  Servicer  shall  assume the defense of any such claim,
provided that if the Master Servicer shall not have employed counsel  reasonably
satisfactory  to the  Trustee  to direct  the  defense  of such  claim  within a
reasonable  time after such notice of the claim pursuant to paragraph (i) above,
the Trustee shall have the right to direct the defense of such claim;

         (iii) the Trustee shall have the right to employ separate  counsel with
respect to any claim and to participate in the defense thereof, but the fees and
expenses  of such  counsel  shall be at the  expense of the  Trustee  unless the
payment of such counsel has been specifically authorized by the Master Servicer;
provided further,  however,  that if the Trustee shall assume the defense of any
claim as a result of the Master Servicer's failure to assume the defense of such
claim as described in paragraph  (ii) above,  the Master  Servicer shall pay the
reasonable fees and expenses of Trustee's counsel in connection with the defense
of such claim; and

                     (iv)      notwithstanding anything to the
contrary in this Section  4.5(b),  the Master  Servicer  shall not be liable for
settlement  of any such claim by the  Trustee  entered  into  without  the prior
consent of the Master Servicer.

         (c) The  Provisions  of  Section  4.5(a)  and  (b)  shall  survive  the
termination of this Agreement and the Indenture.


                              ARTICLE 5

                               DEFAULT

           SECTION 5.1.  Events of Default.

         (a) Any of the following acts or occurrences  shall constitute an Event
of Default by the Master Servicer under this Agreement:

                     (i)       any failure by the Master Servicer to
remit any payments  received by it in respect of the Loans or Loan Collateral to
the  Lock Box  Bank in  accordance  with any  provision  hereof  within  two (2)
Business Days after receipt thereof; or

                     (ii)      the Trustee shall not have received a
report in accordance  with Section 3.1(a) hereof within two (2) Business Days of
the date required to be delivered or the Master Servicer shall have defaulted in
the due  observance  of any  provision  of Section 4.2 or Section 4.4 hereof and
such  default  shall  have  continued  for five (5)  Business  Days after it has
obtained knowledge of, or has been notified by the Trustee of such default; or

                     (iii)     the Master Servicer shall default in
the due  performance and observance of any other provision of this Agreement and
such default shall have  continued for a period of 30 days after it has obtained
knowledge of, or has been notified by the Trustee of such default; or

                     (iv)      any representation, warranty or
statement  of the  Master  Servicer  made in  this  Agreement  or by the  Master
Servicer in its capacity as servicer in any certificate, report or other writing
delivered pursuant hereto shall prove to be incorrect in any material respect as
of the time when the same shall have been made; or

                     (v)       the Master Servicer makes an assignment
for the benefit of creditors or is generally not paying its debts as
such debts become due; or

                     (vi)      the Master Servicer petitions or
applies to any  tribunal  for, or  consents  to, the  appointment  of, or taking
possession by, a trustee, receiver, custodian, liquidator or similar official of
the  Master  Servicer,  or of any  substantial  part of the assets of the Master
Servicer,  or commences a voluntary  case under the bankruptcy law of the United
States or any proceedings relating to the Master Servicer,  under the bankruptcy
law of any other jurisdiction; or

                     (vii)     any such petition or application is
filed, or any such  proceedings  are commenced,  against the Master Servicer and
the Master Servicer by any act indicates its approval  thereof,  consent thereto
or acquiescence  therein, or any order, judgment or decree is entered appointing
any such  trustee,  receiver,  custodian,  liquidator  or similar  official,  or
approving  the  petition in any such  proceedings  and such  order,  judgment or
decree remains unstayed and in effect for more than 45 days; or

                     (viii)    any order, judgment or decree is
entered in any proceedings against the Master Servicer decreeing the dissolution
of the Master Servicer and such order,  judgment or decree remains  unstayed and
in effect for more than 60 days; or

                     (ix)      a final judgment for an amount in
excess of  $500,000  (exclusive  of any  portion  thereof  which is  insured) is
rendered  against  the  Master  Servicer,  and  within  60 days  after the entry
thereof,  such judgment is not  discharged  or the  execution  thereof is stayed
pending  appeal,  or within 60 days after the expiration of any such stay,  such
judgment is not discharged.

      (b) Upon the occurrence and  continuance of an Event of Default  specified
in clause (v) or (vi) above, all of the rights and powers of the Master Servicer
under this Agreement shall automatically terminate, including without limitation
all rights of the Master Servicer to receive from and after such termination the
servicing  compensation  provided  for in Section  2.5, or any  compensation  or
expense reimbursement hereunder,  other than to the extent accrued prior to such
termination and not previously  paid. Upon the occurrence and continuance of any
other Event of Default, the Issuer upon direction of the Holders representing at
least 51% of the  aggregate  outstanding  principal  amount of the Notes may, by
notice given to the Master Servicer (with copies to the Issuer and the Trustee),
terminate  all of the  rights  and  powers of the  Master  Servicer  under  this
Agreement,  including  without  limitation all rights of the Master  Servicer to
receive  the  servicing  compensation  provided  for in  Section  2.5.  Upon any
automatic  termination or the giving of the notice  referred to in the preceding
sentence, all rights, powers, duties and responsibilities of the Master Servicer
under  this  Agreement,  whether  with  respect  to the  related  Loans and Loan
Collateral, Payment Account, any Servicing Fee or otherwise shall vest in and be
assumed by a new servicer as provided in Section 4.4(c) of the  Indenture.  From
and  during  the  continuation  of an  Event of  Default,  the  Issuer  upon the
direction of the Holders representing at least 51% of the aggregate  outstanding
principal  amount of the Notes (without  regard to any Notes owned by the Master
Servicer or any of its Affiliates),  are each hereby irrevocably  authorized and
empowered  to  execute  and  deliver,  on  behalf  of the  Master  Servicer,  as
attorney-in-fact  or otherwise,  all documents and other instruments  (including
any  notices to  Hypothecation  Borrowers  and  Consumers  deemed  necessary  or
advisable by the Holders representing at least 51% of the aggregate  outstanding
principal  amount of the Notes (without  regard to any Notes owned by the Master
Servicer or any of its  Affiliates)),  and to do or accomplish all other acts or
things necessary or appropriate to effect such vesting and assumption. Except as
otherwise  expressly  provided in the  Indenture,  the Issuer shall not have any
right to waive any Event of Default by the Master Servicer under this Agreement.

             (c) Promptly  after the Trustee shall have notice of the occurrence
of any Event of Default,  the Trustee shall transmit by mail to all  Noteholders
notice of such Event of Default known to the Trustee.

           SECTION 5.2.   No Effect on Other Parties.

           Upon any  termination of the rights and powers of the Master Servicer
from time to time pursuant to Section 5.1 or upon any appointment of a successor
to the Master Servicer,  all the rights,  powers,  duties and obligations of the
Issuer or the Trustee under this  Agreement or under the Indenture  shall remain
unaffected by such termination or appointment and shall remain in full force and
effect thereafter,  except as otherwise  expressly provided in this Agreement or
in the Indenture.

           SECTION 5.3.  Rights Cumulative.

           All rights and remedies from time to time  conferred upon or reserved
to the Issuer, the Trustee, or the Noteholders or to any or all of the foregoing
are cumulative,  and none is intended to be exclusive of another or any right or
remedy  which  they  may have at law or in  equity.  No  delay  or  omission  in
insisting  upon the strict  observance or  performance  of any provision of this
Agreement,  or in exercising any right or remedy, shall be construed as a waiver
or relinquishment  of such provision,  nor shall it impair such right or remedy.
Every right and remedy may be exercised from time to time and as often as deemed
expedient.

                              ARTICLE 6

                      MISCELLANEOUS PROVISIONS

             SECTION 6.1.  Termination of Agreement.

          (a) The respective  duties and  obligations of the Master Servicer and
the Issuer created by this Agreement shall terminate upon the latest to occur of
(i) the final payment or other liquidation of the last outstanding Loan included
in the Trust  Estate,  (ii) the  satisfaction  and  discharge  of the  Indenture
pursuant to Article VIII of the  Indenture,  and (iii) with respect to any Loan,
the  disposition  of  all  property   acquired  upon  foreclosure  of  any  Loan
Collateral.  Upon termination of this Agreement pursuant to this Section 6.1(a),
the Master  Servicer  shall pay over to the Issuer or any other Person  entitled
thereto all monies received from the  Hypothecation  Borrowers and Consumers and
held by the Servicer.

          (b) Following an Event of Default under the  Indenture,  the successor
to the  rights  of the  Issuer  in  respect  of the  Loans  and Loan  Collateral
(including,  without  limitation,  the  Trustee  or any  or  all of the  related
Noteholders) shall have the right to terminate this Agreement,  by notice to the
Master Servicer and the Issuer. Upon such termination, the Master Servicer shall
be  entitled  to receive  only the  accrued  and unpaid  servicing  compensation
provided  for in  Section  2.5 to the  date of such  termination  and any  other
reimbursement  to which it would  otherwise  be entitled of amounts  theretofore
advanced by it.

             SECTION 6.2.  Amendment.

          (a)  This  Agreement  may  only be  amended  from  time to time by the
Issuer,  the  Servicer  and  the  Trustee,  with  the  consent  of  the  Holders
representing at least 51% of the aggregate  outstanding  principal amount of the
Notes  (without  giving regard to any Notes owned by the Master  Servicer or its
Affiliates)  for the  purpose of adding any  provisions  to or  changing  in any
manner  or  eliminating  any of the  provisions  of  this  Agreement,  provided,
however,  that no such amendment shall, without consent of each Noteholder,  (i)
reduce in any manner the amount of, or the timing of,  payments  received on the
related  Loans which are required to be deposited in the Payment  Account;  (ii)
alter the priorities with which any allocation of funds shall be made under this
Agreement;  (iii)  permit  the  creation  of any  lien  (other  than the lien or
permitted  by the  Indenture)  on the Trust  Estate for the Notes or any portion
thereof or deprive any such Holder of the benefit of this Agreement with respect
to the Trust Estate or any portion  thereof;  or (iv) modify this Section 6.2 or
Section 4.2, 4.3(b) or 4.4.

          (b) Promptly after the execution of any amendment, the Master Servicer
shall  send to the  Trustee a  conformed  copy of each such  amendment,  but the
failure  to do so will not  impair or affect its  validity.  Promptly  after the
execution of any amendment  pursuant to Section 6.2(a) the Issuer shall cause to
be sent to each Noteholder a copy of such amendment.  Any failure to do so shall
not affect the validity of such amendment.

          (c) It shall not be  necessary,  in any consent of  Noteholders  under
this Section 6.2, to approve the particular form of any proposed amendment,  but
it shall be sufficient if such consent shall approve the substance thereof.  The
manner of obtaining  such consents and of evidencing  the  authorization  of the
execution thereof by Noteholders shall be subject to such reasonable regulations
as the Trustee may prescribe.

          (d) Any amendment or modification  effected contrary to the provisions
of this Section 6.2 shall be void.

             SECTION 6.3.  Governing Law.

       This Agreement  shall be construed in accordance with and governed by the
laws of the State of New York,  without regard to the conflict of law provisions
thereof.

             SECTION 6.4.  Notices.

      All notices,  requests or other  communications  desired or required to be
given  under  this  Agreement  shall  be in  writing  and  shall  be sent by (a)
certified or registered mail,  return receipt  requested,  postage prepaid,  (b)
national prepaid  overnight  delivery  service,  (c) telecopy or other facsimile
transmission  (following  with  hard  copies  to be  sent  by  national  prepaid
overnight  delivery service) or (d) personal delivery with receipt  acknowledged
in  writing,  as  follows:  (i)  if to  the  Issuer,  c/o  Litchfield  Financial
Corporation,  430 Main Street,  Williamstown,  Massachusetts  01267,  Attention:
Executive Vice President, (ii) if to the Master Servicer, to the Master Servicer
at   Litchfield   Financial   Corporation,   430  Main   Street,   Williamstown,
Massachusetts  01267,  Attention:  Executive  Vice  President,  (iii)  if to the
Trustee,  at 450 West 33rd Street, New York, New York 10001,  Attention:  Global
Trust Services,  Structured  Finance Services.  Any of the persons in subclauses
(i) through  (iii) above may change its address for notices  hereunder by giving
notice of such  change to the other  persons.  Any change of address  shown on a
Note Register shall,  after the date of such change,  be effective to change the
address for such Noteholder  hereunder.  All notices and demands shall be deemed
to have been given either at the time of the delivery  thereof to any officer of
the Person  entitled to receive  such notices and demands at the address of such
person for notices  hereunder,  or on the third day after the mailing thereof to
such address, as the case may be.

             SECTION 6.5.  Severability of Provisions.

             If one or more of the provisions of this Agreement shall be for any
reason whatever held invalid or  unenforceable,  such provisions shall be deemed
severable  from the  remaining  covenants,  agreements  and  provisions  of this
Agreement  and such  invalidity or  unenforceability  shall in no way affect the
validity  or  enforceability  of such  remaining  provisions,  the rights of any
parties hereto,  or the rights of the Trustee or any Noteholders.  To the extent
permitted by law, the parties  hereto waive any  provision of law which  renders
any provision of this Agreement invalid or unenforceable in any respect.

             SECTION 6.6.  Binding Effect; Limited Rights of Others.

             The provisions of this Agreement shall be binding upon and inure to
the benefit of the respective  successors and assigns of the parties hereto, and
all such  provisions  shall  inure to the benefit of the Trustee and the related
Noteholders, provided that following an Event of Default under the Indenture and
foreclosure of the Trust Estate pursuant thereto, the successor to the rights of
the  Issuer in  respect  of the  related  Loans and Loan  Collateral  (including
without  limitation the Trustee or any or all of the related  Noteholders) shall
not be bound by the  provisions of this Agreement  unless,  within 90 days after
the date on which such  successor  shall have  succeeded  to such  rights of the
Issuer,  such successor  shall not have  terminated  this Agreement  pursuant to
Section  6.1(b).  Nothing  in this  Agreement  expressed  or  implied,  shall be
construed  to give  any  Person  other  than the  parties  hereto  any  legal or
equitable  right,  remedy or claim under or in respect of this  Agreement or any
covenants, agreements, representations or provisions contained herein.

             SECTION 6.7.  Article and Section Headings.

             The article  and section  headings  herein are for  convenience  of
reference only, and shall not limit or otherwise affect the meaning hereof.

      SECTION 6.8.  Counterparts.

      This  Agreement  may be  executed in several  counterparts,  each of which
shall be an  original  and all of which  shall  constitute  but one and the same
instrument.







      IN WITNESS  WHEREOF,  the parties  hereto have caused this Agreement to be
duly executed by their respective  officers  thereunto duly authorized as of the
day and year first above written.


LITCHFIELD HYPOTHECATION CORP. 1998-B

                                By:              /s/Heather A. Sica
                               Name:  Heather A. Sica
                               Title:  Executive Vice President


                                LITCHFIELD FINANCIAL CORPORATION


                                By:             /s/ Heather A. Sica
                               Name:  Heather A. Sica
                               Title: Executive Vice President


                                THE CHASE MANHATTAN BANK, as Trustee

                          By:  /s/ Cynthia Kerpen
                               Name: Cynthia Kerpen
                               Title: Assistant Vice President


























                                 Exhibit 10.176
                            AMENDMENT NO. 5
                        Dated as of May 27, 1998

                                   to

                     Receivables Purchase Agreement
                     Dated as of September 29, 1995


           THIS  AMENDMENT  NO.  5 dated  as of May 27,  1998  ("Amendment")  is
entered into by and among LITCHFIELD  MORTGAGE  SECURITIES  CORPORATION  1994, a
Delaware  corporation  (the  "Seller"),   LITCHFIELD  FINANCIAL  CORPORATION,  a
Massachusetts corporation ("Litchfield"),  HOLLAND LIMITED SECURITIZATION, INC.,
a Delaware  corporation  ("HLS") and ING BARING  (U.S.)  CAPITAL  MARKETS,  INC.
(formerly known as Internationale  Nederlanden (U.S.) Capital Markets, Inc.), as
agent (the  "Agent").  Capitalized  terms used herein and not otherwise  defined
herein  shall  have the  meanings  assigned  to such  terms  in the  "Agreement"
referred to below.

                         PRELIMINARY STATEMENT

           A. The Seller, Litchfield, HLS and the Agent are parties to
             that certain
Receivables  Purchase  Agreement dated as of September 29, 1995 (as amended from
time to time prior to the date hereof,  the  "Agreement",  pursuant to which HLS
has agreed to purchase certain assets and to make other financial accommodations
to the Seller.

           B. The Seller, Litchfield, HLS and the Agent have agreed to
             amend the
Agreement on the terms and subject to the conditions hereinafter set forth.

           NOW, THEREFORE, in consideration of the premises set forth above, and
for other good and valuable consideration,  the receipt and sufficiency of which
are hereby  acknowledged,  the  Seller,  Litchfield,  HLS and the Agent agree as
follows:

           SECTION 1. Amendment of the Agreement. Effective as of the date first
above written,  subject to the fulfillment of the conditions precedent set forth
in Section 2 below, the Agreement is hereby amended as follows:

1.1        The defined term "Purchase Limit" contained in Section 1.01
                                                          ------------
              of the
 Agreement is amended to delete the amount  "$125,000,000" set forth therein and
to substitute "$150,000,000" therefor.

           1.2 The defined term "Termination  Date" contained in Section 1.01 of
the  Agreement is amended to delete the date "June 15,  1998" set forth  therein
and to substitute "June 15, 2001" therefor.





           SECTION  2.  Conditions   Precedent.   This  Amendment  shall  become
effective and shall be deemed  effective as of date first above written upon the
satisfaction of the following  conditions  precedent:  (a) no event has occurred
and is continuing  which  constitutes an Event of Default or would constitute an
Event of Default but for the requirement  that notice be given or time elapse or
both;  and (b) the  Agent  shall  have  received  (i)  five (5)  copies  of this
Amendment duly executed by the Seller,  Litchfield,  HLS and the Agent, (ii) the
Agent shall have received  $250,000  representing  the first  installment of the
structuring fee, and (iii) written  confirmation from each of S&P and Fitch that
this  Amendment  will not adversely  affect the rating of the  commercial  paper
notes  issued by HLS to fund the  acquisition  of  "Purchased  Assets"  (as such
quoted terms are defined in the Agreement) to the Seller.

           SECTION 3.   Representations and Warranties of the Seller
and Litchfield.

3.1        Each of the Seller and Litchfield hereby represents and
              warrants that this
Amendment  constitutes a legal,  valid and binding obligation of the such Person
enforceable against it in accordance with its terms.

3.2        Upon the effectiveness of this Amendment, each of the Seller
              and Litchfield
reaffirms all covenants, representations and warranties made in the Agreement by
such  Person to the extent the same are not  amended  hereby and agrees that all
such  covenants,  representations  and  warranties  shall be deemed to have been
remade as of the effective date of this Amendment.

           SECTION 4.  Reference to and Effect on the Agreement.

4.1        Upon the effectiveness of this Amendment, each reference in
              the Agreement
to "this Agreement",  "hereunder",  "hereof",  "herein", or words of like import
shall mean and be a  reference  to the  Agreement  as amended  hereby,  and each
reference  to the  Agreement  in any other  document,  instrument  or  agreement
executed and/or delivered in reference to the Agreement as amended hereby.

4.2        Except as specifically amended hereby, the Agreement and
              other documents,
instruments  and agreements  executed and/or  delivered in connection  therewith
shall remain in full force and effect and are hereby ratified and confirmed.

4.3        The execution, delivery and effectiveness of this Amendment
              shall not (a)
operate  as a waiver of any  right,  power or remedy of the Agent or the  Seller
under the Agreement or any other document,  instrument or agreement  executed in
connection  therewith,  (b)  constitute  a  waiver  of any  provision  contained
therein,  nor (c) be deemed to be a consent to any other or  further  actions or
occurrences, except as specifically set forth herein.

           SECTION 5.  GOVERNING LAW.   THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK.








           SECTION 6. Paragraph  Headings.  The paragraph  headings contained in
this  Amendment  are and shall be without  substance,  meaning or content of any
kind whatsoever and are not a part of the agreement between the parties hereto.

           SECTION 7.   Counterparts.   This Amendment may be executed
in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.



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


                          LITCHFIELD MORTGAGE SECURITIES
                          CORPORATION 1994


                          By:  /s/ Richard A. Stratton
                          Title:    President and Chief Executive
Officer


                          LITCHFIELD FINANCIAL CORPORATION


                          By:  /s/ Richard A. Stratton
                          Title:    President and Chief Executive
Officer


                          ING BARING (U.S.) CAPITAL MARKETS, INC.


                          By:  /s/  Richard J. Wisniewski
                          Title:    Vice President


                          HOLLAND LIMITED SECURITIZATION, INC.

                          By:       ING BARING (U.S.) CAPITAL
                               MARKETS, INC., as attorney-in-fact


                          By: /s/   Richard J. Wisniewski
                          Title:    Vice President



                                 Exhibit 10.177
                            AMENDMENT NO. 5
                        Dated as of May 27, 1998

                                   to

                Receivables Loan and Security Agreement
                     Dated as of September 29, 1995


           THIS  AMENDMENT  NO.  5 dated  as of May 27,  1998  ("Amendment")  is
entered into by and among LITCHFIELD  MORTGAGE  SECURITIES  CORPORATION  1994, a
Delaware  corporation (the  "Borrower"),  LITCHFIELD  FINANCIAL  CORPORATION,  a
Massachusetts  corporation  ("Litchfield"),   HOLLAND  SECURITIZATION,  INC.,  a
Delaware  corporation  ("HLS")  and ING  BARING  (U.S.)  CAPITAL  MARKETS,  INC.
(formerly known as Internationale  Nederlanden (U.S.) Capital Markets, Inc.), as
agent (the  "Agent").  Capitalized  terms used herein and not otherwise  defined
herein  shall  have the  meanings  assigned  to such  terms  in the  "Agreement"
referred to below.

                         PRELIMINARY STATEMENT

           A. The Borrower, Litchfield, HLS and the Agent are parties
             to that certain
Receivables  Loan and  Security  Agreement  dated as of  September  29, 1995 (as
amended from time to time prior to the date hereof,  the "Agreement"),  pursuant
to which HLS has agreed to make certain loans and other financial accommodations
to the Borrower.

           B. The Borrower, Litchfield, HLS and the Agent have agreed
             to amend the
Agreement on the terms and subject to the conditions hereinafter set forth.

           NOW, THEREFORE, in consideration of the premises set forth above, and
for other good and valuable consideration,  the receipt and sufficiency of which
are hereby acknowledged,  the Borrower,  Litchfield,  HLS and the Agent agree as
follows:

           SECTION 1. Amendment of the Agreement. Effective as of the date first
above written,  subject to the fulfillment of the conditions precedent set forth
in Section 2 below, the Agreement is hereby amended as follows:

1.1        The defined term "Borrowing Limit" contained in Section 1.01
                                                           ------------
              of the
Agreement is amended to delete the amount  "$125,000,000"  set forth therein and
to substitute "$150,000,000" therefor.

1.2        The defined term "Termination Date" contained in Section
              1.01 of the
Agreement is amended to delete the date "June 15, 1998" set forth therein and to
substitute "June 15, 2001" therefor.





           SECTION  2.  Conditions   Precedent.   This  Amendment  shall  become
effective and shall be deemed  effective as of date first above written upon the
satisfaction of the following  conditions  precedent:  (a) no event has occurred
and is continuing  which  constitutes an Event of Default or would constitute an
Event of Default but for the requirement  that notice be given or time elapse or
both;  and (b) the  Agent  shall  have  received  (i)  five (5)  copies  of this
Amendment duly executed by the Borrower, Litchfield, HLS and the Agent, (ii) the
Agent shall have received  $250,000  representing  the first  installment of the
structuring fee, and (iii) written  confirmation from each of S&P and Fitch that
this  Amendment  will not adversely  affect the rating of the  commercial  paper
notes issued by HLS to fund "Loans" secured by interests in "Pledged Assets" (as
such quoted terms are defined in the Agreement) to the Borrower.

           SECTION 3.  Representations and Warranties of the Borrower
and Litchfield.

3.1        Each of the Borrower and  Litchfield  hereby  represents  and
              warrants that this
Amendment  constitutes a legal,  valid and binding obligation of the such Person
enforceable against it in accordance with its terms.

3.2        Upon the effectiveness of this Amendment, each of the
              Borrower and
Litchfield  reaffirms all covenants,  representations and warranties made in the
Agreement  by such  Person to the  extent  the same are not  amended  hereby and
agrees that all such covenants,  representations  and warranties shall be deemed
to have been remade as of the effective date of this Amendment.

           SECTION 4.  Reference to and Effect on the Agreement.

4.1        Upon the effectiveness of this Agreement, each reference in
              the Agreement
to "this  Agreement",  "hereunder",  "hereof",  "herein" or words of like import
shall mean and be a  reference  to the  Agreement  as amended  hereby,  and each
reference  to the  Agreement  in any other  document,  instrument  or  agreement
executed and/or delivered in reference to the Agreement as amended hereby.

4.2        Except as specifically amended hereby, the Agreement and
              other documents,
instruments  and agreements  executed and/or  delivered in connection  therewith
shall remain in full force and effect and are hereby ratified and confirmed.

4.3        The execution, delivery and effectiveness of this Amendment
              shall not (a)
operate as a waiver of any right,  power or remedy of the Agent or the  Borrower
under the Agreement or any other document,  instrument or agreement  executed in
connection  therewith,  (b)  constitute  a  waiver  of any  provision  contained
therein,  nor (c) be deemed to be a consent to any other or  further  actions or
occurrences, except as specifically set forth herein.

           SECTION 5.  GOVERNING LAW.   THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK.







           SECTION 6. Paragraph  Headings.  The paragraph  headings contained in
this  Amendment  are and shall be without  substance,  meaning or content of any
kind whatsoever and are not a part of the agreement between the parties hereto.

           SECTION 7.  Counterparts.   This Amendment may be executed
in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.




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

                          LITCHFIELD MORTGAGE SECURITIES
                          CORPORATION 1994


                          By:  /s/ Richard A. Stratton
                          Title:    President and Chief Executive
Officer


                          LITCHFIELD FINANCIAL CORPORATION


                          By:  /s/ Richard A. Stratton
                          Title:    President and Chief Executive
Officer


                          ING BARING (U.S.) CAPITAL MARKETS, INC.


                          By:  /s/ Richard J. Wisniewski
                          Title:    Vice President


                          HOLLAND LIMITED SECURITIZATION, INC.

                          By:     ING BARING (U.S.) CAPITAL
                                     MARKETS, INC., as attorney-in-fact


                          By:  /s/ Richard J. Wisniewski
                          Title:    Vice President

<TABLE>

                                  Exhibit 11.1
                    Litchfield Financial Corporation
                   Computation of Earnings Per Share
<S>                               <C>          <C>        <C>           <C>
                                   Three Months Ended   Six Months Ended
                                        June 30,            June 30,
                                      1998       1997         1998        1997
Basic:
     Weighted average number of
common shares outstanding.......   5,754,018   5,560,167   5,706,887   5,503,736

     Net income.................. $2,309,000  $1,880,000  $3,859,000  $3,025,000

     Net income per common share.  $     .40  $      .34  $      .68  $      .55

Diluted:
     Weighted average number of
common shares outstanding.......  5,754,018    5,560,167   5,706,887   5,503,736
     Weighted average number of
common stock equivalents outstanding:
        Stock options............   363,814      297,009     362,277     321,211
                                   --------     ---------   --------    --------

     Weighted average common and
        common equivalent shares
        outstanding.............. 6,117,832    5,857,176   6,069,164   5,824,947
                                  =========    =========   =========   =========

     Net income..................$2,309,000   $1,880,000  $3,859,000  $3,025,000

     Net income per common share.  $    .38   $      .32  $      .64  $      .52

</TABLE>