EXHIBIT 4.3

                                                                [Execution Copy]



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                               SERVICING AGREEMENT



                                  By and Among



                           WASHINGTON MUTUAL BANK, FA
                                   (Servicer)

                      DEUTSCHE BANK NATIONAL TRUST COMPANY
                                    (Trustee)

                                       and


                        MORGAN STANLEY ABS CAPITAL I INC.

                                   (Depositor)




                           Dated as of January 1, 2004

                MORGAN STANLEY ABS CAPITAL I INC. TRUST 2004-SD1


                       MORTGAGE PASS-THROUGH CERTIFICATES,
                                 SERIES 2004-SD1



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                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

ARTICLE 1 DEFINITIONS.........................................................1


ARTICLE 2 ADMINISTRATION AND SERVICING OF MORTGAGE LOANS......................9

     Section 2.1      Identification of Mortgage Loans; Servicer to Act
                        as Servicer...........................................9
     Section 2.2      Liquidation of Mortgage Loans..........................11
     Section 2.3      Collection of Mortgage Loan Payments...................12
     Section 2.4      Establishment of Collection Account; Deposits in
                        Collection Account...................................13
     Section 2.5      Permitted Withdrawals from the Collection Account......15
     Section 2.6      Establishment of Escrow Account; Deposits in
                        Escrow Account; Escrow Analysis......................15
     Section 2.7      Permitted Withdrawals from the Escrow Account..........16
     Section 2.8      Payment of Taxes, Insurance and Other Charges..........16
     Section 2.9      Transfer of Accounts...................................17
     Section 2.10     Maintenance of Hazard Insurance........................17
     Section 2.11     Fidelity Bond; Errors and Omissions Insurance..........18
     Section 2.12     Title, Management and Disposition of Real Estate
                        Owned................................................19
     Section 2.13     Application of Proceeds of Insurance to Repair
                        or Restoration.......................................20
     Section 2.14     Inspections............................................20
     Section 2.15     Maintenance of Primary Mortgage Insurance Policies;
                        Collections Thereunder...............................21
     Section 2.16     Monthly Advances by the Servicer.......................21
     Section 2.17     Compliance With REMIC Provisions.......................22
     Section 2.18     Trustee to Cooperate; Release of Mortgage Files........22
     Section 2.19     Optional Purchases of Mortgage Loans by Servicer.......23
     Section 2.20     Gramm-Leach-Bliley.....................................24

ARTICLE 3 DISTRIBUTIONS AND REPORTS..........................................24

     Section 3.1      Distributions..........................................24
     Section 3.2      Reports................................................25
     Section 3.3      Delinquency and Foreclosure Statements.................26

ARTICLE 4 GENERAL SERVICING PROCEDURE; COVENANTS; REPRESENTATIONS
          AND WARRANTIES.....................................................26

     Section 4.1      Assumption Agreements..................................26
     Section 4.2      Satisfaction of Mortgages and Release of Mortgage
                        Files................................................27
     Section 4.3      Servicing Compensation.................................28
     Section 4.4      Statements as to Compliance............................29
     Section 4.5      Annual Independent Public Accountants' Servicing
                        Report...............................................29
     Section 4.6      Trustee's Right to Examine Servicer Records, etc.......30
     Section 4.7      Cooperation............................................30

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     Section 4.8      Consents and Approvals.................................30

ARTICLE 5 THE SERVICER.......................................................31

     Section 5.1      Indemnification; Third Party Claims....................31
     Section 5.2      Servicer Covenants; Merger or Consolidation of
                        the Servicer.........................................32
     Section 5.3      Limitation on Liability of the Servicer and Others.....33
     Section 5.4      Servicer Not to Resign.................................33
     Section 5.5      Transfer of Servicing..................................34
     Section 5.6      [Reserved].............................................34
     Section 5.7      Representations and Warranties of the Servicer.........34
     Section 5.8      Servicer May Own Certificates..........................35

ARTICLE 6 DEFAULT 35

     Section 6.1      Events of Default......................................35
     Section 6.2      Waiver of Defaults.....................................37
     Section 6.3      Notification to Certificateholders.....................37
     Section 6.4      Survival of Certain Obligations and Liabilities
                        of the Defaulted Servicer............................37

ARTICLE 7 TERMINATION........................................................38

     Section 7.1      Termination of Agreement...............................38
     Section 7.2      Termination of the Servicer Upon Unremedied
                        Event of Default.....................................38

ARTICLE 8 MISCELLANEOUS PROVISIONS...........................................38

     Section 8.1      Successor to the Servicer..............................38
     Section 8.2      Amendment..............................................40
     Section 8.3      Recordation of Agreement; Perfection of
                        Security Interest; Further Assurances................41
     Section 8.4      Duration of Agreement..................................41
     Section 8.5      Governing Law..........................................41
     Section 8.6      General Interpretive Principles........................42
     Section 8.7      Reproduction of Documents..............................42
     Section 8.8      Notices................................................42
     Section 8.9      Severability of Provisions.............................43
     Section 8.10     Exhibits and Schedules.................................43
     Section 8.11     Counterparts; Successors and Assigns...................43
     Section 8.12     Effect of Headings.....................................43
     Section 8.13     Other Agreements Superseded; Entire Agreement..........44
     Section 8.14     Notice to the Rating Agencies..........................44

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                           DESCRIPTION OF ATTACHMENTS


Exhibit A         FORM OF REQUEST FOR RELEASE OF DOCUMENTS AND RECEIPT

Exhibit B         ACCOUNT LETTER AGREEMENT

Exhibit C         ESCROW ACCOUNT LETTER AGREEMENT

Exhibit D         MORTGAGE LOAN SCHEDULE

Exhibit E         FORM OF OFFICER'S CERTIFICATE

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                               SERVICING AGREEMENT
                               -------------------

         This SERVICING AGREEMENT (this "Agreement") dated as of January 1,
2004, is among Washington Mutual Bank, FA, a savings association organized under
the laws of the United States, in its capacity as servicer (the "Servicer"),
Deutsche Bank National Trust Company, a national banking association, in its
capacity as trustee (the "Trustee") and Morgan Stanley ABS Capital I Inc., a
Delaware corporation, and its successors and assigns, in its capacity as
depositor (the "Depositor").

                              PRELIMINARY STATEMENT

         WHEREAS, the Depositor intends to sell pass-through certificates
(collectively, the "Certificates"), which are to be issued pursuant to a pooling
agreement, dated as of January 1, 2004 (as amended from time to time, in
accordance with the terms thereof, the "Pooling Agreement"), among the
Depositor, Morgan Stanley Mortgage Capital Inc. (the "Seller") and Deutsche Bank
National Trust Company, as trustee (in such capacity, the "Trustee") and
custodian (in such capacity, the "Custodian").

         WHEREAS, the Certificates will be backed by certain Mortgage Loans.

         WHEREAS, the Servicer, the Trustee and the Depositor have agreed that
the Servicer shall service certain of such Mortgage Loans on behalf of the Trust
and the parties hereto desire to provide the mechanics of such servicing by the
Servicer.

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

                                    ARTICLE 1

                                   DEFINITIONS

         Capitalized terms used in this Agreement shall have the meanings
specified in the Mortgage Loan Purchase and Sale Agreement, dated as of
September 1, 2003 (the "Purchase Agreement"), between Washington Mutual Bank,
Washington Mutual Bank, FA and Morgan Stanley Mortgage Capital Inc., as the
owner, or in the Pooling Agreement (as defined herein), as applicable, except
that, whenever used herein, the following words and phrases shall have the
following meanings, unless the context otherwise requires:

         Acceptable Servicing Procedures: The procedures, including prudent
collection and loan administration procedures, and the standard of care employed
by prudent mortgage servicers that service mortgage loans of the same type as
the Mortgage Loans in the jurisdictions in which the related Mortgaged
Properties are located. Such standard of care shall not be lower than that the
Servicer customarily employs and exercises in servicing and administering
similar mortgage loans for its own account and shall be in full compliance with
all federal, state and local laws, ordinances, rules and regulations.

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         Agreement: This Servicing Agreement, including all exhibits and
schedules hereto, and all amendments hereof and supplements hereto.

         Applicable Requirements: With respect to each Mortgage Loan, (i) the
terms of the related Mortgage and Mortgage Note, (ii) the federal, state, local
and foreign laws, statutes, rules, regulations, ordinances, standards,
requirements, administrative rulings, orders and processes pertaining to such
Mortgage Loan, including but not limited to those pertaining to the processing,
origination and servicing of the Mortgage Loan, (iii) the requirements of the
Depositor as set forth in this Agreement and (iv) Acceptable Servicing
Procedures.

         Bank of America: Bank of America, N.A., a national banking association,
or any successor servicer thereto, in its capacity as servicer under the Bank of
America Servicing Agreement.

         Bank of America Servicing Agreement: The servicing agreement dated as
of January 1, 2004 by and among the Depositor, the Trustee and Bank of America,
as servicer.

         Bankruptcy Code:  Title 11 of the United States Code, as amended.

         BIF:  The Bank Insurance Fund.

         Business Day: A day other than (i) a Saturday or Sunday, or (ii) a day
on which banking or savings and loan institutions in the States of Washington,
California, Illinois, Delaware or New York or in the city of Santa Ana,
California are authorized or obligated by law or executive order to be closed.

         Certificates:  As defined in the Preliminary Statement hereto.

         Closing Date:  January 30, 2004.

         Code: The Internal Revenue Code of 1986, as amended from time to time,
or any successor statute thereto.

         Collection Account: The account or accounts created and maintained
pursuant to Section 2.4 of this Agreement.

         Collection Period: With respect to any Distribution Date or Monthly
Remittance Date, the calendar month preceding the month in which such
Distribution Date or Monthly Remittance Date occurs.

         Compensating Interest:  As defined in Section 2.4(b)(ix).

         Compensating Interest Cap: With respect to any Mortgage Loan, an amount
equal to 1/12 of the Pool Balance multiplied by the applicable Servicing Fee
Rate for such Mortgage Loan, or as the parties shall otherwise agree in writing.

         Condemnation Proceeds: All awards or settlements in respect of a taking
of all or part of a Mortgaged Property by exercise of the power of eminent
domain or condemnation.

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         Credit File:  As defined in the Purchase Agreement.

         Custodian: Deutsche Bank National Trust Company, a national banking
association, or any successor in interest.

         Customer Information: All personal, nonpublic information about the
mortgagors that is supplied on behalf of the mortgagors and is maintained by the
Servicer.

         Cut-off Date:  January 1, 2004.

         Defaulted Servicer:  As defined in Section 6.1.

         Depositor: Morgan Stanley ABS Capital I Inc., a Delaware corporation,
or any successor in interest.

         Determination Date: With respect to any Distribution Date, the 10th day
of the calendar month in which such Distribution Date occurs or, if such 10th
day is not a Business Day, the Business Day immediately preceding such 10th day.

         Distribution Account: The trust account or accounts by such name
created and maintained by the Trustee pursuant to the Pooling Agreement.

         Distribution Date: The 25th day of any calendar month, or if such 25th
day is not a Business Day, the Business Day immediately following such 25th day,
commencing in February 2004.

         Due Date: With respect to any Mortgage Loan, the day of the month on
which Monthly Payments on such Mortgage Loan are due, exclusive of any days of
grace, which day shall be the first day of the month unless otherwise specified
on the Mortgage Loan Schedule.

         Due Period: With respect to any Mortgage Loan, the period beginning on
the first day of any month and ending on the last day of such month.

         Eligible Account: An account or accounts maintained with a Qualified
Depository.

         Escrow Account: The separate account or accounts created and maintained
pursuant to Section 2.6.

         Escrow Holdback Mortgage Loan:  As defined in the Purchase Agreement.

         Escrow Payments: The amounts constituting ground rents, taxes,
assessments, water rates, sewer rents, municipal charges, Primary Mortgage
Insurance Policy premiums, if any, fire and hazard insurance premiums,
condominium charges and other payments required to be escrowed by the Mortgagor
with the mortgagee pursuant to any Mortgage Loan or this Agreement.

         Event of Default: Any one of the conditions or circumstances enumerated
in Section 6.1.

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         Fannie Mae: Fannie Mae (formerly known as the Federal National Mortgage
Association) and any successor thereto.

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

         Fidelity Bond: A fidelity bond to be obtained by the Servicer pursuant
to Section 2.11.

         Final Recovery Determination: With respect to any defaulted Mortgage
Loan or any REO Property, a determination made by the Servicer that all related
Condemnation Proceeds, Insurance Proceeds, Liquidation Proceeds and other
payments or recoveries that the Servicer, in its reasonable good faith judgment,
expects to be finally recoverable have been so recovered. The Servicer shall
maintain records, prepared by a servicing officer of the Servicer, of each Final
Recovery Determination.

         Fitch:  Fitch, Inc. or any successor thereto.

         GAAP: Generally Accepted Accounting Principles, as promulgated by the
Financial Accounting Standards Board from time to time.

         Indemnitees:  As defined in Section 4.4(c).

         Insurance Proceeds: Proceeds of any Primary Mortgage Insurance Policy,
title policy, hazard insurance policy or any other insurance policy covering a
Mortgage Loan or the related Mortgaged Property, including any amounts required
to be deposited in the Collection Account pursuant to Section 2.10, to the
extent such proceeds are not to be applied to the restoration of the related
Mortgaged Property or released to the Mortgagor in accordance with Applicable
Requirements.

         Late Collections: With respect to any Mortgage Loan, all amounts
received during any Due Period, whether as late payments of Monthly Payments, or
as Insurance Proceeds, Liquidation Proceeds, Condemnation Proceeds or otherwise,
which amounts represent late payments or collections of Monthly Payments due but
delinquent for a previous Due Period and not previously recovered.

         Liquidation Proceeds: Cash received in connection with (i) the
liquidation of a defaulted Mortgage Loan (whether through the sale or assignment
of the Mortgage Loan, trustee's sale, foreclosure sale or otherwise) or (ii) the
sale of the Mortgaged Property, if the Mortgaged Property is acquired in
satisfaction of the Mortgage.

         Majority Certificateholders: The Holders of Certificates evidencing at
least 51% of the Voting Rights.

         Monthly Advance: The aggregate of the advances made by the Servicer on
any Monthly Remittance Date pursuant to Section 2.16(a).

         Monthly Payment:  As defined in the Pooling Agreement.

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         Monthly Remittance Date: With respect to any Distribution Date, three
(3) Business Days prior to such Distribution Date.

         Moody's:  Moody's Investors Service, Inc. or any successor thereto.

         Mortgage File:  As defined in the Purchase Agreement.

         Mortgage Interest Rate: With respect to each Mortgage Loan, the annual
rate at which interest accrues on such Mortgage Loan.

         Mortgage Loan: Each mortgage loan sold under the Purchase Agreement and
ultimately transferred and assigned to the Trustee pursuant to the Pooling
Agreement as from time to time held as a part of the Trust Fund, the Mortgage
Loans so held being identified in the Mortgage Loan Schedule. The term "Mortgage
Loan" includes a Cooperative Loan.

         Mortgage Loan Schedule: As of any date with respect to the Mortgage
Loans, the list of such Mortgage Loans included in the Trust Fund, prepared by
the Servicer, setting forth the information required under the Purchase
Agreement and attached hereto as Exhibit D.

         Net Interest Margin Securities:  As defined in Section 2.19 hereof.

         Net Rate: With respect to each Mortgage Loan, the annual rate at which
interest thereon shall be remitted to the Trustee (in each case computed on the
basis of a 360-day year consisting of twelve 30-day months), which annual rate
shall be equal to the Mortgage Interest Rate less the Servicing Fee Rate and the
Trustee Fee Rate.

         Nonrecoverable Advance: Any portion of any Servicing Advance or Monthly
Advance previously made or proposed to be made in respect of a Mortgage Loan by
the Servicer hereunder that the Servicer determines in its good faith judgment
will not be ultimately recoverable from Late Collections.

         Officer's Certificate: A certificate signed by a Vice President or
other authorized officer and delivered to the Trustee and the Depositor, as
required by this Agreement.

         Opinion of Counsel: A written opinion of counsel, who may be counsel
for the Depositor or the Servicer or an employee of the Servicer, reasonably
acceptable to the Depositor, the Trustee or the Servicer, as the case may be.

         Optional Termination:  As defined in Section 2.19.

         OTS:  The Office of Thrift Supervision, or any successor thereto.

         Permitted Investments: Any one or more of the following obligations or
securities:

         (i)      direct obligations of, or obligations fully guaranteed as to
principal and interest by, the United States or any agency or instrumentality
thereof, provided such obligations are backed by the full faith and credit of
the United States;

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         (ii)     repurchase obligations with respect to any security described
in clause (i) above, provided that the unsecured long-term obligations of the
party agreeing to repurchase such obligations are at the time rated by S&P or
Moody's in one of its two highest rating categories;

         (iii)    federal funds, certificates of deposit, time deposits, and
bankers' acceptances of any bank or trust company incorporated under the laws of
the United States or any state, provided that the long-term debt obligations of
such bank or trust company (or, in the case of the principal bank in a bank
holding company system, the long-term debt obligations of the bank holding
company) at the date of acquisition thereof have been rated by S&P or Moody's in
one of its two highest rating categories;

         (iv)     commercial paper of any corporation incorporated under the
laws of the United States or any state thereof which on the date of acquisition
has been rated by S&P or Moody's in its highest short-term rating category; and

         (v)      if previously confirmed in writing to the Trustee, any other
demand, money market or time deposit, or any other obligation, security or
investment, as may be acceptable to the Rating Agencies.

         Pool Balance: As of any date of determination, the aggregate Unpaid
Principal Balance of the Mortgage Loans.

         Pooling Agreement:  As defined in the Preliminary Statement hereto.

         Prepayment Charge: With respect to any Mortgage Loan, the prepayment
premium or charge, if any, required under the terms of the related Mortgage Note
to be paid in connection with a Principal Prepayment in Full or a Principal
Prepayment in Part, to the extent permitted by applicable law.

         Primary Mortgage Insurance Policy: With respect to each Mortgage Loan,
the policy of primary mortgage insurance (including all endorsements thereto)
issued with respect to such Mortgage Loan, if any, or any replacement policy.

         Prime: As of any date of determination, the annual interest rate,
adjusted daily, published from time to time in The Wall Street Journal (Western
Edition) as the "PRIME RATE" in the "MONEY RATES" section. In the event that
more than one such rate is specified, "Prime" shall mean the greatest of such
rates.

         Principal Prepayment: Any payment or other recovery of principal in
full ( a "Principal Prepayment in Full") or in part (a "Principal Prepayment in
Part") of the then-outstanding principal on a Mortgage Loan (other than
Condemnation Proceeds, Insurance Proceeds, and Liquidation Proceeds) that is
received in advance of its scheduled Due Date and not accompanied by an amount
of interest representing scheduled interest due on any date or dates in any
month or months subsequent to the month of prepayment. The term "Principal
Prepayment" shall not refer to any related Prepayment Charge.

         Purchase Agreement: That certain Mortgage Loan Purchase and Sale
Agreement dated as of September 1, 2003 among Washington Mutual Bank, FA,
Washington Mutual Bank fsb

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<PAGE>

and Washington Mutual Bank as the sellers and Morgan Stanley Mortgage Capital
Inc. as the purchaser.

         Qualified Depository: Any of the following: (i) a depository, the
long-term unsecured debt obligations of which are rated by Moody's or S&P (or a
comparable rating agency) in one of its three highest rating categories, (ii)
the corporate trust department of a national bank, (iii) a depository that fully
insures the Collection Account and the Escrow Account with insurance provided by
the FDIC, or (iv) the Servicer.

         Rating Agency or Rating Agencies: Fitch, Moody's and S&P, or their
respective successors. If such agencies or their successors are no longer in
existence, "Rating Agencies" shall be such nationally recognized statistical
rating organization as set forth on the most current list of such organizations
released by the SEC and designated by the Depositor, notice of which designation
shall be given to the Trustee and the Servicer.

         Remainder Amount:  As defined in Section 2.19.

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

         REMIC Provisions: Provisions of the federal income tax law relating to
REMICs, which appear at Section 860G of Subchapter M of Chapter 1 of the Code
and related provisions, and regulations promulgated thereunder, as in effect
from time to time.

         REO Management Fee: With respect to each REO Property, an amount equal
to $1,500.

         REO Property: A Mortgaged Property acquired in foreclosure or by deed
in lieu of foreclosure, as described in Section 2.12.

         Responsible Officer: With respect to the Trustee, any vice president,
assistant vice president, associate or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers who at such time shall be an officer to whom, with respect
to a particular matter, such matter is referred because of such officer's
knowledge of and familiarity with the particular subject and who shall have
direct responsibility for the administration of this Agreement.

         SAIF:  The Savings Association Insurance Fund.

         S&P: Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc., or any successor thereto.

         SEC:   The Securities and Exchange Commission.

         Seller: Morgan Stanley Mortgage Capital Inc., a Delaware corporation,
and any successor in interest.

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         Servicer: Washington Mutual Bank, FA, a savings association organized
under the laws of the United States, or its permitted successor in interest, or
any successor to the Servicer under this Agreement appointed as herein provided.

         Servicer Employees:  As defined in Section 2.11.

         Servicer Report Date: With respect to any Distribution Date, the 10th
Business Day of the calendar month in which such Distribution Date occurs.

         Servicing Advances: All customary, reasonable, and necessary "out of
pocket" costs and expenses, including reasonable attorneys' fees and
disbursements, incurred by the Servicer in the performance of its servicing
obligations hereunder, including, without limitation, costs related to (i) the
preservation, restoration, and protection of the Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of the Mortgaged Property if the Mortgaged Property
is acquired in satisfaction of the Mortgage and (iv) Servicer's compliance with
the obligations set forth in Sections 2.2, 2.3, 2.8, 2.10, 2.12 and 2.15 of this
Agreement.

         Servicing Fee: With respect to each Mortgage Loan, the amount of the
annual fee payable to the Servicer pursuant to Section 4.3 as compensation for
servicing and administering such Mortgage Loan. Such fee shall, for a period of
one full month, be equal to one-twelfth of the product of (i) the related
Servicing Fee Rate, multiplied by (ii) the outstanding Unpaid Principal Balance
of such Mortgage Loan. Such fee shall be payable monthly and shall be computed
on the basis of the same principal amount and period respecting which any
related interest payment on such Mortgage Loan is computed.

         Servicing Officer: Any Vice-President or Assistant Vice-President or
any officer of the Servicer customarily performing functions similar to those
performed by a Vice-President or Assistant Vice-President and in each case
having direct responsibility for the administration of this Agreement.

         Stayed Funds: Any payment required to be made under the terms of the
Certificates and this Agreement but which is not remitted by the Servicer
because the Servicer is the subject of a proceeding under the Bankruptcy Code
and the making of such remittance is prohibited by Section 362 of the Bankruptcy
Code.

         Terminating Entity:  As defined in Section 2.19.

         Termination Price:  As defined in the Pooling Agreement.

         Termination Notice:  As defined in Section 2.19

         Trust: Morgan Stanley ABS Capital I Inc. Trust 2004-SD1, the trust
created pursuant to the Pooling Agreement.

         Trust Fund: The segregated pool of assets subject to the Pooling
Agreement, constituting the primary trust created pursuant to the Pooling
Agreement and to be administered pursuant to the Pooling Agreement.

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<PAGE>

         Trustee: Deutsche Bank National Trust Company, a national banking
association, or any successor trustee appointed pursuant to the Pooling
Agreement.

         Unpaid Principal Balance: As to any Mortgage Loan and any day, other
than a Liquidated Mortgage Loan, the related scheduled principal balance thereof
as of the Cut-off Date, minus all collections credited against the principal
balance of any such Mortgage Loan. For purposes of this definition, a Liquidated
Mortgage Loan shall be deemed to have an Unpaid Principal Balance equal to the
Unpaid Principal Balance of the related Mortgage Loan as of the final recovery
of related Liquidation Proceeds and an Unpaid Principal Balance of zero
thereafter. As to any REO Property and any day, the Unpaid Principal Balance of
the related Mortgage Loan immediately prior to such Mortgage Loan becoming REO
Property minus any REO Principal Amortization received with respect thereto on
or prior to such day.

         USAP:  As defined in Section 4.5.

         Voting Rights: The portion of the voting rights of all of the
Certificates which is allocated to any Certificate in accordance with the
Pooling Agreement.

         Wilshire: Wilshire Credit Corporation, a Nevada corporation, or any
successor servicer thereto, in its capacity as servicer under the Wilshire
Servicing Agreement.

         Wilshire Servicing Agreement: The servicing agreement dated as of
January 1, 2004 by and among the Depositor, the Trustee and Wilshire, as
servicer.

                                    ARTICLE 2

                 ADMINISTRATION AND SERVICING OF MORTGAGE LOANS

         Section 2.1       Identification of Mortgage Loans; Servicer to Act as
Servicer

                  (a)      The Servicer, as independent contract servicer, shall
service and administer the Mortgage Loans in accordance with this Agreement and
Acceptable Servicing Procedures, and, except as otherwise expressly provided in
this Agreement, the Servicer shall have full power and authority, acting alone,
to do any and all things in connection with such servicing and administration
that the Servicer may deem necessary or desirable and consistent with the terms
of this Agreement, including, without limitation, all action permitted or
required to be taken under any related Primary Mortgage Insurance Policy. In
servicing and administering the Mortgage Loans, the Servicer shall employ
Acceptable Servicing Procedures, except that the Servicer shall employ the
procedures set forth in this Agreement whenever the Acceptable Servicing
Procedures conflict with the requirements under this Agreement. The Servicer
shall at all times act in the best interests of the Trust and the
Certificateholders in performing hereunder.

                  (b)      The documents comprising the Mortgage File and the
Credit File with respect to each Mortgage Loan serviced hereunder and that are
delivered to the Servicer, together with all other documents with respect to
each such Mortgage Loan that are prepared by or which come into the possession
of the Servicer, shall immediately vest in the Trustee on behalf of the
Certificateholders and shall be held and maintained in trust by the Servicer at
the will of the

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<PAGE>

Trustee on behalf of the Certificateholders and in a custodial capacity only for
the sole purpose of servicing or supervising the servicing of the related
Mortgage Loans. The documents comprising each Mortgage File and each Credit File
and all related documents that come into the possession of the Servicer and are
so held by the Servicer shall be appropriately marked to clearly reflect the
ownership interest of the Trustee on behalf of the Certificateholders in such
Mortgage File and Credit File and related documents. The Servicer shall release
its custody of any such documents only in accordance with written instructions
from the Depositor or if such release is required as incidental to the
Servicer's servicing of the Mortgage Loans or is in connection with a repurchase
of any Mortgage Loan pursuant to Section 3.3 of the Purchase Agreement.

                  (c)      Consistent with the terms of this Agreement, the
Servicer may waive, modify or vary any term of any Mortgage Loan or consent to
the postponement of strict compliance with any such term or in any manner grant
indulgence to any Mortgagor if, in the Servicer's reasonable and prudent
determination, such waiver, modification, variation, postponement or indulgence
is in the best interests of the Trust and the Certificateholders; provided,
however, that the Servicer shall not permit any modification with respect to any
Mortgage Loan that would (i) change the Mortgage Interest Rate, defer or forgive
the payment of any principal or interest payments, reduce the outstanding
principal amount (except for actual payments of principal) or extend the related
Maturity Date (unless the Mortgagor is in default with respect to the Mortgage
Loan or such default is, in the judgment of the Servicer, imminent and in the
Servicer's reasonable and prudent determination such waiver, modification,
variation, postponement or indulgence is not materially adverse to the
Certificateholders), (ii) affect adversely the status of any REMIC as a REMIC or
(iii) cause any REMIC to be subject to a tax on "prohibited transactions" or
"contributions" pursuant to the REMIC Provisions. Notwithstanding the foregoing,
the Servicer shall not permit any modification with respect to any Mortgage Loan
that would both (x) effect an exchange or reissuance of such Mortgage Loan under
Section 1.860G-2(b) of the Treasury Regulations and (y) cause any REMIC
constituting part of the Trust Fund to fail to qualify as a REMIC under the Code
or the imposition of any tax on "prohibited transactions" or "contributions"
after the Startup Day under the REMIC Provisions. Without limiting the
generality of the foregoing, the Servicer is hereby authorized and empowered to
execute and deliver on behalf of itself and the Trustee all instruments of
satisfaction, cancellation, full release, or partial release or discharge, and
all other comparable instruments with respect to the Mortgage Loans and the
Mortgaged Properties. If reasonably required by the Servicer, the Trustee shall
furnish the Servicer with any powers of attorney and other documents necessary
or appropriate to enable the Servicer to carry out its servicing and
administrative duties under this Agreement.

                  (d)      As to each ARM Loan, the Servicer shall make periodic
Mortgage Interest Rate and Monthly Payment adjustments, as applicable, and
execute and deliver all appropriate notices regarding the same, in strict
compliance with the Applicable Requirements. The Servicer shall establish
procedures to monitor the Index in order to ensure that it uses the appropriate
value for the Index in determining an interest rate change. If the Servicer
fails to make a timely and correct Mortgage Interest Rate adjustment or Monthly
Payment adjustment, the Servicer shall use its own funds to satisfy any shortage
in the Mortgagor's Monthly Payment for so long as such shortage continues. In
the event the Index, as specified in the related Mortgage Note, becomes
unavailable for any reason, the Servicer shall select an alternative index based
on

                                       10
<PAGE>

comparable information, in accordance with the terms of the Mortgage Note, and
such alternative index shall thereafter be the Index for such Mortgage Loan. In
such event, the Servicer shall also determine a new Gross Margin. The new Gross
Margin shall be the difference between (x) the average of the original Index for
the most recent three-year period that ends on the last date the original Index
was available plus the Gross Margin on the last date the original Index was
available and (y) the average of the new Index for the most recent three-year
period that ends on that date (or if not available for such three-year period,
for such time as it is available), rounded as provided in the Mortgage Note.

                  (e)      In connection with the servicing and administration
of the Mortgage Loans and consistent with Acceptable Servicing Procedures and
this Agreement, the Servicer shall have full power and authority to execute and
deliver or cause to be executed and delivered on behalf of the Trustee, on
behalf of the Certificateholders, such instruments of assignment or other
comparable instruments as the Servicer shall deem appropriate in order to
register any Mortgage Loan on the MERS(R) System or cause the removal of any
Mortgage Loan from registration on the MERS(R) System.

                  (f)      The Servicer shall give prompt notice to the Trustee
of any action, of which a Servicing Officer of the Servicer has actual
knowledge, to assert a claim against the Trust Fund. For purposes of this
provision, the term "actual knowledge" means that an authorized Servicing
Officer has received written notice specifying that an action or claim is being
asserted against the Trust Fund and in no event shall this standard require a
Servicing Officer to conduct an investigation or an inquiry into whether any
action or claim asserts a claim against the Trust Fund or asserts jurisdiction
over the Trust Fund.

         Section 2.2       Liquidation of Mortgage Loans

                  (a)      In the event that any payment due under any Mortgage
Loan is not paid when the same becomes due and payable, or in the event the
Mortgagor fails to perform any other covenant or obligation under the Mortgage
Loan and such failure continues beyond any applicable grace period, the Servicer
shall proceed diligently to collect all payments due and shall take such action,
including commencing foreclosure, as it shall reasonably deem to be in the best
interests of the Certificateholders.

                  (b)      Notwithstanding the foregoing provisions of this
Section 2.2, with respect to any Mortgage Loan as to which the Servicer has
received actual notice of, or has actual knowledge of, the presence of any toxic
or hazardous substance on the related Mortgaged Property, the Servicer shall not
(i) obtain title to such Mortgaged Property as a result of or in lieu of
foreclosure or otherwise, (ii) acquire possession of, or (iii) take any other
action with respect to, such Mortgaged Property if, as a result of any such
action, the Trust would be considered to hold title to, to be a
mortgagee-in-possession of, or to be an owner or operator of such Mortgaged
Property within the meaning of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time, or any
comparable law, unless the Servicer has previously determined, based on its
reasonable judgment and a prudent report prepared by a Person who regularly
conducts environmental audits using customary industry standards, that:

                                       11
<PAGE>

                           (i)      such Mortgaged Property is in compliance
                  with applicable environmental laws or, if not, that it would
                  be in the best economic interest of the Certificateholders to
                  take such actions as are necessary to bring the Mortgaged
                  Property into compliance therewith; and

                           (ii)     there are no circumstances present at such
                  Mortgaged Property relating to the use, management or disposal
                  of any hazardous substances, hazardous materials, hazardous
                  wastes, or petroleum-based materials for which investigation,
                  testing, monitoring, containment, clean-up or remediation
                  could be required under any federal, state or local law or
                  regulation, or that if any such materials are present for
                  which such action could be required, that it would be in the
                  best economic interest of the Certificateholders to take such
                  actions with respect to the affected Mortgaged Property.

The cost of the environmental audit report contemplated by this Section 2.2(b)
shall be advanced by the Servicer as a Servicing Advance, subject to the
Servicer's right to be reimbursed therefor from the Collection Account and the
Servicer's right to make a judgment about whether any such advance would be a
Nonrecoverable Advance.

                  (c)      If the Servicer has determined that it is in the best
economic interest of the Certificateholders to take such actions as are
necessary to bring any such Mortgaged Property into compliance with applicable
environmental laws, or to take such action with respect to the containment,
clean-up or remediation of hazardous substances, hazardous materials, hazardous
wastes, or petroleum-based materials affecting any such Mortgaged Property, then
the Servicer shall take such action as it deems to be in the best economic
interest of the Certificateholders. The cost of any such compliance,
containment, clean-up or remediation shall be advanced by the Servicer as a
Servicing Advance, subject to the Servicer's right to be reimbursed therefor
from the Collection Account and the Servicer's right to make a judgment about
whether any such advance would be a Nonrecoverable Advance.

         Section 2.3       Collection of Mortgage Loan Payments

         Continuously from the date hereof until the principal and interest on
all of the Mortgage Loans are paid in full, the Servicer shall proceed
diligently to collect all payments due under each of the Mortgage Loans when the
same shall become due and payable. With respect to those Mortgage Loans, if any,
as to which the Servicer collects Escrow Payments, the Servicer shall ascertain
or estimate annual ground rents, taxes, assessments, water rates, sewer rents,
municipal charges, fire and hazard insurance premiums, condominium charges,
Primary Mortgage Insurance Policy premiums and all other charges that, as
provided in any Mortgage, shall become due and payable, to the end that the
Escrow Payments payable by the Mortgagors shall be sufficient to pay such
charges as and when they become due and payable. The Servicer shall not be
required to institute or join in litigation with respect to the collection of
any payment (whether under a Mortgage, Mortgage Note, Primary Mortgage Insurance
Policy or otherwise or against any public or governmental authority with respect
to a taking or condemnation) if in the Servicer's reasonable judgment the
Servicer believes that the costs and expenses relating thereto would be
Nonrecoverable Advances. The Servicer shall be entitled to be reimbursed from
the Collection Account for any costs, expenses or other liabilities incurred by
the Servicer in

                                       12
<PAGE>

connection with any such litigation solely from the proceeds of the related
Mortgage Loan. The Servicer's right to such reimbursement shall be prior to the
Certificateholders' rights to such proceeds.

         Section 2.4       Establishment of Collection Account; Deposits in
Collection Account

                  (a)      The Servicer shall establish and maintain one or more
Accounts (collectively, the "Collection Account") entitled "Collection Account,
Washington Mutual Bank, FA, as Servicer for the Trust under the Servicing
Agreement dated as of January 1, 2004 between Morgan Stanley ABS Capital I Inc.,
as Depositor, Deutsche Bank National Trust Company, as Trustee and Washington
Mutual Bank, FA, as Servicer, in trust for registered Holders of Morgan Stanley
ABS Capital I Inc. Trust 2004-SD1, Mortgage Pass-Through Certificates, Series
2004-SD1", and which must be an Eligible Account. If the Collection Account is
established with an institution other than the Servicer, (i) the Collection
Account shall be evidenced by a letter agreement substantially in the form of
Exhibit B attached hereto and (ii) the Servicer shall deliver a copy of such
letter agreement to the Trustee on or prior to the Closing Date.

                  (b)      The Servicer shall, upon receipt (and in any event,
no later than the end of the second Business Day following receipt thereof
(except as otherwise provided below)), deposit in the Collection Account and
retain therein, the following payments and collections received or made by the
Servicer subsequent to the Cut-off Date :

         (i)      the principal portion of all Monthly Payments on the Mortgage
                  Loans;

         (ii)     the interest portion of all Monthly Payments on the Mortgage
                  Loans less the Servicing Fee;

         (iii)    all Principal Prepayments in Part and Principal Prepayments in
                  Full;

         (iv)     all Liquidation Proceeds;

         (v)      all Insurance Proceeds, other than Insurance Proceeds to be
                  held in the Escrow Account and applied to the restoration and
                  repair of the Mortgaged Property or released to the Mortgagor
                  in accordance with Applicable Requirements;

         (vi)     all Condemnation Proceeds which are not released to the
                  Mortgagor in accordance with the Applicable Requirements;

         (vii)    any amount required to be deposited in the Collection Account
                  pursuant to Sections 2.4(d), 2.10, 2.12(c), 2.12(e) or 4.2(b);

         (viii)   any amounts payable in connection with the repurchase of any
                  Mortgage Loan pursuant to Section 3.3 of the Purchase
                  Agreement; and

         (ix)     with respect to each Principal Prepayment in Full, an amount
                  (to be paid by the Servicer out of its own funds without
                  reimbursement therefor) which, when added to all amounts
                  allocable to interest received in connection with such
                  Principal Prepayment in Full, equals one month's interest on
                  the amount of principal so

                                       13
<PAGE>

                  prepaid at the applicable Net Rate, provided, however, that
                  the aggregate of deposits made by the Servicer pursuant to
                  this clause (ix) in respect of any Monthly Remittance Date
                  shall not exceed the Compensating Interest Cap ("Compensating
                  Interest").

                  (c)      The Servicer shall, no later than 24 hours prior to
the next Monthly Remittance Date, deposit in the Collection Account all Monthly
Advances.

                  (d)      The Servicer may cause the funds on deposit from time
to time in the Collection Account to be invested in Permitted Investments, which
Permitted Investments shall mature not later than the Business Day immediately
preceding the next Monthly Remittance Date following the date such funds are
invested. All Permitted Investments shall be made in the name of the Servicer or
the Trustee or its nominee. All income and gain realized from any Permitted
Investment shall be for the benefit of the Servicer and shall be subject to its
withdrawal or order from time to time. The Servicer shall indemnify the Trust
Fund for any loss incurred in respect of any Permitted Investment by such
Servicer, and the amount of such loss shall be remitted to the Trustee for
deposit in the Distribution Account by the Servicer, out if its own funds,
without reimbursement therefor, no later than 24 hours prior to the next Monthly
Remittance Date following the date of such loss.

                  (e)      The Servicer shall deliver to the Trustee from time
to time for deposit, and the Trustee shall so deposit, in the Distribution
Account:

         (i)      any Monthly Advances, as required pursuant to Section 2.16;

         (ii)     any Stayed Funds, as soon as permitted by the federal
                  bankruptcy court having jurisdiction in such matters;

         (iii)    [Reserved];

         (iv)     any amounts required to be deposited in the Distribution
                  Account pursuant to Sections 2.4 or 2.19; and

         (v)      any amounts required to be deposited by the Servicer pursuant
                  to Section 2.10 in connection with the deductible clause in
                  any blanket hazard insurance policy, such deposit being made
                  from the Servicer's own funds, without reimbursement therefor.

                  (f)      Promptly upon receipt of any Stayed Funds, whether
from the Servicer, a trustee in bankruptcy, or federal bankruptcy court or other
source, the Trustee shall notify the Servicer of such receipt and deposit such
funds in the Distribution Account, subject to withdrawal thereof as permitted
hereunder.

                  (g)      Notwithstanding any provision herein or in the
Pooling Agreement to the contrary, in the event that the Servicer shall remit to
the Trustee any amount not required to be remitted, the Servicer may at any time
direct the Trustee to withdraw such amount from the Distribution Account. Such
direction may be accomplished by delivering an Officer's Certificate to the
Trustee which describes the amounts deposited in error in the Distribution
Account. The

                                       14
<PAGE>

Trustee shall give notice to the Servicer of any proposed change of the location
of the Distribution Account prior to any change thereof.

         Section 2.5       Permitted Withdrawals from the Collection Account

The      Servicer may, from time to time, withdraw funds from the Collection
         Account for the following purposes:

         (i)      to remit to the Trustee for deposit in the Distribution
                  Account the amounts required to be so remitted pursuant to
                  Section 2.4(e);

         (ii)     to pay itself any unpaid Servicing Fees, unpaid REO Management
                  Fees and other servicing compensation in accordance with
                  Section 4.3;

         (iii)    to reimburse itself for any unreimbursed Servicing Advance or
                  Monthly Advances made with respect to any Mortgage Loan;
                  provided that the Servicer's right to reimburse itself
                  pursuant to this clause (ii) is limited to any amounts
                  collected or received by the Servicer with respect to such
                  Mortgage Loan;

         (iv)     to pay to itself any interest earned on funds deposited in the
                  Collection Account;

         (v)      to make any payment or reimburse itself for any amount
                  pursuant to Sections 2.12(c), 2.12(e), 5.1(b) or 5.3;

         (vi)     to reimburse itself for any Servicing Advance or Monthly
                  Advance previously made that it has determined to be a
                  Nonrecoverable Advance;

         (vii)    if there shall be amounts deposited in error or there shall be
                  amounts deposited in the Collection Account not required to be
                  deposited therein, including the Servicing Fee and other
                  servicing compensation, to withdraw such amount from the
                  Collection Account any provision herein to the contrary
                  notwithstanding;

         (viii)   to transfer funds to another Qualified Depository in
                  accordance with Section 2.9; and

         (ix)     to clear and terminate the Collection Account upon the
                  termination of this Agreement in accordance with Article 7.

         Section 2.6       Establishment of Escrow Account; Deposits in Escrow
Account; Escrow Analysis

                  (a)      The Servicer shall segregate and hold separate and
apart from any of its own funds and general assets all Escrow Payments collected
and received pursuant to the Mortgage Loans and shall establish and maintain one
or more Escrow Accounts (collectively, the "Escrow Account"), in the form of
time deposit or demand accounts, which may be interest bearing, entitled
"Washington Mutual Bank, FA, in trust for registered Holders of Morgan Stanley
ABS Capital I Inc. Trust 2004-SD1, Mortgage Pass-Through Certificates, Series
2004-SD1, and certain Mortgagors." The Escrow Account shall be an Eligible
Account established with a Qualified Depository. If the Escrow Account is
established with an institution other than the

                                       15
<PAGE>

Servicer, (i) the Escrow Account shall be evidenced by a letter agreement
substantially in the form of Exhibit C attached hereto and (ii) the Servicer
shall deliver a copy of such letter agreement to the Trustee on or prior to the
Closing Date.

                  (b)      The Servicer shall, upon receipt (and in any event,
no later than the end of the second Business Day following receipt thereof, or
sooner if required by applicable law), deposit in the Escrow Account and retain
therein: (i) all Escrow Payments collected on account of the Mortgage Loans for
the purpose of effecting timely payment of escrow items as required under the
terms of this Agreement and (ii) all amounts representing proceeds of any hazard
insurance policy that are to be applied to the restoration or repair of the
related Mortgaged Property. The Servicer shall make withdrawals from the Escrow
Account only in accordance with Section 2.7. The Servicer shall be entitled to
retain any interest earned on funds deposited in the Escrow Account other than
interest on escrowed funds required by law to be paid to the Mortgagor and, to
the extent required by law, the Servicer shall pay interest on escrowed funds to
the Mortgagor without right of reimbursement therefor notwithstanding that the
Escrow Account maintained by the Servicer may not bear interest or that the
interest earned on such escrowed funds is insufficient for such purpose.

         Section 2.7       Permitted Withdrawals from the Escrow Account

         Withdrawals from the Escrow Account maintained by the Servicer may be
made by the Servicer only (i) to effect timely payments of ground rents, taxes,
assessments, sewer rents, municipal charges, water rates, insurance premiums,
condominium charges, fire and hazard insurance premiums or other items
constituting Escrow Payments for the related Mortgage, (ii) to reimburse the
Servicer for any Servicing Advance made by the Servicer pursuant to Sections 2.8
and 2.10 with respect to a related Mortgage Loan, (iii) to refund to any
Mortgagor any funds found to be in excess of the amounts required under the
terms of the related Mortgage Loan, (iv) for transfer to the Collection Account
in accordance with the terms of this Agreement, (v) for restoration or repair of
a Mortgaged Property, provided the provisions of Section 2.13 have been complied
with, (vi) to pay to the Mortgagor, to the extent required by Applicable
Requirements, interest on the funds deposited in the Escrow Account, (vii) to
pay to itself any interest earned on funds deposited in the Escrow Account (and
not required to be paid to the Mortgagor), (viii) to remove funds inadvertently
placed in the Escrow Account by the Servicer, or (ix) to clear and terminate the
Escrow Account upon the termination of this Agreement, in accordance with
Article 7. With respect to any Escrow Holdback Mortgage Loan, no final
disbursement of any escrow funds therefore shall be made by the Servicer to the
Mortgagor unless the Servicer shall have received the related certificate of
completion with respect thereto.

         Section 2.8       Payment of Taxes, Insurance and Other Charges

         With respect to each Mortgage Loan, the Servicer shall maintain
accurate records reflecting the status of property taxes, assessments and other
charges that are or may become a lien upon the related Mortgaged Property, the
status of Primary Mortgage Insurance premiums, if any, and the status of fire
and hazard insurance coverage and flood insurance, all as required hereunder. If
a Mortgage Loan requires Escrow Payments, the Servicer shall obtain, from time
to time, all bills for the payment of such charges (including renewal premiums)
and shall effect payment thereof prior to the applicable penalty or termination
date in a manner consistent with

                                       16
<PAGE>

Acceptable Servicing Procedures, employing for such purpose deposits of the
Mortgagor in the Escrow Account that shall have been estimated and accumulated
by the Servicer in amounts sufficient for such purposes, as allowed under the
terms of the Mortgage. If a Mortgage Loan does not require Escrow Payments, or
if there are insufficient funds in the related Escrow Account, the Servicer
shall cause all such bills to be paid on a timely basis and shall from its own
funds (if necessary) make a Servicing Advance for timely payment of all such
bills. The Servicer shall monitor the payment status of such charges (including
renewal premiums) by the related Mortgagor. The Servicer shall effect payment of
such charges in a manner consistent with Acceptable Servicing Procedures and, in
all events, prior to the foreclosure of any lien against the Mortgaged Property
resulting from non-payment of such property taxes, assessments and other charges
and prior to the termination of any such insurance coverage.

         Section 2.9       Transfer of Accounts

         The Servicer may, from time to time, transfer the Collection Account or
the Escrow Account to a different Qualified Depository. The Servicer shall
notify the Trustee of any such transfer within ten (10) Business Days of
transfer.

         Section 2.10      Maintenance of Hazard Insurance

                  (a)      The Servicer shall cause to be maintained for each
Mortgage Loan serviced by it fire and hazard insurance with extended coverage
customary in the area where the related Mortgaged Property is located, in an
amount which is at least equal to the lesser of (i) 100% of the replacement
value of the improvements securing the Mortgage Loan, or (ii) the Unpaid
Principal Balance of the Mortgage Loan (so long as it equals 80% of the
insurable value of the improvements); provided that in any case such amount
shall be sufficient to prevent the Mortgagor and/or Mortgagee from becoming a
co-insurer. If the Mortgaged Property is in an area that, at the time of
origination of the related Mortgage Loan, is identified on a flood hazard
boundary map or flood insurance rate map issued by the Federal Emergency
Management Agency as having special flood hazards (and such flood insurance was
then available), the Servicer shall cause to be maintained a flood insurance
policy meeting the requirements of the current guidelines of the Federal
Insurance Administration with a generally acceptable insurance carrier, if such
insurance is available. Such flood insurance shall be in an amount representing
coverage not less than the least of (i) the Unpaid Principal Balance of the
Mortgage Loan, (ii) the full insurable value of the improvements securing such
Mortgage Loan and (iii) the maximum amount of insurance available under the
National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of
1973, each as amended. The Servicer shall also maintain on REO Property (x) fire
and hazard insurance with extended coverage in an amount that is at least equal
to the maximum insurable value of the improvements that are a part of such
property, (y) liability insurance and (z) to the extent required and available
under the National Flood Insurance Act of 1968 and the Flood Disaster Protection
Act of 1973, each as amended, flood insurance in an amount as provided above.
Any amounts collected by the Servicer under any such policies shall be paid over
or applied by the Servicer in accordance with Applicable Requirements whether
(i) for the restoration or repair of the Mortgaged Property, subject to the
related Mortgage, (ii) for release to the Mortgagor, or (iii) for application in
reduction of the Mortgage Loan, in which event such amounts shall be deposited
in the Collection Account, as provided in Section 2.4. It is understood and
agreed that no earthquake or other additional insurance need be maintained by

                                       17
<PAGE>

the Servicer on any Mortgage Loan or property acquired in respect of a Mortgage
Loan, other than as required under applicable laws and regulations as shall at
any time be in force. All policies required hereunder shall be endorsed with
standard mortgagee clauses with loss payable to the Servicer and shall provide
for at least 30 days prior written notice to the Servicer of any cancellation,
reduction in amount, or material change in coverage. The Servicer shall not
interfere with the Mortgagor's freedom of choice in selecting either the
Mortgagor's insurance carrier or agent upon any policy renewal; provided,
however, that upon any such policy renewal, the Servicer shall accept such
insurance policies only from insurance companies that (A) have a rating of B:III
or better in Best's Key Rating Guide or a financial performance index rating of
6 or better in Best's Insurance Reports and (B) are licensed to do business in
the jurisdiction in which the related Mortgaged Property is located.

                  (b)      If the Servicer, as servicer for the benefit of the
Trustee, on behalf of the Certificateholders, shall obtain and maintain a
blanket policy that would meet the requirements of Fannie Mae if Fannie Mae were
the purchaser of the Mortgage Loans, insuring against loss to the Trustee, on
behalf of the Certificateholders, as mortgagee from damage to any or all of the
Mortgaged Properties, then, to the extent such blanket policy (i) provides
coverage, without coinsurance, in an amount equal to the Pool Balance, (ii)
otherwise complies with the requirements of Section 2.10(a) and (iii) contains a
deductible not greater than $10,000, the Servicer shall be deemed conclusively
to have satisfied its obligations under Section 2.10(a); provided, however, that
if there shall have been one or more of such losses the Servicer shall deposit
in the Collection Account, as provided in Section 2.4, out of the Servicer's own
funds and without reimbursement therefor, the difference, if any, between the
amount that would have been payable under a policy complying with Section
2.10(a) and the amount paid under the blanket policy permitted under this
Section 2.10(b). At the request of the Trustee, the Servicer shall cause to be
delivered to the Trustee a certified true copy of such policy and a statement
from the insurer thereunder that such policy shall not be terminated or
materially modified without 30 days' prior written notice to the Trustee.

         Section 2.11      Fidelity Bond; Errors and Omissions Insurance

         The Servicer shall maintain, at its own expense, with companies that
meet the requirements of Fannie Mae or Freddie Mac, a blanket fidelity bond and
an errors and omissions insurance policy, with broad coverage on all officers,
employees, agents and other persons acting in any capacity that would require
such persons to handle funds, money, documents or papers relating to the
Mortgage Loans (collectively, the "Servicer Employees"). Any such fidelity bond
and errors and omissions insurance shall be in the form of the Mortgage Banker's
Blanket Bond and shall protect and insure the Servicer against losses relating
to forgery, theft, embezzlement, fraud, errors and omissions, failure to
maintain any insurance policies required under this Agreement and negligent acts
of Servicer Employees. Such fidelity bond shall also protect and insure the
Servicer against losses relating to the release or satisfaction of a Mortgage
without having obtained payment in full of the indebtedness secured thereby. No
provision of this Section 2.11 requiring such fidelity bond and errors and
omissions insurance shall diminish or relieve the Servicer from its duties and
obligations as set forth in this Agreement. The terms of any such fidelity bond
and errors and omissions insurance policy shall be at least equal to the
corresponding amounts required by Fannie Mae in the Fannie Mae MBS Selling and
Servicing Guide or by Freddie Mac in the Freddie Mac Seller's and Servicer's
Guide, as amended or

                                       18
<PAGE>

restated from time to time. At the request of the Trustee, the Servicer shall
cause to be delivered to the Trustee a certified true copy of such fidelity bond
and errors and omissions insurance policy and a statement from the surety and
the insurer that such fidelity bond and errors and omissions insurance policy
shall not be terminated or materially modified without 30 days' prior written
notice to the Trustee.

         Section 2.12      Title, Management and Disposition of Real Estate
Owned

                  (a)      If title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure ("REO Property"), the deed or
certificate of sale shall be taken in the name of the Trustee, on behalf of the
Certificateholders, or in the name of such Person or Persons designated by the
Trustee; provided, however, that (i) the Trustee shall not designate the
Servicer as holder without the Servicer's prior written consent and (ii) such
designated Person or Persons shall acknowledge in writing that such title is to
be held as nominee for the Trustee. The Servicer shall provide written notice to
the Trustee after any REO Property is acquired in foreclosure or by deed in lieu
of foreclosure.

                  (b)      The Servicer, shall manage, conserve, protect, and
operate each REO Property solely for the purpose of its prompt disposition and
sale. The Servicer shall either itself, or through an agent selected by the
Servicer, manage, conserve, protect and operate the REO Property in accordance
with Acceptable Servicing Procedures. The Servicer shall attempt to sell the
same (and may temporarily rent the same) on such terms and conditions as the
Servicer deems to be in the best interests of the Trust Fund and the
Certificateholders. The Servicer shall use its best efforts to dispose of the
REO Property as soon as practicable and shall sell such REO Property, in any
event, within three (3) years after title has been taken to such REO Property
(unless the Servicer determines, and gives the Trustee appropriate notice that a
longer period is necessary for the orderly liquidation of such REO Property).

                  (c)      The Servicer shall collect all revenues arising from
the operation of REO Property. The Servicer shall deposit, or cause to be
deposited, all such revenues in the Collection Account in accordance with
Section 2.4. The Servicer may use all such revenues and, if any thereof have
been deposited in the Collection Account, withdraw such revenues therefrom as is
necessary for the proper operation, management and maintenance of any REO
Property, including, but not limited to, the cost of maintaining any hazard
insurance pursuant to Section 2.10 and the fees of any managing agent acting on
behalf of the Servicer.

                  (d)      The Servicer shall also maintain on each REO Property
fire and hazard insurance with extended coverage, liability insurance, and flood
insurance in accordance with the provisions of Section 2.10.

                  (e)      The proceeds of sale of an REO Property shall be
deposited in the Collection Account in accordance with Section 2.4. The Servicer
shall apply the sale proceeds of any REO Property (i) first to pay the expenses
of such sale, (ii) second to reimburse itself for any related unpaid Servicing
Fees, unpaid REO Management Fees and unreimbursed Servicing Advances or Monthly
Advances and (iii) the balance to be remitted to the Trustee for deposit in the
Distribution Account. If the sale proceeds have been deposited in the Collection
Account,

                                       19
<PAGE>

the Servicer may withdraw from the Collection Account the amounts necessary to
make such payments and reimbursements.

                  (f)      Upon request, with respect to any REO Property, the
Servicer shall furnish to the Trustee a statement covering the Servicer's
efforts in connection with the sale of that REO Property and any rental of the
REO Property incidental to the sale thereof for the previous month (together
with an operating statement for such REO Property). Such statement shall be
accompanied by such other information as the Trustee shall reasonably request.
The Servicer shall maintain separate accounting for each REO Property.

                  (g)      The Trustee hereby constitutes and appoints the
Servicer as its true and lawful attorney-in-fact, with full power and authority
to sign, execute, acknowledge, deliver, file for record and record any
instrument on its behalf and to perform such other act or acts as may be
customarily and reasonably necessary and appropriate to effectuate the
transactions contemplated by this Section 2.12, in each case as fully as the
Trustee might or could do. The Trustee ratifies and confirms each action that
the Servicer, as such attorney-in-fact, shall lawfully take or cause to be taken
by authority hereof and in accordance with this Agreement. Third parties without
actual notice may rely upon the exercise of the power granted under this power
of attorney, and may be satisfied that this power of attorney shall continue in
full force and effect and has not been revoked unless this Agreement is
terminated as provided herein. If requested by the Servicer, the Trustee shall
furnish the Servicer with any instrument or document necessary or appropriate to
evidence or confirm the power of attorney granted in this Section 2.12(g),
including one or more separate instruments or documents in recordable form for
recordation in any jurisdiction in which any Mortgaged Property is located.

                  (h)      Notwithstanding anything to the contrary contained in
this Agreement, the Trustee may, with the consent of the Depositor, terminate
the Servicer as servicer of any such REO Property without payment of any
termination fee, provided that the Servicer shall on the date said termination
takes effect be reimbursed for any unreimbursed Servicing Advances and any
unreimbursed Monthly Advances and Servicing Fees in each case relating to the
Mortgage Loan underlying such REO Property. In the event of any such
termination, the provisions of Section 8.1 shall apply to said termination and
the transfer of servicing responsibilities with respect to such REO Property to
the successor Servicer.

         Section 2.13      Application of Proceeds of Insurance to Repair or
Restoration

         The Servicer shall collect the proceeds from all policies of insurance
required to be maintained pursuant to Section 2.10 with respect to all losses
that may occur. The Servicer may remit such proceeds to the Mortgagor for the
restoration or repair of the related property and shall otherwise take such
actions in connection with such restoration and repair in a manner consistent
with Acceptable Servicing Procedures.

         Section 2.14      Inspections

         The Servicer shall conduct inspections of the Mortgaged Properties at
such times and in a manner consistent with Acceptable Servicing Procedures and
shall maintain a written report of all such inspections.

                                       20
<PAGE>

         Section 2.15      Maintenance of Primary Mortgage Insurance Policies;
Collections Thereunder

         The parties acknowledge that, as of the Closing Date, not all Mortgage
Loans purchased on such Closing Date are covered by Primary Mortgage Insurance.
In the event that any Mortgage Loans are covered by a Primary Mortgage Insurance
Policy on the Closing Date or subsequently become covered by a Primary Mortgage
Insurance Policy, the provisions set forth below shall apply.

                  (a)      The Servicer shall maintain in full force and effect
any Primary Mortgage Insurance Policy covering a Mortgage Loan serviced by the
Servicer. The Servicer shall cause the premium for any such Primary Mortgage
Insurance Policy to be paid on a timely basis and shall from its own funds, if
necessary, make a Servicing Advance to pay the premium on a timely basis. The
Servicer shall not cancel or refuse to renew any such Primary Mortgage Insurance
Policy in effect on the Closing Date, unless cancellation or non-renewal is
required by applicable law or regulation. The Servicer shall not take any action
or fail to take any action which would result in non-coverage under any
applicable Primary Mortgage Insurance Policy of any loss which, but for the
actions of the Servicer, would have been covered thereunder. In connection with
any assumption or substitution agreement entered into or to be entered into
pursuant to Section 4.1, the Servicer shall promptly notify the insurer under
the related Primary Mortgage Insurance Policy, if any, of such assumption or
substitution of liability in accordance with the terms of such policy and shall
take all actions which may be required by such insurer as a condition to the
continuation of coverage under such Primary Mortgage Insurance Policy. If such
Primary Mortgage Insurance Policy is terminated as a result of such assumption
or substitution of liability, the Servicer shall obtain a replacement Primary
Mortgage Insurance Policy as provided above.

                  (b)      As part of its activities as servicer of the Mortgage
Loans, the Servicer agrees to prepare and present, on behalf of itself and the
Trustee, claims under any Primary Mortgage Insurance Policy in a timely fashion
in accordance with the terms thereof and, in this regard, to take such
reasonable action as shall be necessary to permit recovery under any Primary
Mortgage Insurance Policy respecting a defaulted Mortgage Loan.

         Section 2.16      Monthly Advances by the Servicer

                  (a)      Not later than the close of business on the Business
Day preceding each Monthly Remittance Date, the Servicer shall deposit in the
Collection Account an amount equal to all payments not previously advanced by
the Servicer of principal and interest at the Net Rate that were (i) due on any
Mortgage Loan during the Due Period that commences in the same month in which
such Monthly Remittance Date occurs, (ii) not received as of the close of
business on the related Determination Date (whether or not deferred) and (iii)
not due on or prior to the Cut-off Date (the aggregate of all such amounts, the
"Monthly Advance"). In lieu of making all or a portion of any Monthly Advance,
the Servicer may cause to be made an appropriate entry in its records relating
to the Collection Account that funds in such account, including but not limited
to any amounts received in respect of scheduled principal and interest on any
Mortgage Loan due after the related Due Period for the related Monthly
Remittance Date, have been used by the Servicer in discharge of its obligation
to make any such Monthly

                                       21
<PAGE>

Advance. Any funds so applied shall be replaced by the Servicer by deposit, in
the manner set forth above, in the Collection Account no later than the close of
business on the Business Day immediately preceding the next Monthly Remittance
Date to the extent that funds in the Collection Account on such date are less
than the amounts required to be distributed on such Monthly Remittance Date. The
Servicer shall be entitled to be reimbursed from the Collection Account for all
Monthly Advances of its own funds made pursuant to this Section as provided in
Section 2.5.

                  (b)      The obligation of the Servicer to make such Monthly
Advances is mandatory, and, with respect to any Mortgage Loan or REO Property,
shall continue through the earlier of (i) the date on which a Final Recovery
Determination in connection with such Mortgage Loan is made and (ii) the due
date of the last Monthly Payment due prior to the payment in full of such
Mortgage Loan.

                  (c)      Notwithstanding anything herein to the contrary, no
Monthly Advance shall be required to be made hereunder by the Servicer if such
Monthly Advance would, if made, constitute a Nonrecoverable Advance."

         Section 2.17      Compliance With REMIC Provisions

         The Servicer shall not take any action, cause the REMIC to take any
action or fail to take (or fail to cause to be taken) any action that, under the
REMIC Provisions, if taken or not taken, as the case may be, could (i) endanger
the status of the REMIC as a REMIC, or (ii) result in the imposition of a tax
upon the REMIC (including but not limited to the tax on "prohibited
transactions" as defined in Section 860F(a)(2) of the Code and the tax on
"contributions" to a REMIC set forth in Section 860G(d) of the Code) unless the
Servicer has received an Opinion of Counsel (at the expense of the party seeking
to take such action) to the effect that the contemplated action will not
endanger such REMIC status or result in the imposition of any such tax.

         Section 2.18      Trustee to Cooperate; Release of Mortgage Files

         If, at any time prior to termination of this Agreement, the Servicer
shall require the use of any Mortgage File (or any portion thereof) to perform
its servicing activities as set forth in this Agreement, the Trustee, within
five (5) Business Days of the written request of the Servicer in the form of
Exhibit A hereto, (or within such shorter period as may be necessary for the
Servicer to perform its obligations hereunder in compliance with all Acceptable
Servicing Procedures), shall release or shall cause the Custodian to release
such Mortgage File, or portion thereof, to the Servicer. Within five (5)
Business Days of the Servicer's request therefor (or, within such shorter period
as may be necessary for the Servicer to perform its obligations hereunder in
compliance with all Acceptable Servicing Procedures), the Trustee shall execute
and deliver to the Servicer, in the form supplied to the Trustee by the
Servicer, any court pleadings, requests for trustee's sale or other documents
reasonably necessary to perform the servicing activities with respect to any
Mortgage Loan, including the foreclosure or sale in respect of any Mortgaged
Property, the commencement and prosecution of any legal action to enforce the
related Mortgage Note and Mortgage and the defense of any legal action or
counterclaim filed against the Trustee

                                       22
<PAGE>

or the Servicer. The Servicer may execute and deliver any or all of such
pleadings or documents on behalf of the Trustee pursuant to the power of
attorney granted pursuant to Section 2.12(g).

         Section 2.19      Optional Purchases of Mortgage Loans by Servicer

         The Servicer, together with Wilshire, as servicer under the Wilshire
Servicing Agreement and Bank of America, as servicer under the Bank of America
Servicing Agreement, may, if each of the Servicer, Wilshire and Bank of America
agree to do so in a written notice provided to the Trustee at least five
Business Days prior to the related Distribution Date (the "Termination Notice"),
terminate the Trust Fund and retire the Offered Certificates on the next
succeeding Distribution Date as of which the aggregate current Pool Balance is
less than 10% of the aggregate Pool Balance of the Mortgage Loans as of the
Cut-off Date by purchasing all of the outstanding Mortgage Loans in the Trust
Fund at a price equal to the Termination Price and by reimbursing all Servicers
for outstanding Monthly Advances or Servicing Advances; provided, however, that
if the Terminating Entity includes the Servicer, the Servicer may exercise or
participate in this Optional Termination only if the Termination Price is equal
to or less than the aggregate fair market value of all of the assets in the
Trust Fund (as determined by the Servicer as of the close of business on the
third Business Day preceding the date on which the Certificates are to be
retired pursuant to this Optional Termination) (an "Optional Termination"). The
Termination Price and reimbursement amounts shall be allocated among and paid by
the Servicer, Wilshire or Bank of America and the purchased Mortgage Loans shall
be distributed among the Servicer, Wilshire and Bank of America in the manner
set forth in the Termination Notice. If the Servicer, Wilshire and Bank of
America elect not to purchase all of the outstanding Mortgage Loans in the Trust
Fund on the Optional Termination Date, then the non-electing party's option to
purchase such Mortgage Loans may be exercised by the Servicer, Wilshire and/or
Bank of America, as the case may be (the "Terminating Entity"), as agreed to by
such electing parties, provided that all and not part of the Mortgage Loans are
purchased at the Termination Price. If the option is not exercised on such
Distribution Date then on the next succeeding Distribution Date, and on each
Distribution Date thereafter until such time, if any, as the Mortgage Loans are
repurchased, any of the Servicer, Wilshire and/or Bank of America (or any
combination thereof) may, at their option, purchase all of the outstanding
Mortgage Loans in the Trust Fund, in the manner described above, for the
Termination Price as of such Distribution Date and reimbursement to all
Servicers for outstanding Monthly Advances or Servicing Advances (as such term
is defined in the applicable Servicing Agreement).

         Upon receipt by the Trustee of the Termination Price, the Trustee
shall, upon request of the Terminating Entity, execute and deliver all such
instruments of transfer or assignment, in each case without recourse, as shall
be reasonably requested by the Terminating Entity to vest title in the
Terminating Entity in the Mortgage Loans so purchased and shall transfer or
deliver to the Terminating Entity the purchased Mortgage Loans. Any
distributions on the Mortgage Loans which have been subject to an Optional
Termination received by the Trustee subsequent to (or with respect to any period
subsequent to) the Optional Termination Date shall be promptly remitted by it to
the Terminating Entity.

         Notwithstanding anything to the contrary herein, the occurrence of an
Optional Termination shall be subject to, and shall in no way adversely affect
the right of the Servicer to continue servicing and collecting its Servicing Fee
and any other servicing compensation

                                       23
<PAGE>

provided for in this Agreement for any Mortgage Loan that remains outstanding at
the time of such Optional Termination.

         Notwithstanding the foregoing, if S&P has rated a class of debt
securities ("Net Interest Margin Securities") that are backed by the Class X
Certificates and Class P Certificates and that are outstanding on any date on
which the Servicer, Wilshire and/or Bank of America, as applicable, intend to
exercise their option to purchase the Mortgage Loans, the Servicer, Wilshire
and/or Bank of America, as applicable, will be permitted to exercise such option
only if one of the following conditions is met: (i) after distribution of the
Termination Price to the Certificateholders (other than the Holders of the Class
X Certificates, Class P Certificates and Class R Certificates) to redeem the
related Certificates, the remainder of the Termination Price (the "Remainder
Amount") is distributed to the Holders of the Class X Certificates and Class P
Certificates and is sufficient to pay the outstanding principal amount of and
accrued and unpaid interest on the Net Interest Margin Securities; or (ii) (A)
at the same time that the Servicer, Wilshire and/or Bank of America, as
applicable, remit the Termination Price to the Trustee, they also remit to the
Trustee an additional amount which, in combination with the Remainder Amount, is
sufficient to pay the outstanding principal amount of and accrued and unpaid
interest on the Net Interest Margin Securities, and (B) the Trustee remits the
Remainder Amount to the Holders of the Class X Certificates and Class P
Certificates and remits that additional amount directly to the indenture trustee
(plus any outstanding expenses due and owing to the indenture trustee) under the
indenture creating the Net Interest Margin Securities.

         Section 2.20      Gramm-Leach-Bliley.

         The Servicer shall comply with all applicable laws and regulations
regarding the privacy or security of any Customer Information. The Servicer has
implemented and shall maintain security measures designed to meet the objectives
of the Gramm-Leach-Bliley Act of 1999 and all applicable regulations promulgated
thereunder.


                                    ARTICLE 3

                            DISTRIBUTIONS AND REPORTS

         Section 3.1       Distributions

                  (a)      On each Monthly Remittance Date, the Servicer shall
remit to the Trustee for deposit in the Distribution Account all amounts
credited to the Collection Account as of the close of business on the preceding
Determination Date, net of charges against or withdrawals from the Collection
Account pursuant to Section 2.5, plus all Monthly Advances, deposited in the
Collection Account prior to such Monthly Remittance Date pursuant to Section
2.4, minus (i) any amounts attributable to Principal Prepayments received after
the last day of the Due Period immediately preceding the related Monthly
Remittance Date and (ii) any amounts attributable to Monthly Payments collected
but due on a Due Date(s) subsequent to the preceding Determination Date.

                                       24
<PAGE>

                  (b)      With respect to any remittance received by the
Trustee on or after the second Business Day following the Business Day on which
such payment was due, the Trustee shall send written notice thereof to the
Servicer. The Servicer shall pay to the Trustee interest on any such late
payment at an annual rate equal to Prime plus one percentage point, but in no
event greater than the maximum amount permitted by applicable law. Such interest
shall be paid by the Servicer to the Trustee on the date such late payment is
made and shall cover the period commencing with the second day following such
Business Day and ending with the Business Day on which such payment is made,
both inclusive. The payment by the Servicer of any such interest, or the failure
of the Trustee to notify the Servicer of such interest, shall not be deemed an
extension of time for payment or a waiver of any Event of Default by the
Servicer.

         Section 3.2       Reports

                  (a)      On or before each Servicer Report Date, the Servicer
shall provide to the Trustee or its designee by means of an electronic or other
agreed upon medium, with respect to the Due Period immediately preceding such
Servicer Report Date, the data set forth below on an individual loan basis and
such other information with respect to the Mortgage Loans as the Trustee may
reasonably request to the extent that such information is reasonably available
to the Servicer; and provided, that, the Servicer shall not be required to
collect, collate, create or otherwise generate any information that it does not
generate in its usual course of business:

                  (i)      mortgage loan number;

                  (ii)     interest rate;

                  (iii)    pending rate;

                  (iv)     scheduled principal and interest payment;

                  (v)      scheduled principal;

                  (vi)     gross interest;

                  (vii)    curtailment collected;

                  (viii)   curtailment adjustment;

                  (ix)     PIF principal;

                  (x)      PIF interest difference;

                  (xi)     ARM Index;

                  (xii)    pending Index;

                  (xiii)   ending scheduled balance;

                  (xiv)    investor loan number;

                                       25
<PAGE>

                  (xv)     Servicing Fee Rate;

                  (xvi)    due date;

                  (xvii)   yield rate;

                  (xviii)  beginning balance;

                  (xix)    ending balance;

                  (xx)     beginning scheduled balance;

                  (xxi)    principal collected;

                  (xxii)   scheduled net interest;

                  (xxiii)  scheduled buydown;

                  (xxiv)   Servicing Fee collected; and

                  (xxv)    remittance amount.

The Servicer may submit the foregoing information in more than one (1) report.
Requests for additional data regarding the Mortgage Loans or alternative means
for delivering such reports shall be accommodated at the discretion of the
Servicer and at the Trust's expense.

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

         Section 3.3       Delinquency and Foreclosure Statements

         The Servicer shall provide to the Trustee a monthly statement of
delinquents and a delinquency report on all Mortgage Loans more than 60 days
delinquent. The Servicer shall also provide to the Trustee a monthly statement
regarding foreclosure status.

                                    ARTICLE 4

                     GENERAL SERVICING PROCEDURE; COVENANTS;
                         REPRESENTATIONS AND WARRANTIES

         Section 4.1       Assumption Agreements

                  (a)      The Servicer shall use its best efforts to enforce
any "due-on-sale" provision contained in any Mortgage or Mortgage Note and to
deny assumption by the person to whom the Mortgaged Property has been or is
about to be sold, whether by absolute conveyance

                                       26
<PAGE>

or by contract of sale and whether or not the Mortgagor remains liable on the
Mortgage and the Mortgage Note, provided that in accordance with the terms of
the Mortgage Note, the Servicer may permit an assumption (i) if the Servicer
reasonably believes it is unable under Applicable Requirements to enforce such
"due-on-sale" clause, or (ii) if the enforcement of such rights would impair or
threaten to impair any recovery under the related Primary Mortgage Insurance
Policy, if any. In connection with any such assumption, the related Mortgage
Interest Rate, the Unpaid Principal Balance and the term of the Mortgage Loan
may not be changed. If an assumption is allowed pursuant to this Section 4.1(a),
the Servicer is authorized, at the Servicer's discretion, to prepare a
substitution of liability agreement to be entered into with the purchaser of the
Mortgaged Property pursuant to which the original Mortgagor is released from
liability and the purchaser of the Mortgaged Property is substituted as
Mortgagor and becomes liable under the Mortgage Note. Any such substitution of
liability agreement shall be in lieu of an assumption agreement. If an
assumption fee is collected by the Servicer for entering into an assumption
agreement the entire amount of such fee may be retained by the Servicer as
additional servicing compensation.

                  (b)      The Servicer shall follow Acceptable Servicing
Procedures with respect to any such assumption or substitution of liability
(taking into account the applicable Seller's then current underwriting
guidelines applicable to mortgage loans of the same type as the related Mortgage
Loan). The Servicer shall notify the Trustee that any such substitution of
liability or assumption agreement has been completed by forwarding to the
Trustee a copy of any such substitution of liability or assumption agreement,
which document shall be added to the related Mortgage File and shall for all
purposes be considered a part of such Mortgage File to the same extent as all
other documents and instruments constituting a part thereof.

                  (c)      For purposes of this Section 4.1, the term
"assumption" is deemed to also include a sale of the Mortgaged Property subject
to the Mortgage that is not accompanied by an assumption or substitution of
liability agreement.

         Section 4.2       Satisfaction of Mortgages and Release of Mortgage
Files

                  (a)      Upon the payment in full of any Mortgage Loan or the
receipt by the Servicer of a notification that payment in full will be escrowed
in a manner customary for such purposes, the Servicer shall prepare the
appropriate documents and instruments required to satisfy or release the lien of
the Mortgage in accordance with applicable state law requirements. The Servicer,
promptly and within the applicable legal deadlines appropriate to process the
satisfaction or release, shall notify the Trustee or the Custodian, on its
behalf of such event.

                  (b)      The Servicer shall not grant a satisfaction or
release of a Mortgage without having obtained payment in full of the
indebtedness secured by the Mortgage. In the event the Servicer grants a
satisfaction or release of a Mortgage without having obtained payment in full of
the indebtedness secured by the Mortgage, the Servicer, upon becoming aware of
the foregoing, shall deposit the Unpaid Principal Balance of the related
Mortgage Loan plus accrued and unpaid interest by deposit thereof in the
Collection Account pursuant to Section 2.4. The Trustee shall assign the related
Mortgage and endorse the related Mortgage Note to the Servicer and shall do all
things necessary to transfer ownership of the Mortgage Loan to the Servicer. The
Servicer shall maintain the Fidelity Bond as provided for in Section 2.11
protecting and insuring the

                                       27
<PAGE>

Servicer against, losses sustained with respect to any Mortgage Loan satisfied
or released other than in accordance with the procedures set forth herein.

                  (c)      The Trustee, or the Custodian, on its behalf, shall,
within five (5) Business Days following receipt of any request from the Servicer
(or within such shorter period as is necessary for the Servicer to perform its
obligations hereunder in compliance with all Applicable Servicing Procedures)
deliver or cause to be delivered to the Servicer the Mortgage File (or any
portion thereof) required by the Servicer to process any satisfaction or release
of any Mortgage pursuant to this Section 4.2. In addition, if any Mortgage Loan
has been paid in full and the Trustee has recorded the related Assignment of
Mortgage designating the Trustee as the holder of record of the Mortgage, the
Servicer shall prepare and deliver to the Trustee, together with a request for
execution, the documents and instruments necessary to satisfy or release the
lien of the Mortgage. The Trustee, or the Custodian, on its behalf, shall,
within five (5) Business Days following its receipt of any such request, send to
the Servicer the fully-executed documents that were prepared and requested by
the Servicer. In the event that applicable state law requires that a
satisfaction or release be recorded within a shorter time period than the
foregoing procedure permits, the Servicer shall advise the Trustee accordingly
and shall use its best efforts to ensure that the lien of the Mortgage is
released or satisfied in accordance with applicable state law requirements, and
the Trustee, or the Custodian, on its behalf, shall assist therewith by, to the
extent reasonably practicable, returning to the Servicer the required portion of
the Mortgage File and, if applicable, the executed satisfaction and release
documents and instruments within the time periods reasonably specified by the
Servicer.

                  (d)      If a Mortgage Loan that has been paid in full is a
MERS Loan, the Servicer may cause the removal of such Mortgage Loan from
registration on the MERS(R) System and execute and deliver, on behalf of the
Trustee, any and all related instruments of satisfaction or release. No expense
incurred in connection with the delivery of any instrument of satisfaction or
deed or reconveyance shall be chargeable to the Collection Account or the Trust
Fund.

         Section 4.3       Servicing Compensation

         The Servicer shall be entitled to pay itself a Servicing Fee for each
Mortgage Loan serviced hereunder. Such Servicing Fee is limited to, and payable
solely from, the interest portion of the Monthly Payments and Late Collections
collected by the Servicer with respect to the related Mortgage Loan. Additional
servicing compensation in the form of non-sufficient funds check fees,
assumption fees, conversion fees, other related administrative fees, late
payment charges, Prepayment Charges and other similar types of ancillary fees
and charges that are actually received by the Servicer may be retained by the
Servicer to the extent not required to be deposited into the Collection Account
pursuant to the terms of this Agreement. In addition to the Servicing Fee
payable hereunder, the Servicer shall be entitled to pay itself an REO
Management Fee for each REO Property managed by the Servicer or its agent. The
Servicer shall be required to pay all expenses incurred by it in connection with
its servicing activities hereunder and shall not be entitled to reimbursement
therefor except as specifically provided for in this Agreement. Any Late
Collections shall be applied by the Servicer in the following order of priority:
(i) first to pay the expenses incurred in connection with collection of such
Late Collections, (ii) second to reimburse itself for any related unpaid
Servicing Fees, unpaid REO

                                       28
<PAGE>

Management Fees and unreimbursed Servicing Advances and Monthly Advances and
(iii) the balance to be remitted to the Trustee for deposit in the Distribution
Account.

         Section 4.4       Statements as to Compliance

                  (a)      Not later than March 15 of each year (or if such day
is not a Business Day, the next succeeding Business Day), the Servicer will
deliver to the Trustee and the Depositor an Officer's Certificate for the prior
calendar year, beginning with the calendar year ending December 31, 2004,
stating (i) a review of the activities of the Servicer during the preceding year
and of performance under this Agreement has been made under such officer's
supervision, and (ii) to the best of such officer's knowledge, based on such
review, the Servicer has fulfilled all of its obligations under this Agreement
throughout such year or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof.

                  (b)      Not later that March 15 of each year (or if such day
is not a Business Day, the next succeeding Business Day), the Servicer will
deliver to the Trustee and the Depositor an Officer's Certificate for the prior
calendar year, beginning with the calendar year ending December 31, 2004, in
substantially the form of Exhibit E to this Agreement.

                  (c)      The Servicer agrees to indemnify and hold harmless
each of the Trustee and the Depositor, each Person, if any, who "controls" the
Trustee or the Depositor, as applicable, within the meaning of the Securities
Act of 1933, as amended, and their respective officers and, directors
(collectively, the "Indemnitees") against any and all losses, damages,
penalties, fines, forfeitures, legal fees and related costs, judgments and any
other costs, fees and expenses that the Indemnitees may sustain arising out of
third party claims based on (i) the failure of the Servicer to deliver or cause
to be delivered when required any Officer's Certificate required pursuant to
Section 4.4(a) or Section 4.4(b), or the accountants' statement required
pursuant to Section 4.5, or (ii) any material misstatement or omission in any
certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 and
Rules 13a-14 and 15d-14 promulgated by the Securities and Exchange Commission
thereunder made in reliance on any material misstatement or omission contained
in any Officer's Certificate provided pursuant to Section 4.4(a) or Section
4.4(b). If the indemnification provided for in this Section 4.4 is unavailable
or insufficient to hold harmless any Indemnitee, then the Servicer agrees that
it shall contribute to the amount paid or payable by the Indemnitee as a result
of the losses, claims, damages or liabilities of the Indemnitee arising out of
clause (i) or (ii) of the preceding sentence, in such proportion as is
appropriate to reflect the relative fault of the Indemnitee on the one hand and
the Servicer on the other.

         Section 4.5       Annual Independent Public Accountants' Servicing
Report

         Not later than March 15 of each year (or if such day is not a Business
Day, the next succeeding Business Day), the Servicer will, at its expense, cause
a firm of independent public accountants that is a member of the American
Institute of Certified Public Accountants to furnish to the Depositor and the
Trustee, a statement to the effect that based on an examination conducted by
such firm in compliance with the Uniform Single Attestation Program for Mortgage
Bankers ("USAP") the assertion of management of the Servicer that it has
complied

                                       29
<PAGE>

with the minimum servicing standards identified in the USAP is fairly stated in
all material respects, except for (i) such exceptions as such firm shall believe
to be immaterial, and (ii) such other exceptions as shall be set forth in such
statement.

         Section 4.6       Trustee's Right to Examine Servicer Records, etc.

                  (a)      The Trustee shall have the right, at its expense, to
(i) examine and audit the Servicer's books of account, records, reports and
other papers relating to (x) the performance by the Servicer of its obligations
and duties under this Agreement, or (y) the Mortgage Loans, (ii) make copies and
extracts therefrom and (iii) discuss the affairs, finances, and accounts of the
Servicer relating to such performance with the Servicer's officers and
employees, all at such times and places, and with such frequency, as may be
reasonably requested.

                  (b)      The Servicer shall provide to the Trustee, any
Certificateholder that is a federally insured savings and loan association and
any supervisory agents or examiners representing a state or federal governmental
agency having jurisdiction over the Trustee, including without limitation the
OTS, the FDIC and other similar entities, access to any documentation regarding
the Mortgage Loans in the possession of the Servicer that is required by any
applicable regulations. Such access shall be afforded without charge, upon
reasonable request, during normal business hours, at the offices of the Servicer
and in accordance with any applicable regulations.

                  (c)      Nothing in this Section 4.6 shall limit the
obligation of the Servicer to observe any applicable law prohibiting disclosure
of information regarding the mortgagors and the failure of such Servicer to
provide access as provided in this Section 4.6 as a result of such obligation
shall not constitute a breach of this Section 4.6. Nothing in this Section 4.6
shall require the Servicer to collect, create, collate or otherwise generate any
information that it does not generate in its usual course of business.


         Section 4.7       Cooperation

         The Servicer, the Depositor and the Trustee shall cooperate fully with
one another and their respective counsel and other representatives and advisors
in connection with the steps required to be taken as part of their respective
obligations under this Agreement.

         Section 4.8       Consents and Approvals

         The Servicer shall timely obtain, at its sole cost and expense, the
consents and approvals required by law or pursuant to contract to consummate the
transactions contemplated hereby. All such consents shall be obtained without
any cost or expense to the Trustee and will be obtained without any adverse
modification in the terms of any of the agreements relating to the Mortgage
Loans or the imposition of any burdensome provisions or conditions on the
Trustee.

                                       30
<PAGE>

                                    ARTICLE 5

                                  THE SERVICER

         Section 5.1       Indemnification; Third Party Claims

                  (a)      [Reserved]

                  (b)      The Servicer agrees to indemnify and hold harmless
the Trustee, the Depositor and the Trust against any and all third-party claims,
losses, penalties, fines, forfeitures, legal fees and related costs, judgments
and any other costs, fees and expenses that the Trustee (on behalf of the Trust
and the Certificateholders), the Depositor or the Trust may sustain in any way
related to the failure of the Servicer to service the Mortgage Loans in
compliance with the terms of this Agreement; provided, however, the Servicer
shall not be liable hereunder with respect to (i) any action or inaction
resulting from the written direction or written consent of the Trustee, the
Depositor or the Majority Certificateholders, as applicable, (ii) any action or
inaction resulting from the Trustee's or the Custodian's failure to cause any
Mortgage File (or portion thereof) to be released to the Servicer pursuant to
Sections 2.18 or 4.2(c), or (iii) any action or inaction resulting from the
Trustee's or the Depositor's failure to comply with Section 5.1(c). The Servicer
shall notify the Trustee and the Depositor if a claim is made by a third party
with respect to this Agreement or the Mortgage Loans that the Servicer
determines in its good faith judgment will materially affect the Trustee's, the
Depositor's or the Trust's interest in such Mortgage Loans. The Servicer shall
assume (with the written consent of the Depositor) the defense of any such claim
and, subject to the last sentence of this paragraph, pay all reasonable expenses
in connection therewith, including counsel fees, and promptly pay, discharge and
satisfy any judgment or decree which may be entered against the Servicer or the
Trustee, the Depositor or the Trust in respect of such claim. The Servicer shall
follow any written instructions received from the Trustee in connection with any
such claim. The Servicer shall have the right to reimburse itself from the
Collection Account for all expenses, advances and liabilities incurred by the
Servicer in respect of any such claim (whether or not the Servicer has assumed
the defense thereof), except when the claim (x) is related to the Servicer's
obligations to indemnify the Depositor, the Trustee (on behalf of the Trust and
the Certificateholders) and the Trust pursuant hereto, (y) results from the
failure of the Servicer to service the Mortgage Loans in compliance with the
terms of this Agreement, or (z) results from the Servicer's willful misconduct,
bad faith or negligence in performing its duties under this Agreement.

                  (c)      With respect to any Mortgage Loan, if the Depositor
or the Trustee records or causes to be recorded the related Assignment of
Mortgage designating the Depositor or the Trustee, as applicable, as the holder
of record of the Mortgage in the appropriate public recording office of the
jurisdiction in which the related Mortgaged Property is located, and the
Depositor or the Trustee, as applicable, in its capacity as the holder of
record, receives written notice of any action with respect to the related
Mortgage or Mortgaged Property, the Depositor or the Trustee, as applicable,
shall promptly send a copy of such notice to the Servicer in accordance with
Section 8.8. The Servicer shall have no liability to the Depositor, the Trustee
or the Certificateholders for claims, losses, penalties, fines, forfeitures,
legal fees and related costs, judgments, or any other costs or expenses, that
result from the Depositor's or the Trustee's failure to comply with the
provisions set forth in this paragraph.

                                       31
<PAGE>

                  (d)      None of the Depositor or any of the directors,
officers, employees or agents of the Depositor shall be under any liability to
the Trust or the Certificateholders for any action taken, or for refraining from
the taking of any action, in good faith pursuant to this Agreement, or for
errors in judgment; provided, however, that this provision shall not protect the
Depositor or any such Person against any breach of warranties or representations
made herein or against any liability which would otherwise be imposed by reason
of its respective willful misfeasance, bad faith or negligence in the
performance of its duties or by reasons of reckless disregard of its respective
obligations or duties hereunder.

                  (e)      The Depositor and any director, officer, employee or
agent of the Depositor may rely in good faith on any document of any kind which,
prima facie, is properly executed and submitted by any appropriate Person with
respect to any matters arising hereunder. The Depositor and any director,
officer, employee or agent of the Depositor shall be indemnified and held
harmless by the Trust against any loss, liability or expense incurred in
connection with any legal action relating to this Agreement or the Certificates,
other than any loss, liability or expense incurred in connection with any legal
action incurred by reason of its respective willful misfeasance, bad faith or
negligence, a breach of a representation or warranty hereunder or by reason of
reckless disregard of its respective obligations or duties hereunder. The
Depositor shall not be under any obligation to appear in, prosecute or defend
any legal action unless such action is related to its duties under this
Agreement and which in its opinion may expose it to any expense or liability;
provided, however, that the Depositor may in its discretion undertake any action
related to its obligations hereunder that it may deem necessary or desirable
with respect to this Agreement and the rights and duties of the parties hereto
and the interests of the parties hereunder.

         Section 5.2       Servicer Covenants; Merger or Consolidation of the
Servicer

                  (a)      The Servicer covenants that, subject to Section
5.2(b), it shall keep in full force and effect its existence, rights and
franchises as a corporation and its status as a Fannie Mae or Freddie Mac
approved servicer in good standing and shall obtain and preserve its
qualification to do business as a foreign corporation in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Agreement or any of the Mortgage Loans and to perform its
duties under this Agreement.

                  (b)      Any Person into which the Servicer may be merged or
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Servicer shall be a party, or any Person succeeding
to all, or substantially all, of the business or assets of the Servicer (whether
or not related to loan servicing), shall be the successor of the Servicer
hereunder, without the execution or filing of any paper, or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, however, that the Servicer shall not be a party to
any such merger, consolidation or conversion, or sell or otherwise dispose of
all, or substantially all, of its business or assets, unless the successor or
surviving Person shall be an institution that is a Fannie Mae or Freddie Mac
approved servicer in good standing and a member of MERS in good standing. In
addition, the successor or surviving Person shall be an institution (i) having a
GAAP net worth of not less than $25,000,000 and (ii) the deposits of which are
insured by the FDIC, SAIF and/or BIF, or which is a HUD-approved mortgagee whose
primary business is in origination and servicing of first lien mortgage loans.

                                       32
<PAGE>

         Section 5.3       Limitation on Liability of the Servicer and Others

         The Servicer and the directors, officers, employees or agents of the
Servicer shall not be under any liability to the Trustee, the Depositor or any
Certificateholder (i) for any action taken, or for refraining from the taking of
any action, in good faith pursuant to this Agreement, (ii) for errors in
judgment made in good faith, (iii) for any action or inaction in accordance with
the written direction or written consent of the Trustee, the Depositor or the
Majority Certificateholders, as applicable, (iv) for any action or inaction
resulting from the Trustee's or Custodian's failure to cause any Mortgage File
(or portion thereof) to be released to the Servicer pursuant to Sections 2.18 or
4.2(c), or (v) for any action or inaction resulting from the Trustee's or the
Depositor's failure to comply with Section 5.1(c); provided, however, this
provision shall not protect the Servicer against any breach of warranties or
representations made herein, any failure to perform its obligations in
accordance with any standard of care set forth in this Agreement (unless in
accordance with the written direction or written consent of the Trustee or the
Depositor, as applicable) or any liability that would otherwise be imposed by
reason of willful misconduct, bad faith or negligence in the performance of
duties or by reason of reckless disregard of its respective obligations or
duties hereunder. The Servicer and any director, officer, employee or agent of
the Servicer may rely in good faith on any document of any kind that appears, on
its face, to be properly executed and submitted by any Person respecting any
matters arising hereunder. Subject to Section 5.1(b), the Servicer shall not be
under any obligation to appear in, prosecute or defend any legal action that is
not incidental to its duties under this Agreement and which, in its opinion, may
result in any expense or liability to the Servicer; provided, however, that the
Servicer may undertake any such action which it may deem necessary or desirable
with respect to this Agreement and the rights, duties, and the interests of the
parties hereto. In such event, the legal expenses and costs of such action and
any liability resulting therefrom shall be expenses, costs, and liabilities for
which the Trust shall be liable and the Servicer shall be entitled to be
reimbursed therefor from the Collection Account, unless any such costs or
liabilities shall result from the negligence, bad faith or willful misfeasance
of the Servicer in performing such action. The Servicer and any director,
officer, employee or agent of the Servicer shall be indemnified and held
harmless by the Trust against any loss, liability or expense incurred in
connection with any legal action relating to this Agreement or the Certificates,
other than any loss, liability or expense incurred in connection with any legal
action incurred by reason of its willful misfeasance, bad faith or negligence,
or a breach of warranties or representations made herein by the Servicer or any
failure by the Servicer to perform its obligations in accordance with the
standard of care set forth in this Agreement (unless in accordance with the
written direction of the Trustee, the Depositor or the Majority
Certificateholders). Anything in this Agreement to the contrary notwithstanding,
in no event shall the Servicer be liable for special, indirect, or consequential
loss or damage of any kind whatsoever (including but not limited to lost
profits), even if the Servicer has been advised of the likelihood of such loss
or damage and regardless of the form of action. The Trustee has no obligation to
give direction or consent to the Servicer and is not responsible for monitoring
or supervising the Servicer's activity.

         Section 5.4       Servicer Not to Resign

         The Servicer shall not resign from the obligations and duties hereby
imposed on it except upon the determination that such Servicer's duties
hereunder are no longer permissible under

                                       33
<PAGE>

Applicable Requirements and such incapacity cannot be cured by such Servicer.
Any such determination permitting the resignation of the Servicer shall be
evidenced by an Opinion of Counsel to such effect delivered to the Trustee. No
such resignation shall become effective until (i) a successor that satisfies the
requirements set forth in Section 8.1 has assumed the Servicer's
responsibilities and obligations hereunder in accordance with such Section and
(ii) each Rating Agency has delivered a letter to the Trustee stating that the
appointment of such successor as Servicer hereunder will not result in the
reduction or the withdrawal of the then current ratings of the Certificates.

         Section 5.5       Transfer of Servicing

         The Servicer acknowledges that each of the Trustee and the Depositor
has entered into this Agreement in reliance upon the adequacy of the Servicer's
servicing facilities, plan, personnel, records and procedures, its integrity,
reputation and financial standing and the continuance thereof. Without in any
way limiting the generality of this Section 5.5, the Servicer shall not either
assign this Agreement or any of the servicing rights or obligations hereunder
except (i) in connection with a merger or consolidation permitted under Section
5.2(b), or (ii) with the prior written consent of the Depositor, which consent
shall not be unreasonably withheld or delayed.

         Section 5.6       [Reserved]

         Section 5.7       Representations and Warranties of the Servicer

         The Servicer hereby represents and warrants to the Trustee and the
Depositor as of the Closing Date as follows:

                  (a)      The Servicer is a federally chartered savings
association, duly organized, validly existing and in good standing under the
laws of the United States, has all licenses necessary to carry on its business
as now being conducted and is licensed, qualified and in good standing in the
states where the Mortgaged Properties are located, if the laws of such states
require licensing or qualification in order to conduct business of the type
conducted by the Servicer and to the extent necessary to ensure the servicing of
each Mortgage Loan in accordance with this Agreement. The Servicer has the
corporate power and authority to enter into, execute and deliver this Agreement
and all documents and instruments executed and delivered pursuant hereto and to
perform its obligations in accordance therewith. The execution, delivery and
performance of this Agreement by the Servicer and the consummation of the
transactions contemplated hereby have been duly and validly authorized. This
Agreement evidences the valid, binding and enforceable obligations of the
Servicer, subject as to enforcement, (i) to bankruptcy, insolvency,
receivership, conservatorship, reorganization, arrangement, moratorium and other
laws of general applicability relating to or affecting creditors' rights and
(ii) to general principles of equity, whether such enforcement is considered in
a proceeding in equity or at law. All requisite corporate action has been taken
by the Servicer to make this Agreement valid and binding upon the Servicer in
accordance with its terms.

                                       34
<PAGE>

                  (b)      No consent, approval, authorization, or order of any
court or governmental agency or body relating to the transactions contemplated
by this Agreement is required as to the Servicer or, if required, such consent,
approval, authorization, or order has been obtained.

                  (c)      The consummation of the transactions contemplated by
this Agreement, including without limitation the fulfillment of, or compliance
with, the terms and conditions of this Agreement, are in the ordinary course of
business of the Servicer and shall not (i) result in the breach of any term or
provision of the charter or by-laws of the Servicer, (ii) result in the breach
of any term or provision of, or conflict with or constitute a default under, or
result in the acceleration of any obligation under, any material agreement,
indenture, loan or credit agreement, or other instrument to which the Servicer
or its property is subject, or (iii) result in the violation of any law, rule,
regulation, order, judgment, or decree to which the Servicer or its property is
subject.

                  (d)      There is no action, suit, proceeding or investigation
pending or, to the best of the Servicer's knowledge, threatened against the
Servicer that, either in any one instance or in the aggregate, is likely (in the
Servicer's judgment), to result in any material impairment of the right or
ability of the Servicer to carry on its business substantially as now conducted,
or that would adversely affect the validity of this Agreement, or of any action
taken or to be taken in connection with the obligations of the Servicer
contemplated herein, or that would be likely to materially impair the ability of
the Servicer to perform its obligations hereunder.

                  (e)      The Servicer is an approved servicer of mortgage
loans for Fannie Mae and Freddie Mac, in good standing. No event has occurred,
including but not limited to a change in insurance coverage, that would make the
Servicer unable to comply with Fannie Mae and Freddie Mac eligibility
requirements or that would require notification to Fannie Mae or Freddie Mac.

                  (f)      The Servicer is a member of MERS in good standing.
The Servicer shall comply in all material respects with the rules and procedures
of MERS in connection with the servicing of each MERS Loan for as long as each
such Mortgage Loan is registered on the MERS(R) System.

         Section 5.8       Servicer May Own Certificates

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


                                    ARTICLE 6

                                     DEFAULT

         Section 6.1       Events of Default

         In case one or more of the following Events of Default by the Servicer
shall occur and be continuing:

                                       35
<PAGE>

                  (i)      any failure by the Servicer to remit to the Trustee
         when due any payment required to be made under the terms of this
         Agreement, which failure continues unremedied for a period of three (3)
         Business Days after the date on which written notice of such failure
         requiring the same to be remedied, shall have been received by the
         Servicer, from the Trustee, or

                  (ii)     any failure by the Servicer to duly observe or
         perform, in any material respect, any other covenant, obligation or
         agreement of the Servicer as set forth in this Agreement, which failure
         continues unremedied for a period of sixty (60) (or, in the case of any
         failure to pay the premium for any insurance policy which is required
         to be maintained hereunder, thirty (30) days after the date on which
         written notice of such failure, requiring the same to be remedied,
         shall have been received by the Servicer, from the Trustee; or

                  (iii)    a decree or order of a court or agency or supervisory
         authority having jurisdiction for the appointment of a conservator or
         receiver or liquidator in any insolvency, readjustment of debt,
         marshaling of assets and liabilities, or similar proceedings, or for
         the winding-up or liquidation of its affairs, shall have been entered
         against the Servicer and such decree or order shall have remained in
         force, undischarged or unstayed for a period of sixty (60) days; or

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

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

                  (vi)     the Servicer shall fail to be an approved servicer of
         mortgage loans for Fannie Mae and Freddie Mac, in good standing; or

                  (vii)    the Servicer shall fail to be in compliance with the
         "doing business" or licensing laws of any jurisdiction where a
         Mortgaged Property is located; or

                  (viii)   the Servicer shall attempt to assign this Agreement
         or the servicing responsibilities hereunder in contravention of this
         Agreement;

then, and in each and every such case, so long as such Event of Default shall
not have been remedied, the Trustee, by notice in writing to the Servicer (in
each such instance, the "Defaulted Servicer"), may, and, at the direction of the
Majority Certificateholders, shall, in addition to whatever rights the Trustee
may have at law or equity, including injunctive relief and specific performance,
commence termination of all of the rights and obligations of the Defaulted
Servicer under this Agreement (other than the rights to reimbursement for
Monthly Advances and Servicing Advances previously made) pursuant to Section
7.2, and may exercise any and all other remedies available at law or at equity.
Upon receipt by the Defaulted Servicer of such

                                       36
<PAGE>

written notice from the Trustee stating the intent to terminate the Defaulted
Servicer as servicer under this Agreement as a result of such Event of Default,
all authority and power of the Defaulted Servicer under this Agreement, whether
with respect to the Mortgage Loans or otherwise, shall pass to and be vested in
the successor appointed pursuant to Section 8.1. Upon written request from the
Trustee, the Defaulted Servicer shall, at its sole expense, prepare, execute,
and place in such successor's possession or control all Mortgage Files and
Credit Files, and do or cause to be done all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, all of which
shall be undertaken immediately and shall be completed as soon as possible and
in all events by not later than forty-five (45) Business Days following the
Trustee's request therefor. The Defaulted Servicer agrees to cooperate with the
Trustee and such successor in effecting the termination of the Defaulted
Servicer's responsibilities and rights hereunder, including, without limitation,
the transfer to such successor of all cash amounts that have been credited by
the Defaulted Servicer to the Collection Account or the Escrow Account at the
time of transfer, and all other amounts that may thereafter be received with
respect to the Mortgage Loans and to which the Defaulted Servicer is not
entitled pursuant to the terms of this Agreement.

         Section 6.2       Waiver of Defaults

         The Trustee, at the direction of the Majority Certificateholders, on
behalf of all Certificateholders, may waive any default or Event of Default by
the Defaulted Servicer in the performance of its obligations hereunder and its
consequences, provided, however, that the Majority Certificateholders may not
waive a default in making a required distribution on a Certificate without the
consent of the Holder of such Certificate. Any such waiver must be in writing to
be effective. Upon any waiver of a past default, such default shall cease to
exist, and any Event of Default arising therefrom shall, unless otherwise
specified in such waiver, be deemed to have been remedied for every purpose of
this Agreement unless the Defaulted Servicer fails to comply with the terms of
such waiver. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereto except to the extent expressly so waived.
Notice of any such waiver shall be given by the Trustee to the Rating Agencies.

         Section 6.3       Notification to Certificateholders

         (a)      On any termination of the Servicer or appointment of a
successor to the Servicer pursuant to this Agreement, the Trustee shall give
prompt written notice thereof to the Certificateholders at their respective
addresses appearing in the Certificate Register and each Rating Agency.

         (b)      No later than 60 days after the occurrence of any event which
constitutes or which, with notice or a lapse of time or both, would constitute a
Event of Default, after a Responsible Officer of the Trustee obtains actual
knowledge or receives written notice of the occurrence of such an event, the
Trustee shall transmit by mail to all Certificateholders notice of such
occurrence unless such Event of Default shall have been waived or cured. Such
notice shall be given to the Rating Agencies promptly after any such occurrence.

                                       37
<PAGE>

         Section 6.4       Survival of Certain Obligations and Liabilities of
the Defaulted Servicer

         The representations, warranties, covenants, indemnities and agreements
of the parties provided in this Agreement and the parties' obligations hereunder
shall survive the execution and delivery and the termination or expiration of
this Agreement. Notwithstanding any termination of the rights and obligations of
the Servicer pursuant to this Article 6, the Defaulted Servicer shall remain
liable for any actions of the Defaulted Servicer taken prior to the effective
time of such termination.


                                    ARTICLE 7

                                   TERMINATION

         Section 7.1       Termination of Agreement

         The respective obligations and responsibilities of the Servicer, the
Depositor and the Trustee hereunder shall terminate upon termination of the
Trust in accordance with Section 7.01 of the Pooling Agreement.

         Section 7.2       Termination of the Servicer Upon Unremedied Event of
Default

         The Trustee may, and at the direction of the Majority
Certificateholders shall, following an unremedied Event of Default and in
accordance with Section 6.1, terminate any rights the Servicer may have
hereunder. The Trustee, with full cooperation of the Servicer, shall arrange for
the transfer of servicing, at the Trustee's option, to the Trustee or a third
party successor servicer pursuant to Section 8.1; provided, that the transfer to
such successor will not result in the qualification, withdrawal or reduction of
the then current ratings on the Certificates, as evidenced by a letter to such
effect from each Rating Agency to the Trustee, and the Servicer shall continue
servicing the Mortgage Loans under this Agreement, for the Servicing Fee
provided herein, until the Trustee gives the Servicer notice of such transfer.

         Notwithstanding any termination of the Servicer hereunder, the Servicer
shall be entitled to receive prior to transfer of its servicing obligations
hereunder, payment of all accrued and unpaid Servicing Fees and reimbursement
for all outstanding Monthly Advances and Servicing Advances.

                                       38
<PAGE>

                                    ARTICLE 8

                            MISCELLANEOUS PROVISIONS

         Section 8.1       Successor to the Servicer

                  (a)      Prior to termination of the Servicer's
responsibilities and duties under this Agreement pursuant to Sections 5.4, 6.1,
7.1, or 7.2, the Trustee shall either (i) succeed to and assume all of the
Servicer's responsibilities, rights, duties, and obligations under this
Agreement from and after the date of such succession, or (ii) appoint or
petition a court of competent jurisdiction to appoint, any established housing
and home finance institution, bank or other mortgage loan or home equity loan
servicer having a net worth of not less than $50,000,000 as the successor to the
Servicer hereunder in the assumption of all or any part of the responsibilities,
duties or liabilities of the Servicer hereunder; provided, that the appointment
of any such successor Servicer will not result in the qualification, reduction
or withdrawal of the ratings assigned to the Certificates or the ratings that
are in effect by the Rating Agencies as evidenced by a letter to such effect
from the Rating Agencies. Pending appointment of a successor to the Servicer
hereunder, unless the Trustee is prohibited by law from so acting, the Trustee
shall act in such capacity as hereinabove provided. If the Servicer's duties,
responsibilities, and liabilities under this Agreement shall be terminated
pursuant to any of the foregoing Sections, the Servicer shall discharge such
duties and responsibilities with the same degree of diligence and prudence that
it is obligated to exercise under this Agreement, from the date it acquires
knowledge of such termination until the effective date thereof.

                  (b)      The Servicer shall promptly deliver to its successor
(i) the funds in the Collection Account and the Escrow Account to which the
Trust is entitled pursuant to the terms of this Agreement and all other amounts
which may thereafter be received with respect to the Mortgage Loans and to which
the Servicer is not entitled pursuant to the terms of this Agreement and (ii)
all Mortgage Files and Credit Files and related documents and statements held by
it hereunder. The Servicer shall account for all funds and shall execute and
deliver such instruments and do such other things as may reasonably be required
to more fully and definitively vest in the successor all such rights, powers,
duties, responsibilities, obligations and liabilities of the Servicer.

                  (c)      Upon a successor's acceptance of appointment as such,
the Trustee shall notify the Servicer, the Depositor, each Certificateholder and
each Rating Agency of such appointment.

                  (d)      Notwithstanding any termination pursuant to this
Agreement, the Servicer shall continue to be entitled to receive all amounts
accrued or owing to it under this Agreement on or prior to the effective date of
such termination, whether in respect of (i) unreimbursed Servicing Advances or
Monthly Advances, (ii) unpaid Servicing Fees or REO Management Fees, or (iii)
other servicing compensation, and shall continue to be entitled to the benefits
of Section 5.3 notwithstanding any such termination, with respect to events
occurring prior to such termination.

                                       39
<PAGE>

                  (e)      Any successor, including the Trustee, to the Servicer
as servicer shall, during the term of its service as servicer continue to
service and administer the Mortgage Loans for the benefit of Certificateholders,
and maintain in force a policy or policies of insurance covering errors and
omissions in the performance of its obligations as Servicer hereunder and a
Fidelity Bond in respect of its officers, employees and agents to the same
extent as the Servicer is so required pursuant to Section 2.11.


         Section 8.2       Amendment

                  (a)      This Agreement may be amended from time to time by
the Depositor, the Servicer and the Trustee without the consent of the
Certificateholders, (i) to cure any error or ambiguity, (ii) to correct or
supplement any provisions herein which may be defective or inconsistent with any
other provisions herein or in the Prospectus Supplement or (iii) to make any
other provisions with respect to matters or questions arising under this
Agreement, which shall not be materially inconsistent with the provisions of
this Agreement; provided, however, that any such action listed in clause (i)
through (iii) above shall not adversely affect in any material respect the
interests of any Certificateholder, as evidenced by (i) notice in writing to the
Depositor, the Servicer and the Trustee from the Rating Agencies that such
action will not result in the reduction or withdrawal of the rating of any
outstanding Class of Certificates with respect to which it is a Rating Agency,
or (ii) an Opinion of Counsel delivered to the Depositor, the Servicer and the
Trustee to such effect.

                  (b)      In addition, this Agreement may be amended from time
to time by the Depositor, the Servicer and the Trustee with the consent of the
Majority Certificateholders for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement or
of modifying in any manner the rights of the Holders of Certificates; provided,
however, that no such amendment or waiver shall (x) reduce in any manner the
amount of, or delay the timing of, payments on the Certificates which are
required to be made on any Certificate without the consent of the Holder of such
Certificate, (y) adversely affect in any material respect the interests of the
Holders of any Class of Certificates in a manner other than as described in
clause (x) above, without the consent of the Holders of Certificates of such
Class evidencing at least a 66% of the Voting Rights of such Class, or (z)
reduce the percentage of Voting Rights required by clause (y) above without the
consent of the Holders of all Certificates of such Class then outstanding. Upon
approval of an amendment, a copy of such amendment shall be sent to the Rating
Agencies. Prior to the execution of any amendment to this Agreement, the Trustee
shall be entitled to receive and rely upon an Opinion of Counsel (at the expense
of the Person seeking such amendment) stating that the execution of such
amendment is authorized or permitted by this Agreement. The Trustee may, but
shall not be obligated to, enter into any such amendment which affects the
Trustee's own rights, duties or immunities under this Agreement.

                  (c)      Notwithstanding any provision of this Agreement to
the contrary, the Trustee shall not consent to any amendment to this Agreement
unless it shall have first received an Opinion of Counsel, delivered by (and at
the expense of) the Person seeking such Amendment, to the effect that such
amendment will not result in the imposition of a tax on any

                                       40
<PAGE>

REMIC constituting part of the Trust Fund pursuant to the REMIC Provisions or
cause any REMIC constituting part of the Trust to fail to qualify as a REMIC at
any time that any Certificates are outstanding and that the amendment is being
made in accordance with the terms hereof.

                  (d)      Promptly after the execution of any such amendment
the Trustee shall furnish (but in no event at the expense of the Trustee), at
the expense of the Trust, a copy of such amendment and the Opinions of Counsel
referred to in Sections 8.2(b) and (c) to the Servicer and each Rating Agency.

                  (e)      It shall not be necessary for the consent of
Certificateholders under this Section 8.2 to approve the particular form of any
proposed amendment; instead it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable regulations as the Trustee may prescribe.

                  (f)      Notwithstanding any other provision of this
Agreement, neither the Certificateholders nor the Trustee shall have any
obligation to consent to any amendment or modification of this Agreement unless
they have been provided reasonable security or indemnity against their
out-of-pocket expenses (including reasonable attorneys' fees) to be incurred in
connection therewith.

                  (g)      Promptly after the execution of any amendment,
modification or waiver of the Pooling Agreement, the Trustee shall furnish a
copy of such amendment, modification or waiver to the Servicer.



         Section 8.3       Recordation of Agreement; Perfection of Security
Interest; Further Assurances

                  (a)      To the extent necessary under applicable law to
protect the interests of the Certificateholders, this Agreement, or a memorandum
thereof, is subject to recordation in all appropriate public offices for real
property records in all the counties or other comparable jurisdictions in which
any or all of the Mortgaged Properties are situated, and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by the Servicer at the Trust's expense.

                  (b)      The Servicer agrees to execute or cause to be
executed such documents and take or cause to be taken such actions as may be
necessary to effect the intent of this Agreement, including, without limitation,
the execution and delivery of instruments of further assurance and the execution
and delivery of such other documents, and the taking of such other actions, as
may be reasonably requested by the Trustee or the Depositor.

         Section 8.4       Duration of Agreement

         This Agreement shall continue in existence and effect until terminated
as herein provided.

                                       41
<PAGE>

         Section 8.5       Governing Law

         This Agreement shall be governed by and construed in accordance with
the laws of the State of New York (including Section 5-1401 of the New York
General Obligations Law) and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws without giving effect
to conflict of laws principles other than Section 5-1401 of the New York General
Obligations Law.

         Section 8.6       General Interpretive Principles

         For purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires:

                  (i)      the terms defined in this Agreement have the meanings
         assigned to them in this Agreement and include the plural as well as
         the singular, and the use of any gender herein shall be deemed to
         include the other gender;

                  (ii)     accounting terms not otherwise defined herein have
         the meanings assigned to them in accordance with generally accepted
         accounting principles;

                  (iii)    references herein to "Articles," "Sections,"
         "Subsections," "Paragraphs," and other subdivisions without reference
         to a document are to designated Articles, Sections, Subsections,
         Paragraphs, and other subdivisions of this Agreement;

                  (iv)     a reference to a Subsection without further reference
         to a Section is a reference to such Subsection as contained in the same
         Section in which the reference appears, and this rule shall also apply
         to Paragraphs and other subdivisions;

                  (v)      the words "herein," "hereof," "hereunder," and other
         words of similar import refer to this Agreement as a whole and not to
         any particular provision; and

                  (vi)     the term "include" or "including" shall mean without
         limitation by reason of enumeration.

         Section 8.7       Reproduction of Documents

         This Agreement and all documents relating hereto, including, without
limitation, (i) consents, waivers, and modifications that may hereafter be
executed, (ii) documents received by any party on the Closing Date, and (iii)
financial statements, certificates, and other information previously or
hereafter furnished, may be reproduced by any photographic, photostatic,
microfilm, microcard, miniature photographic, or other similar process. Any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business. Any enlargement, facsimile or further reproduction
of such reproduction shall likewise be admissible in evidence.

                                       42
<PAGE>

         Section 8.8       Notices

         All directions, demands and notices hereunder shall be in writing and
shall be deemed to have been duly given if personally delivered at, faxed or
mailed by first class mail, postage prepaid, or by express delivery service, to
(a) in the case of the Depositor, Morgan Stanley ABS Capital I Inc., 1585
Broadway, New York, New York 10036, Attention: Michelle Wilke, Esq., (telecopy
number 212-761-0260) (b) in the case of the Servicer, Washington Mutual Bank,
FA, 1950 Plummer St, (mail stop N070205), Chatsworth, CA, 91311, Attention: Vice
President, Investor Reporting, with a copy to Washington Mutual Bank, FA, 1201
Third Avenue, WMT0511, Seattle, Washington 98101, Telephone: (206) 554-8541,
Fax: (206) 461-5739, Attention: Salvatore Russo, or such other address as may be
furnished to the Depositor and the Trustee in writing by the Servicer, and (c)
in the case of the Trustee, Deutsche Bank National Trust Company, 1761 East St.
Andrew Place, Santa Ana, California 92705 Attention: Trust Administration
--MS04S1. Any notice required or permitted to be mailed to a Certificateholder
shall be given by first class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register. Notice of any Servicer Event of
Termination shall be given by telecopy and by certified mail. Any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have duly been given when mailed, whether or not the
Certificateholder receives such notice. A copy of any notice required to be
telecopied hereunder shall also be mailed to the appropriate party in the manner
set forth above.

         The Trustee acknowledges and agrees that all reports and notices
required to be delivered by the Trustee to the Servicer pursuant to the Pooling
Agreement shall be delivered to the Servicer at the addresses of the Servicer
specified in this Section 8.8 and the Servicer shall be entitled to enforce its
right to receive such reports and notices to the same extent as if it were a
party to such Pooling Agreement.

         Section 8.9       Severability of Provisions

         If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason, then such covenants,
agreements, provisions or terms shall be deemed severable from the remaining
covenants, agreements, provisions or terms of this Agreement and shall in no way
affect the validity or enforceability of the other covenants, agreements,
provisions or terms of this Agreement, the rights of the parties hereto, the
Certificates or the rights of the Certificateholders thereof. If the invalidity
of any part, provision, representation or warranty of this Agreement shall
deprive any party of the economic benefit intended to be conferred by this
Agreement, the parties shall negotiate in good faith to develop a new structure,
the economic effect of which is nearly as possible the same as the economic
effect of this Agreement without regard to such invalidity.

         Section 8.10      Exhibits and Schedules

         The exhibits and schedules to this Agreement are hereby incorporated
and made an integral part of this Agreement.

                                       43
<PAGE>

         Section 8.11      Counterparts; Successors and Assigns

         This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same agreement. Subject to Sections 5.4, 5.5, 6.1 and
7.1, this Agreement shall inure to the benefit of and be binding upon the
Servicer, the Trustee, the Depositor and their respective successors and
assigns.

         Section 8.12      Effect of Headings

         The headings in this Agreement are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof.

         Section 8.13      Other Agreements Superseded; Entire Agreement

         This Agreement supersedes all prior agreements and understandings
relating to the subject matter hereof. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof.

         Section 8.14      Notice to the Rating Agencies and the Depositor

                  (a)      The Trustee shall be obligated to use its best
reasonable efforts promptly to provide notice to the Rating Agencies and the
Depositor with respect to each of the following of which a Responsible Officer
of the Trustee, as the case may be, has actual knowledge:

                  (i)      any material change or amendment to this Agreement;

                  (ii)     the occurrence of any Event of Default hereunder that
                           has not been cured or waived;

                  (iii)    the resignation or termination of the Servicer;

                  (iv)     any change in the location of the Collection Account,
                           the Escrow Account or the Distribution Account; and

                  (v)      if the Trustee is acting as successor Servicer, any
                           event that would result in the inability of the
                           Trustee to make Monthly Advances.

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

                  (i)      with respect to the Depositor only, each report
                           delivered pursuant to Section 3.2 or 3.3 hereof;

                  (ii)     each annual statement as to compliance described in
                           Section 4.4 hereof;

                  (iii)    each annual independent public accountants' servicing
                           report described in Section 4.5 hereof; and

                                       44
<PAGE>

                  (iv)     each notice delivered pursuant to Section 6.1 hereof
                           which relates to the fact that the Servicer has not
                           made a Monthly Advance.

         Any such notice pursuant to this Section 8.14 shall be in writing and
shall be deemed to have been duly given if personally delivered, faxed or mailed
by first class mail, postage prepaid, or by express delivery service to Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007, Attention:
Managing Director, Residential Mortgage-Backed Securities; Fitch Ratings, One
State Street Plaza, New York, New York 10004, Attention: Managing Director,
Residential Mortgage-Backed Securities; and Standard & Poor's, a division of The
McGraw-Hill Companies, Inc., 55 Water Street, New York, New York 10041,
Attention: Mortgage Surveillance Group.


                               [signatures follow]

                                       45
<PAGE>

         TO WITNESS THIS, the Servicer, the Trustee and the Depositor have
caused their names to be signed to this Servicing Agreement by their respective
officers duly authorized as of the day and year first written above.

         SERVICER:

                                      WASHINGTON MUTUAL BANK, FA
                                      a federally chartered savings association

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

         DEPOSITOR:

                                      MORGAN STANLEY ABS CAPITAL I INC.
                                      a Delaware corporation

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

         TRUSTEE:

                                      DEUTSCHE BANK NATIONAL TRUST COMPANY
                                      a national banking association, as Trustee

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

<PAGE>

                                    EXHIBIT A

              FORM OF REQUEST FOR RELEASE OF DOCUMENTS AND RECEIPT


To:      [Name/Address of Custodian]
         Attention: __________________________________
                    Telephone:________________________
                    Facsimile:________________________

                  Re:      Servicing Agreement dated as of January 1, 2004 (the
                  "Servicing Agreement") between Morgan Stanley ABS Capital I
                  Inc. (the "Depositor"), Deutsche Bank National Trust Company,
                  as trustee (the "Trustee") and Washington Mutual Bank, FA (the
                  "Servicer")

         In connection with the administration of the Mortgage Loans that we
service on your behalf pursuant to the Servicing Agreement, we request the
release, and acknowledge receipt of the Mortgage File/[specify documents]) for
the Mortgage Loan described below, for the reason indicated.


Mortgagor's Name, Address and Zip Code:
---------------------------------------

Mortgage Loan Number:
---------------------

Reason for Requesting Documents:  (check one)
---------------------------------------------

         _____    1.  Mortgage Loan paid in full. (The Servicer hereby
                      certifies that all amounts received in connection
                      therewith have been credited to the Collection Account as
                      provided in the Servicing Agreement.)

         _____    2.  Mortgage Loan in foreclosure.

         _____    3.  Repurchase pursuant to the Servicing Agreement or the
                      Purchase Agreement. (The Servicer hereby certifies that
                      the repurchase price has been credited to the Collection
                      Account.)

         _____    4.  Mortgage Loan liquidated by ___________________. (The
                      Servicer hereby certifies that all proceeds of the
                      foreclosure, insurance, condemnation or other liquidation
                      have been finally received and credited to the Collection
                      Account pursuant to the Servicing Agreement.)

         _____    5.  Other (Explain): _________________________________________

                                      A-1
<PAGE>

         If box 1, 2 or 3 above is checked, and if all or part of the Mortgage
File was previously released to us, please release to us our previous request
and receipt on file with you, as well as any additional documents in your
possession relating to the specified Mortgage Loan.

         If box 4 or 5 above is checked, upon our return of all of the above
documents to you, please acknowledge your acceptance by signing in the space
indicated below and returning this form.


                                      WASHINGTON MUTUAL BANK, FA



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

                                      Name:
                                           -------------------------------------

                                      Title:
                                            ------------------------------------

Acknowledgment of Documents
returned to the Custodian:

DEUTSCHE BANK NATIONAL TRUST COMPANY,
as Custodian

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

Name:
     ---------------------------------------

Title:
      --------------------------------------

Date:
     ---------------------------------------

                                      A-2

<PAGE>

                                    EXHIBIT B

                            ACCOUNT LETTER AGREEMENT

                                                         _______________, ______

To:_________________________________
   _________________________________
   _________________________________
   _________________________________
         (the "Depository")

         As the "Servicer" under the Servicing Agreement dated as of January 1,
2004, between the Servicer, the Depositor and the Trustee named therein (the
"Agreement"), we hereby authorize and request you to establish an account, as a
Collection Account pursuant to Section 2.4 of the Agreement, to be designated as
"Collection Account, Washington Mutual Bank, FA, as Servicer for the Trust under
the Servicing Agreement dated as of January 1, 2004 between Morgan Stanley ABS
Capital I Inc., as Depositor, Deutsche Bank National Trust Company, as Trustee
and Washington Mutual Bank, FA, as Servicer, in trust for registered Holders of
Morgan Stanley ABS Capital I Inc. Trust 2004-SD1, Mortgage Pass-Through
Certificates, Series 2004-SD1." All deposits in the account shall be subject to
withdrawal therefrom by order signed by the Servicer. You may refuse any deposit
which would result in violation of the requirement that the account be fully
insured as described below. This letter is submitted to you in duplicate. Please
execute and return one original to us.


                                             _______________________________

                                             By:____________________________

                                             Name:__________________________

                                             Title:_________________________

         The undersigned, as the "Depository," hereby certifies that the
above-described account has been established under Account Number
_________________, at the office of the Depository indicated above, and agrees
to honor withdrawals on such account as provided above. The full amount
deposited at any time in the account will be insured by the Federal Deposit
Insurance Corporation.


                                             _______________________________
                                             (Name of Depository)

                                             By:____________________________

                                             Name:__________________________

                                             Title:_________________________

                                      B-1
<PAGE>

                                    EXHIBIT C

                         ESCROW ACCOUNT LETTER AGREEMENT

                                                         _______________, ______

To:_________________________________
   _________________________________
   _________________________________
   _________________________________
         (the "Depository")

         As the "Servicer" under the Servicing Agreement dated as of January 1,
2004, between the Servicer, the Trustee and the Depositor (the "Agreement"), we
hereby authorize and request you to establish an account, as an Escrow Account
pursuant to Section 2.6 of the Agreement, to be designated as "Washington Mutual
Bank, FA, in trust for registered Holders of Morgan Stanley ABS Capital I Inc.
Trust 2004-SD1, Mortgage Pass-Through Certificates, Series 2004-SD1, and certain
Mortgagors." All deposits in the account pursuant to the Agreement shall be
subject to withdrawal therefrom by order signed by the Servicer. You may refuse
any deposit which would result in violation of the requirement that the account
by fully insured as described below. This letter is submitted to you in
duplicate. Please execute and return one original to us.


                                             _______________________________

                                             By:____________________________

                                             Name:__________________________

                                             Title:_________________________


         The undersigned, as the "Depository," hereby certifies that the
above-described account has been established under Account Number
_________________, at the office of the Depository indicated above, and agrees
to honor withdrawals on such account as provided above. The full amount
deposited at any time in the account will be insured by the Federal Deposit
Insurance Corporation.


                                             _______________________________
                                             (Name of Depository)

                                             By:____________________________

                                             Name:__________________________

                                             Title:_________________________

                                      C-1
<PAGE>

                                    EXHIBIT D

                             MORTGAGE LOAN SCHEDULE


                                      D-1
<PAGE>

                                    EXHIBIT E

                          FORM OF OFFICER'S CERTIFICATE

         I, [name of certifying individual], a duly elected and acting officer
of Washington Mutual Bank, FA (the "Servicer"), certify pursuant to Section
4.4(b) of the Servicing Agreement dated as of January 1, 2004 (as from time to
time amended or replaced by a reconstituted servicing or other successor
servicing agreement, the "Servicing Agreement") between the Servicer, Deutsche
Bank National Trust Company (the "Trustee") and Morgan Stanley ABS Capital I
Inc. (the "Depositor") to the Trustee, the Depositor, each Person, if any, who
"controls" the Trustee or the Depositor within the meaning of the Securities Act
of 1933, as amended, and their respective officers and directors, with respect
to the calendar year immediately preceding the date of this Certificate (the
"Relevant Year"), as follows:

         1.       For purposes of this Certificate, "Relevant Information" means
the information in the certificate provided pursuant to Section 4.4(a) of the
Servicing Agreement (the "Annual Compliance Certificate") and Section 4.5 for
the Relevant Year and the information in all servicing reports provided by the
Servicer (the "Servicing Reports") during the Relevant Year. Based on my
knowledge, the Relevant Information, taken as a whole, does not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein which is necessary to make the statements made therein, in
light of the circumstances under which such statements were made, not misleading
as of the last day of the Relevant Year.

         2.       The Relevant Information has been provided to those Persons
entitled to receive it.

         3.       I am responsible for reviewing the activities performed by the
Servicer under the Servicing Agreement during the Relevant Year. Based upon the
review required by the Servicing Agreement and except as disclosed in the Annual
Compliance Certificate or the accountants' statement provided pursuant to
Section 4.5, to the best of my knowledge, the Servicer has fulfilled its
obligations under the Servicing Agreement throughout the Relevant Year.

DATED as of ________ __. 200_.



                                             __________________________________

                                             Name:_____________________________

                                             Title:____________________________

                                      E-1