<PAGE>

                                                                   Exhibit 10.38
<PAGE>

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                           MASTER REPURCHASE AGREEMENT

                                     BETWEEN

                            SOVEREIGN BANK, AS BUYER

                                       AND

                     HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
                                       AND
    HANOVER CAPITAL PARTNERS, LTD., INDIVIDUALLY AND COLLECTIVELY, AS SELLER

                            DATED AS OF JUNE 28,2005

================================================================================

<PAGE>

                                Table of Contents

<TABLE>
<CAPTION>
                                                                                          Page
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<S>                                                                                       <C>
1.     APPLICABILITY...................................................................     1
2.     DEFINITIONS.....................................................................     1
3.     INITIATION; TERMINATION.........................................................    17
4.     RESERVED........................................................................    22
5.     INCOME PAYMENTS; SETTLEMENTS....................................................    22
6.     REQUIREMENTS OF LAW.............................................................    24
7.     SECURITY INTEREST...............................................................    25
8.     PAYMENT, TRANSFER AND CUSTODY...................................................    26
9.     HYPOTHECATION OR PLEDGE OF PURCHASED ASSETS.....................................    27
10.    SELLER REPRESENTATIONS..........................................................    27
11.    COVENANTS OF EACH SELLER........................................................    32
12.    EVENTS OF DEFAULT...............................................................    39
13.    REMEDIES........................................................................    41
14.    INDEMNIFICATION AND EXPENSES....................................................    43
15.    RECORDING OF COMMUNICATIONS.....................................................    44
16.    SINGLE AGREEMENT................................................................    44
17.    NOTICES AND OTHER COMMUNICATIONS................................................    44
18.    ENTIRE AGREEMENT; SEVERABILITY..................................................    45
19.    NON-ASSIGNABILITY; AMENDMENTS...................................................    45
20.    TERMINABILITY...................................................................    45
21.    GOVERNING LAW...................................................................    46
22.    SUBMISSION TO JURISDICTION; WAIVERS.............................................    46
23.    NO WAIVERS, ETC.................................................................    47
</TABLE>

                                        i
<PAGE>

                                Table of Contents
                                   (continued)

<TABLE>
<CAPTION>
                                                                                         Page
                                                                                         ----
<S>                                                                                      <C>
24.    SERVICING.......................................................................   47
25.    INTENT..........................................................................   48
26.    PERIODIC DUE DILIGENCE REVIEW...................................................   49
27.    RESERVED........................................................................   49
28.    MISCELLANEOUS...................................................................   49
29.    CONFIDENTIALITY.................................................................   50
30.    CONFLICTS.......................................................................   51
31.    SET-OFF.........................................................................   51
32.    SELLER'S LIABILITY..............................................................   51
</TABLE>

EXHIBITS

<TABLE>
<S>            <C>
SCHEDULE 1     Representations and Warranties Re: Mortgage Loans
SCHEDULE 2     Reserved
SCHEDULE 3     Custodial File
SCHEDULE 4     Mortgage Loan Schedule
EXHIBIT I      Transaction Request
EXHIBIT II     Underwriting Guidelines
EXHIBIT III    Form of Opinion Letter
EXHIBIT IV     UCC Filing Jurisdictions
EXHIBIT V      Form of Account Agreement
EXHIBIT VI     Form of True Sale Certification
EXHIBIT VII    Reserved
EXHIBIT VIII   Form of Servicer Notice
EXHIBIT IX     Form of Purchase Confirmation
EXHIBIT X      Form of Delinquent Mortgage Loan Repurchase Agreement
EXHIBIT XI     Form of Power of Attorney
EXHIBIT XII    Form of Warehouse Lender's Release
EXHIBIT XIII   Form of Borrowing Base Certificate
</TABLE>

                                       ii

<PAGE>

                           MASTER REPURCHASE AGREEMENT

      This is a MASTER REPURCHASE AGREEMENT, dated as of June 28, 2005, among
HANOVER CAPITAL MORTGAGE HOLDINGS, INC., a Maryland business corporation
("Hanover Holdings") and HANOVER CAPITAL PARTNERS, LTD., a New York business
corporation ("Hanover Partners" and individually and collectively with Hanover
Holdings, the "Seller"), and SOVEREIGN BANK, a federal savings bank ("Buyer").

1. APPLICABILITY

      From time to time the parties hereto may enter into transactions
("Transactions") in which Seller agrees to transfer to Buyer Mortgage Loans
against the transfer of funds by Buyer, with a simultaneous agreement by Buyer
to transfer to Seller such Mortgage Loans at a date certain not later than the
Termination Date. Each of the Transactions shall be referred to herein as a
"Transaction" and shall be governed by this Agreement, unless otherwise agreed
in writing.

2. DEFINITIONS

      As used herein, the following terms shall have the following meanings (all
terms defined in this Section 2 or in other provisions of this Agreement in the
singular to have the same meanings when used in the plural and vice versa).

      "Accepted Servicing Practices" shall mean, with respect to any Mortgage
Loan, those mortgage servicing practices of prudent mortgage lending
institutions which service mortgage loans of the same type as such Mortgage
Loans in the jurisdiction where the related Mortgaged Property is located.

      "Account Agreement" shall mean a letter agreement among Seller, Buyer and
the Bank or other financial institution acceptable to Buyer in its sole
discretion substantially in the form of Exhibit V attached hereto.

      "Act of Insolvency" shall mean, with respect to any Person, (i) the filing
of a petition, commencing, or authorizing the commencement of any case or
proceeding under any bankruptcy, insolvency, reorganization, liquidation,
dissolution or similar law relating to the protection of creditors, or suffering
any such petition or proceeding to be commenced by another which is consented
to, not timely contested or results in entry of an order for relief; (ii) the
seeking or consenting to the appointment of a receiver, trustee, custodian or
similar official for such Person or any substantial part of the property of such
Person; (iii) the appointment of a receiver, conservator, or manager for such
Person by any governmental agency or authority having the jurisdiction to do so;
(iv) the making or offering by such Person of a composition with its creditors
or a general assignment for the benefit of creditors; (v) the admission by such
Person of its inability to pay its debts or discharge its obligations as they
become due or mature; or (vi) that any governmental authority or agency or any
person, agency or entity acting or purporting to act under governmental
authority shall have taken any action to condemn, seize or appropriate, or to
assume custody or control of, all or any substantial part of the property of
such Person, or shall have taken any action to displace the management of such
Person or to curtail its authority in the conduct of the business of such
Person.

                                        1

<PAGE>

      "Additional Availability" shall have the meaning specified in Section 5.

      "Adjustable Rate Mortgage Loan" shall mean a Mortgage Loan which provides
for the adjustment of the Mortgage Interest Rate payable in respect thereto.

      "Adjusted Purchase Price" shall mean, as of any date of determination, the
aggregate Purchase Price for all outstanding Mortgage Loans, less the following
amounts actually received by Buyer as of such date of determination: (1) all
Mortgage Loan proceeds, (2) all Payments Due and (3) all Additional
Availability.

      "Adjustment Date" shall mean with respect to each Adjustable Rate Mortgage
Loan, the date set forth in the related Mortgage Note on which the Mortgage
Interest Rate on the Mortgage Loan is adjusted in accordance with the terms of
the Mortgage Note.

      "Advance Rate" shall mean ninety-seven percent (97%), or as otherwise set
forth in a Purchase Confirmation with respect to a specific Transaction.

      "Affiliate" shall mean with respect to any Person, any "affiliate" of such
Person, as such term is defined in the Bankruptcy Code.

      "Agreement" shall mean this Master Repurchase Agreement, as the same may
be further amended, supplemented or otherwise modified in accordance with the
terms hereof.

      "ALTA" shall mean the American Land Title Association.

      "Appraised Value" shall mean the value set forth in an appraisal made in
connection with the origination of the related Mortgage Loan as the value of the
Mortgaged Property.

      "Asset Value" shall mean for any Eligible Asset as of any date of
determination the sum of (A) the product of (i) the Advance Rate, (ii) the
Seller Purchase Price Percentage and (iii) the outstanding principal balance of
such Eligible Asset as of such date of determination and (B) any Additional
Availability with respect to such Eligible Asset; provided, that, the following
additional limitations on Asset Value shall apply:

            The Asset Value shall be deemed to be zero with respect to each
Mortgage Loan (i) in respect of which there is a breach of a representation and
warranty set forth in Schedule 1 (assuming each representation and warranty is
made as of the date the Asset Value is determined), (ii) which has not been
repurchased by Seller by the earlier to occur of (A) the Termination Date and
(B) the Repurchase Date, or (iii) which has been released from the possession of
Custodian under the Custodial Agreement to Seller or its designee for a period
in excess of that specified in the Custodial Agreement, as applicable.

      "Assignment of Mortgage" shall mean, with respect to any Mortgage, an
assignment of the Mortgage in blank, or equivalent instrument in recordable
form, sufficient under the laws of the jurisdiction wherein the related
Mortgaged Property is located to reflect the assignment of the Mortgage to
Buyer.

                                        2

<PAGE>

      "Balloon Mortgage Loan" shall mean any Mortgage Loan which by its original
terms or any modifications thereof provides for amortization beyond its
scheduled maturity date.

      "Bank" shall mean Deutsche Bank National Trust Company, a national banking
association, and its successors in interest, or such other depository
institution as may be acceptable to Buyer in its sole discretion, and their
respective successors in interest.

      "Bankruptcy Code" shall mean the United States Bankruptcy Code of 1978, as
amended from time to time.

      "Borrowing Base Certificate" shall have the meaning set forth in Section 5
of this Agreement.

      "Business Day" shall mean any day other than (i) a Saturday or Sunday or
(ii) a day on which banks in the Commonwealth of Pennsylvania (or state in which
any of Custodian, Seller or Buyer is located) are authorized or obligated by law
or executive order or otherwise by their respective regulators to be closed.

      "Buyer" shall mean Sovereign Bank, a federal savings bank, and its
successors in interest and assigns.

      "Capital Lease Obligations" shall mean, for any Person, all obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) Property to the extent such obligations are required
to be classified and accounted for as a capital lease on a balance sheet of such
Person under GAAP, and, for purposes of this Agreement, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP.

      "Cash" shall mean all cash and Cash Equivalents, as shown on the balance
sheet of Seller prepared in accordance with GAAP.

      "Cash Equivalents" shall mean (a) securities with maturities of 90 days or
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit and
eurodollar time deposits with maturities of 90 days or less from the date of
acquisition and overnight bank deposits of any commercial bank having capital
and surplus in excess of $500,000,000, (c) repurchase obligations of any
commercial bank satisfying the requirements of clause (b) of this definition,
having a term of not more than seven days with respect to securities issued or
fully guaranteed or insured by the United States Government, (d) commercial
paper of a domestic issuer rated at least A-l or the equivalent thereof by
Standard and Poor's Ratings Group ("S&P") or P-l or the equivalent thereof by
Moody's Investors Service, Inc. ("Moody's") and in either case maturing within
90 days after the day of acquisition, (e) securities with maturities of 90 days
or less from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political subdivision or
taxing authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may be) are
rated at least A by S&P or A by Moody's, (f) securities with maturities of 90
days or less from the date of acquisition backed by

                                        3

<PAGE>

standby letters of credit issued by any commercial bank satisfying the
requirements of clause (b) of this definition or (g) shares of money market
mutual or similar funds which invest exclusively in assets satisfying the
requirements of clauses (a) through (f) of this definition.

      "Class" shall mean each group of Mortgage Loans where each Mortgage Loan
within such group qualifies as one of the following: First Lien Mortgage Loan or
Second Lien Mortgage Loan.

      "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.

      "Collection Account" shall have the meaning specified in Section 5.

      "Combined Loan-to-Value Ratio or CLTV" shall mean with respect to any
Second Lien Mortgage Loan, the sum of the original principal balance of such
Second Lien Mortgage Loan at the time of origination and the outstanding
principal balance of any related first lien loan as of the date of origination
of such Second Lien Mortgage Loan, divided by the lesser of (a) the Appraised
Value of the related Mortgage Property as of the date of origination of such
Second Lien Mortgage Loan and (b) if the related Mortgaged Property was
purchased within twelve (12) months of the origination of such Second Lien
Mortgage Loan, the purchase price of such Mortgaged Property.

      "Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with Seller within the meaning of
Section 4001 of ER1SA or is part of a group which includes Seller and which is
treated as a single employer under Section 414 of the Code.

      "Condominium Mortgage Loan" shall mean an Eligible Asset secured by a
Residential Dwelling which is a unit in a condominium project.

      "Conforming Mortgage Loan" shall mean a First Lien Mortgage Loan which (i)
meets all criteria of Fannie Mae or Freddie Mac, or (ii) meets all criteria of
the FHA and is insured by such agency, or (iii) meets all criteria of the
Department of Veterans Affairs and is insured by such agency.

      "Custodial Agreement" shall mean that custodial agreement, dated as of
June 27, 2005, by and among Buyer, Custodian, Hanover Partners and Hanover
Holdings, as the same shall be modified and supplemented and in effect from time
to time.

      "Custodial File" shall mean, with respect to each Mortgage Loan, those
documents and instruments set forth in Schedule 3.

      "Custodian" shall mean Deutsche Bank National Trust Company, a national
banking association, and its successors in interest, as custodian under the
Custodial Agreement, and any successor Custodian under the Custodial Agreement.

      "Cut-off Date" shall mean the date designated as the Cut-off Date in the
Purchase Confirmation.

                                        4

<PAGE>

      "Default" shall mean an Event of Default or an event that with notice or
lapse of time or both would become an Event of Default.

      "Dollars" and "$" shall mean lawful money of the United States of America.

      "Due Date" shall mean the day on which the Monthly Payment is due on a
Mortgage Loan, exclusive of any days of grace.

      "Due Diligence Review" shall mean the performance by Buyer of any or all
of the reviews permitted under Section 26 with respect to any or all of the
Mortgage Loans, as desired by Buyer from time to time.

      "Electronic Agent" shall mean MERSCORP, INC., and its successors in
interest.

      "Electronic Tracking Agreement" shall mean individually and collectively
the Hanover Holdings Electronic Tracking Agreement and the Hanover Partners
Electronic Tracking Agreement; provided that if no Mortgage Loans are or will be
MERS Designed Mortgage Loans, all references herein to the Electronic Tracking
Agreement shall be disregarded.

      "Electronic Transmission" shall mean the delivery of information in an
electronic format acceptable to the applicable recipient thereof.

      "Eligible Asset" shall mean a Mortgage Loan (i) as to which the
representations and warranties in Schedule 1 attached hereto are true and
correct, (ii) which is underwritten strictly in accordance with Seller's
Underwriting Guidelines (other than non-material exceptions customarily made by
prudent lenders), a copy of which is attached hereto as Exhibit II or with such
material exceptions as Buyer shall approve pursuant to Section 3(b)(9), (iii)
which is underwritten strictly in accordance with guidelines of Fannie Mae,
Freddie Mac, FHA or VA or Alternative A guidelines approved by Buyer in its sole
discretion; and (iv) which is secured by a Residential Dwelling. Buyer, in its
sole discretion, shall have the right to accept or reject any Mortgage Loan. No
Mortgage Loan shall be an Eligible Asset if, on the date of determination, it
becomes contractually more than twenty-nine (29) days past due except as an
allowed percentage of all Purchased Assets as follows: (a) all FHA and VA
guaranteed loans less than ninety (90) days delinquent may be not more than
thirty percent (30%) of the outstanding principal balance of all Purchased
Assets, or (b) all other Mortgage Loans less than sixty (60) days delinquent may
be not more than five percent (5%) of the outstanding principal balance of all
Purchased Assets. No Mortgage Loan with a lost note affidavit shall be an
Eligible Asset unless all such Mortgage Loans do not exceed fifteen percent
(15%) of the outstanding principal balance of all Purchased Assets. No Mortgage
Loan with an outstanding principal balance greater than $2,000,000 shall be an
Eligible Asset unless all such Mortgage Loans do not exceed fifteen percent 15%)
of the outstanding principal balance of all Purchased Assets.

      "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.

      "ERISA Affiliate" shall mean any corporation or trade or business that is
a member of any group of organizations (i) described in Section 414(b) or (c) of
the Code of which Seller is a member and (ii) solely for purposes of potential
liability under Section 302(c)(11) of ERISA and

                                        5

<PAGE>

Section 412(c)(11) of the Code and the lien created under Section 302(f) of
ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the
Code of which Seller is a member.

      "Escrow Payments" shall mean with respect to any Mortgage Loan, the
amounts constituting ground rents, taxes, assessments, water charges, sewer
rents, municipal charges, mortgage insurance premiums, fire and hazard insurance
premiums, condominium charges, and other payments as may be required to be
escrowed by the Mortgagor with the Mortgagee pursuant to the terms of any
Mortgage Note, Mortgage or any other document.

      "Eurodollar Rate" shall mean on any date of determination during a given
period of time and determined and reset on the first day of each calendar month
within which the date of determination occurs, during such period of time, the
rate (rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to the
composite London Interbank Offered Rate for U.S. dollar ($) deposits for a
maturity of 30 days appearing on the Telerate Screen Page 3750 at approximately
11:00 A.M. London time, as reprinted on Bloomberg Financial Services; provided
however, that if such rate shall for any reason not be available on the Telerate
Screen Page 3750 on the first day of such calendar month, the London Interbank
Offered Rate shall be the rate appearing on the most recent Business Day
succeeding the first date of such calendar month. As used herein, the term
"Telerate Screen Page 3750" shall mean the display designated as the page for
LIBOR on the Bridge Telerate Service (or such other page as may replace the
LIBOR page on that service for the purpose of displaying London interbank
offered rates of major banks).

      "Event of Default" has the meaning specified in Section 12.

      "Existing Financing Facilities" shall mean any credit facilities,
repurchase facilities and substantially similar facilities to which Seller is a
party.

      "Fannie Mae" shall mean the Federal National Mortgage Association, and its
successors in interest.

      "First Lien Mortgage Loan" shall mean an Eligible Asset (i) secured by a
first lien on the related Mortgaged Property, and (ii) for which at the time of
origination, the related Mortgagor had a FICO score in the minimum amount of
600, except that the Mortgagor for a Mortgage Loan guaranteed by the VA or FHA
may have a FICO score less than 600.

      "Fixed Rate Mortgage Loan" shall mean a Mortgage Loan which provides for
fixed Mortgage Interest Rate payable with respect thereto.

      "Foreclosed Loan" shall mean a loan the property securing which has been
foreclosed upon by Seller.

      "Freddie Mac" shall mean the Federal Home Loan Mortgage Corporation, and
its successors in interest.

      "GAAP" shall mean generally accepted accounting principles as in effect
from time to time in the United States.

                                        6

<PAGE>

      "Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including without limitation, the Office of Thrift Supervision,
and any court or arbitrator having jurisdiction over Seller, any of its
Subsidiaries or any of their properties or over Buyer or Sovereign Bancorp,
Inc., or any of its or their Subsidiaries or any of its or their properties.

      "Gross Margin" shall mean, with respect to each Adjustable Rate Mortgage
Loan, the fixed percentage amount set forth in the related Mortgage Note which
amount is added to the Index in accordance with the terms of the related
Mortgage Note to determine on each Interest Rate Adjustment Date the Mortgage
Interest Rate for such Mortgage Loan.

      "Guarantee" shall mean, as to any Person, any obligation of such Person
directly or indirectly guaranteeing any Indebtedness of any other Person or in
any manner providing for the payment of any Indebtedness of any other Person or
otherwise protecting the holder of such Indebtedness against loss (whether by
virtue of partnership arrangements, by agreement to keep-well another Person, to
purchase assets, goods, securities or services, or to agree to take-or-pay
arrangement or otherwise); provided that the term "Guarantee" shall not include
(i) endorsements for collection or deposit in the ordinary course of business,
or (ii) obligations to make servicing advances for delinquent taxes and
insurance, or other obligations in respect of a Mortgaged Property, or other
principal and interest advances made in the ordinary course of servicing the
Mortgage Loans. The amount of any Guarantee of a Person shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
such Person in good faith. The terms "Guarantee" and "Guaranteed" used as verbs
shall have correlative meanings.

      "Hanover Holdings" shall mean Hanover Capital Mortgage Holdings, Inc.

      "Hanover Holdings Electronic Tracking Agreement" shall mean the Electronic
Tracking Agreement among Buyer, Hanover Holdings, Electronic Agent and MERS, if
any, as the same shall be amended, supplemented or otherwise modified from time
to time.

      "Hanover Partners" shall mean Hanover Capital Partners, Ltd.

      "Hanover Partners Electronic Tracking Agreement" shall mean the Electronic
Tracking Agreement among Buyer, Hanover Partners, Electronic Agent and MERS, if
any, as the same shall be amended, supplemented or otherwise modified from time
to time.

      "Hazardous Substances" shall mean (i) those substances included within the
definitions of any one or more of the terms: "hazardous substances," "hazardous
materials," "toxic substances," "toxic pollutants," and "hazardous waste" in the
Clean Water Act, as amended, the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, the Resource Conservation and
Recovery Act of 1976, as amended, or the Hazardous Materials Transportation Act,
as amended, or in the regulations promulgated pursuant to such laws, (ii) such
other substances, materials, and wastes as are classified as hazardous or toxic
under federal, state or local laws or regulations, and (iii) any materials,
wastes or substances that are

                                       7

<PAGE>

(a) petroleum; (b) friable asbestos; (c) polychlorinated biphenyls; (d)
flammable explosives; or (e) radioactive materials.

      "Income" shall mean, with respect to any Mortgage Loan at any time, all
collections and proceeds on or in respect of the Mortgage Loans, including,
without limitation, any principal thereof then payable and all interest or other
distributions payable thereon less any related servicing fee(s) charged by a
Servicer.

      "Indebtedness" shall mean, for any Person: (a) obligations created, issued
or incurred by such Person for borrowed money (whether by loan, the issuance and
sale of debt securities or the sale of Property to another Person subject to an
understanding or agreement, contingent or otherwise, to repurchase such Property
from such Person); (b) obligations of such Person to pay the deferred purchase
or acquisition price of Property or services, other than trade accounts payable
(other than for borrowed money) arising, and accrued expenses incurred, in the
ordinary course of business so long as such trade accounts payable are payable
within 90 days of the date the respective goods are delivered or the respective
services are rendered; (c) Indebtedness of others secured by a Lien on the
Property of such Person, whether or not the respective Indebtedness so secured
has been assumed by such Person; (d) obligations (contingent or otherwise) of
such Person in respect of letters of credit or similar instruments issued or
accepted by banks and other financial institutions for account of such Person;
(e) obligations of such Person under repurchase agreements, sale/buy-back
agreements or like arrangements; (f) Indebtedness of others Guaranteed by such
Person; (g) all obligations of such Person incurred in connection with the
acquisition or carrying of fixed assets by such Person; (h) Indebtedness of
general partnerships of which such Person is secondarily or contingently liable
(other than by endorsement of instruments in the course of collection), whether
by reason of any agreement to acquire such indebtedness to supply or advance
sums or otherwise; and (i) Capital Lease Obligations of such Person.

      "Index" shall mean with respect to each Adjustable Rate Mortgage Loan, a
rate per annum to which the Gross Margin is added on each Adjustment Date to
determine the new Mortgage Interest Rate for such Mortgage Loan.

      "Insured Depository Institution" shall have the meaning ascribed to such
term by Section 1813(c)(2) of Title 12 of the United States Code, as amended
from time to time.

      "Intangible Assets" shall mean, with respect to any Person, as of a
particular date, all goodwill, patents, trademarks, trade names, copyrights and
all other intellectual property, and all other intangible assets included in
determining the stockholder's equity on a consolidated balance sheet of such
Person and its consolidated Subsidiaries at such date, determined in accordance
with GAAP.

      "Interest Rate Adjustment Date" shall mean with respect to each Adjustable
Rate Mortgage Loan, the date set forth in the related Mortgage Note on which the
Mortgage Interest Rate on the Mortgage Loan is adjusted in accordance with the
terms of the Mortgage Note.

                                        8

<PAGE>

      "Interim Funder" shall mean, with respect to each MERS Designated Mortgage
Loan, the Person named on the MERS(R) System as the interim funder pursuant to
the MERS Procedures Manual.

      "Investor" shall mean, with respect to each MERS Designated Mortgage Loan,
the Person named on the MERS(R) System as the investor pursuant to the MERS
Procedures Manual.

      "Jumbo Mortgage Loan" shall mean an Eligible Asset (i) which is secured by
a First Lien Loan, and (ii) which meets all criteria of Fannie Mae or Freddie
Mac except that the outstanding principal balance thereof at origination was in
excess of Fannie Mae or Freddie Mac's guidelines.

      "Late Payment Fee" has the meaning specified in Section 5(b).

      "Lien" shall mean any mortgage, lien, pledge, charge, security interest or
similar encumbrance.

      "Loan-to-Value Ratio" or "LTV" means with respect to any Mortgage Loan,
the ratio of the original outstanding principal amount of such Mortgage Loan at
the time of origination to the lesser of (a) the Appraised Value of the related
Mortgaged Property at origination of such Mortgage Loan and (b) if the related
Mortgaged Property was purchased within twelve (12) months of the origination of
such Mortgage Loan, the purchase price of the related Mortgaged Property.

      "Market Value" shall mean, as of any date in respect of any Mortgage Loan,
the percentage that should be applied to the outstanding principal balance to
determine the price at which such Mortgage Loan could readily be sold as
determined in the reasonable discretion of the Seller and the Buyer using their
good faith business judgment, taking into account the level of interest relates,
the purchase price at which Seller purchased such Mortgage Loan, the outstanding
principal balance of such Mortgage Loan, the financial condition of the Seller,
the characteristics of the Mortgage Loans and general market conditions, which
price may be determined to be zero. The Seller shall initially determine Market
Value. Should the Seller and the Buyer not agree on Market Value, then upon five
(5) Business Days prior notice from Buyer, Seller shall repurchase the Purchased
Assets at the Repurchase Price.

      "Material Adverse Effect" shall mean a material adverse effect on (a) the
Property, business, operations, financial condition, corporate rating or
prospects of either Seller, (b) the ability of either Seller to perform its
respective obligations under any of the Repurchase Documents to which it is a
party, (c) the validity or enforceability of any of the Repurchase Documents,
(d) the rights and remedies of Buyer under any of the Repurchase Documents, (e)
the timely payment of any amounts payable under the Repurchase Documents, or (f)
the Asset Value of the Purchased Assets.

      "Maximum Amount" shall mean $100,000,000.

                                        9

<PAGE>

      "Maximum Mortgage Interest Rate" shall mean with respect to each
Adjustable Rate Mortgage Loan, a rate that is set forth on the related Mortgage
Loan Schedule and in the related Mortgage Note and is the maximum interest rate
to which the Mortgage Interest Rate on such Mortgage Loan may be increased on
any Interest Rate Adjustment Date.

      "MERS" shall mean Mortgage Electronic Registration Systems, Inc., and its
successors in interest.

      "MERS Designated Mortgage Loan" shall mean a Mortgage Loan for which the
Seller has designated or will designate MERS as, and has taken or will take such
action as is necessary to cause MERS to be, the mortgagee of record, as nominee
for the Seller, in accordance with the MERS Procedure Manual.

      "MERS Procedure Manual" shall mean the MERS Procedures Manual attached as
Exhibit B to the Electronic Tracking Agreement, as it may be amended,
supplemented or otherwise modified from time to time.

      "MERS Report" shall mean the schedule listing MERS Designated Mortgage
Loans and other information prepared by the Electronic Agent pursuant to the
Electronic Tracking Agreement.

      "MERS(R) System" shall mean the Electronic Agent's mortgage electronic
registry system, as more particularly described in the MERS Procedures Manual.

      "Minimum Mortgage Interest Rate" shall mean with respect to each
Adjustable Rate Mortgage Loan, a rate that is set forth on the related Mortgage
Loan Schedule and in the related Mortgage Note and is the minimum interest rate
to which the Mortgage Interest Rate on such Mortgage Loan may be decreased on
any Interest Rate Adjustment Date.

      "Monthly Payment" shall mean with respect to any Mortgage Loan, the
scheduled combined payment of principal and interest payable by a Mortgagor
under the related Mortgage Note on each Due Date.

      "Mortgage" shall mean, with respect to a Mortgage Loan, the mortgage, deed
of trust or other instrument securing a Mortgage Note, which creates a first
lien or second lien on a fee simple Residential Dwelling securing the Mortgage
Note.

      "Mortgage File" shall mean all documents, records and items pertaining to
a particular Mortgage Loan, including without limitation, the Custodial File.

      "Mortgage Interest Rate" shall mean with respect to each Fixed Rate
Mortgage Loan, the per annum rate at which interest accrues on such Fixed Rate
Mortgage Loan from time to time in accordance with the provisions of the related
Mortgage Note. With respect to any Adjustable Rate Mortgage Loan, the Mortgage
Interest Rate shall be (i) as of any date of determination until the first
Interest Rate Adjustment Date following the Cut-off Date, the rate set forth in
the Mortgage Loan Schedule as the Mortgage Interest Rate in effect immediately
following the Cut-off Date and (ii) as of any date of determination thereafter
the rate as adjusted on the most recent

                                       10

<PAGE>

Interest Rate Adjustment Date, to equal the sum of the applicable Index plus the
related Gross Margin.

      "Mortgage Loan" shall mean a First Lien Mortgage Loan or a Second Lien
Mortgage Loan originated in accordance with the Underwriting Guidelines and
underwriting guidelines approved by Buyer in its sole discretion which Custodian
has been instructed to hold for Buyer pursuant to the Custodial Agreement, which
Mortgage Loan appears on the Mortgage Loan Schedule prepared and delivered by
Seller to Buyer and which Mortgage Loan includes, without limitation, (i) a
Mortgage Note, Mortgage and related Mortgage File, and (ii) all right, title and
interest of Seller in and to the Mortgaged Property covered by such Mortgage.

      "Mortgage Loan Schedule" shall mean the schedule of Mortgage Loans to be
delivered by the Seller to the Buyer for the related Mortgage Loans, which
schedule of Mortgage Loans shall also be delivered to the Buyer in a computer
readable electronic format acceptable to the Buyer, such schedule setting forth
information with respect to each Mortgage Loan as is set forth on Schedule 4.

      "Mortgage Note" shall mean the original executed promissory note or other
evidence of the indebtedness of a Mortgagor with respect to a Mortgage Loan.

      "Mortgaged Property" shall mean, with respect to a Mortgage Loan, a fee
simple interest in, the real property (including all improvements, buildings,
fixtures, building equipment and personal property thereon and all additions,
alterations and replacements made at any time with respect to the foregoing) and
all other collateral securing repayment of the debt evidenced by a Mortgage
Note.

      "Mortgagee" shall mean the record holder of a Mortgage Note secured by a
Mortgage.

      "Mortgagor" shall mean the obligor or obligors on a Mortgage Note,
including any person who has assumed or guaranteed the obligations of the
obligor thereunder.

      "Multiemployer Plan" shall mean a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been or are required to be
made by Seller or any ERISA Affiliate and that is covered by Title IV of ERISA.

      "Net Income" shall mean, with respect to any Person for any period, the
net income of such Person for such period as determined in accordance with GAAP.

      "Non-Owner Occupied Loan" shall mean an Eligible Asset secured by a
Residential Dwelling which is not occupied by the Mortgagor as its primary
residence.

      "One Million Plus Mortgage Loan" shall mean an Eligible Asset with an
outstanding principal balance at origination in excess of $1,000,000.

      "Origination Date" shall mean with respect to each Mortgage Loan, the date
on which the applicable lien was placed on the related Mortgaged Property.

                                       11

<PAGE>

      "Payment Calculation Date" shall mean (a) the fifth (5th) Business Day of
each month or (b) the second Business Day next following Seller's receipt of
Buyer's written request for a Settlement.

      "Payment Date" shall mean the tenth (10th) day of the month, but if the
tenth (10th) day of the month is not a Business Day, then the first (1st)
Business Day after the tenth (10th) day of the month.

      "Payment Due" shall have the meaning specified in Section 5.

      "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

      "Periodic Advance Repurchase Payment" has the meaning specified in Section
5(b).

      "Periodic Rate Cap" shall mean with respect to each Adjustable Rate
Mortgage Loan and any Interest Rate Adjustment Date therefor, a number of
percentage points per annum that is set forth in the related Mortgage Loan
Schedule and in the related Mortgage Note, which is the maximum amount by which
the Mortgage Interest Rate for such Mortgage Loan may increase (without regard
to the Maximum Mortgage Interest Rate) or decrease (without regard to the
Minimum Mortgage Interest Rate) on such Interest Rate Adjustment Date from the
Mortgage Interest Rate in effect immediately prior to such Interest Rate
Adjustment Date.

      "Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, limited liability company, trust,
unincorporated association or government (or any agency, instrumentality or
political subdivision thereof).

      "Plan" shall mean an employee benefit or other plan established or
maintained by any Seller or any ERISA Affiliate and covered by Title IV of
ERISA, other than a Multiemployer Plan.

      "Post-Default Rate" shall mean, in respect of any day a Transaction is
outstanding or any other amount under this Agreement or any other Repurchase
Document that is not paid when due to Buyer at the stated Repurchase Date or
otherwise when due (a "Post-Default Day"), a rate per annum on a 360 day per
year basis during the period from and including the due date to but excluding
the date on which such amount is paid in full equal to 4% per annum plus the
Prime Rate on such Post-Default Day.

      "Power of Attorney" shall mean a power of attorney from Seller to Buyer
substantially in the form of Exhibit XI attached hereto.

      "Price Differential" means, with respect to any Transaction hereunder as
of any date, the aggregate amount obtained by daily application of the Pricing
Rate for such Transaction to the Purchase Price for such Transaction on a 360
day per year basis for the actual number of days during the period commencing on
(and including) the Purchase Date for such Transaction and ending on (but
excluding) the Repurchase Date (reduced by any amount of such Price Differential
previously paid by Seller to Buyer with respect to such Transaction).

                                       12
<PAGE>

      "Pricing Rate" shall mean with respect to any Mortgage Loan and any date
of determination a rate per annum equal to the sum of (a) the Eurodollar Rate
applicable on such date plus (b) 200 basis points.

      "Prime Rate" shall mean the prime rate announced to be in effect from time
to time, as published as the average rate in The Wall Street Journal.

      "Property" shall mean any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible.

      "Purchase Agreement" shall mean any purchase agreement by and between
Seller and any third party, including without limitation, any Affiliate of
Seller, pursuant to which Seller has purchased assets subsequently sold to Buyer
hereunder.

      "Purchase Confirmation" means the written confirmation of a Transaction
executed by Seller and Buyer substantially in the form of Exhibit IX.

      "Purchase Date" shall mean the date on which Purchased Assets are
transferred by Seller to Buyer or its designee (including Custodian).

      "Purchase Price" shall mean on each Purchase Date, the price at which
Purchased Assets are transferred by Seller to Buyer or its designee (including
Custodian), which shall equal the product of (i) the Advance Rate, (ii) the
Seller Purchase Percentage, and (iii) the outstanding principal balance of each
Eligible Asset as of the Cut-off Date.

      "Purchased Assets" shall mean the Mortgage Loans sold by Seller to Buyer
in a Transaction.

      "Purchased Items" has the meaning specified in Section 7.

      "Qualified Originator" means an originator of Mortgage Loans acceptable to
Buyer in its sole discretion.

      "Rate/Term Refinancing" shall mean a refinanced Mortgage Loan, the
proceeds of which are not in excess of the existing first mortgage loan on the
related Mortgaged Property and related closing costs, and were used exclusively
to satisfy the then existing first mortgage loan of the Mortgagor on the related
Mortgaged Property and to pay related closing costs.

      "Regulations T, U and X" shall mean Regulations T, U and X of the Board of
Governors of the Federal Reserve System (or any successor), as the same may be
modified and supplemented and in effect from time to time.

      "REO Property" shall mean real property acquired by Seller, including a
Mortgaged Property acquired through foreclosure of a Mortgage Loan or by deed in
lieu of such foreclosure.

      "Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA or a successor provision thereof, other than those events as to
which the thirty day notice period

                                       13
<PAGE>

is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section
2615 or one or more successor provision thereof.

      "Repurchase Date" shall mean the date on which Seller is to repurchase the
Purchased Assets from Buyer as specified in the related Purchase Confirmation
including any date determined by application of the provisions of Sections 3 or
13, but in no event later than the Termination Date.

      "Repurchase Documents" shall mean this Agreement, the Custodial Agreement,
the Account Agreement and each Purchase Confirmation.

      "Repurchase Obligations" shall have the meaning specified in Section 7(b).

      "Repurchase Price" means the price at which Purchased Assets are to be
transferred from Buyer or its designee to Seller upon termination of a
Transaction, which will be determined in each case as (A) the sum of the
Purchase Price and the Price Differential as of the date of such determination
less (B) all Mortgage Loan proceeds (without duplication), Periodic Advance
Repurchase Payments (but not including Late Payment Fees, if any) and Payments
Due (but not including Late Fees, if any) actually received by Buyer pursuant to
Sections 5(a) or 5(b), respectively.

      "Requirement of Law" shall mean as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.

      "Residential Dwelling" shall mean any one of the following: (i) a detached
single family dwelling, (ii) a two-to-four family dwelling, (iii) a unit in a
condominium project, or (iv) a detached single family dwelling in a planned unit
development. Mortgaged Properties that consist of the following property types
are not Residential Dwellings: (a) log homes, (b) earthen homes, (c) underground
homes, (d) mobile homes, (e) a manufactured housing unit, (f) a co-op unit, (g)
any dwelling situated on more than ten acres of property, and (h) any commercial
structure or commercial use.

      "Responsible Officer" shall mean, as to any Person, the chief executive
officer, the chief financial officer, the treasurer or the chief operating
officer of such Person.

      "Second Lien Mortgage Loan" shall mean an Eligible Asset (i) secured by a
lien on the Mortgaged Property which is subject to one prior lien on such
Mortgaged Property, and (ii) for which at the time of origination, the related
Mortgagor had a FICO score in the minimum amount of 600, except that the
Mortgagor for a Mortgage Loan guaranteed by the VA of FHA may have a FICO score
less than 600.

      "Security Agreement" shall mean with respect to any Mortgage Loan, any
contract, instrument or other document related to security for repayment thereof
(other than the related Mortgage and Mortgage Note), executed by the Mortgagor
and/or others in connection with such Mortgage Loan, including without
limitation, any security agreement, guaranty, title insurance

                                       14

<PAGE>

policy, hazard insurance policy, chattel mortgage, letter of credit or
certificate of deposit or other pledged accounts, and any other documents and
records relating to any of the foregoing.

      "Seller" shall mean individually and collectively Hanover Holdings and
Hanover Partners and their respective successors in interest.

      "Seller Purchase Percentage" shall mean the purchase price percentage
applied to the outstanding principal balance of a Mortgage Loan to calculate the
price Seller paid for each Mortgage Loan under the applicable Purchase
Agreement, but in no event for purposes of this Agreement shall the Seller
Purchase Percentage for any Mortgage Loan exceed one hundred two percent (102%)
even though Seller's actual purchase price percentage might have exceeded that
amount.

      "Seller-Related Obligations" shall mean any obligations of Seller
hereunder and under any other arrangement between Seller or an Affiliate of
Seller on the one hand and Buyer or an Affiliate of Buyer on the other hand.

      "Servicer" shall have the meaning specified in Section 24.

      "Servicer Account" shall mean any account established by a Servicer in
connection with the servicing of the Mortgage Loans.

      "Servicer Notice" shall mean the notice from Seller to Servicer,
substantially in the form of Exhibit VIII attached hereto.

      "Servicing Agreement" has the meaning specified in Section 24, or any
Servicing Agreement entered into between Seller and any Servicer with respect to
the Mortgage Loans.

      "Servicing File" means with respect to each Mortgage Loan, the file
retained by Seller consisting of originals of all documents in the Mortgage File
which are not delivered to a Custodian and copies of all documents in the
Mortgage File set forth in Section 2 of the Custodial Agreement.

      "Servicing Records" has the meaning specified in Section 24.

      "Settlement" shall mean the delivery to Buyer of a Borrowing Base
Certificate by Seller and the payment by Seller to Buyer of the Unused Fee, the
Advance Periodic Repurchase Payment and the Payment Due as set forth in Section
5, in addition to any Repurchase Price.

      "Settlement Date" shall mean (a) the Payment Date next following a Payment
Calculation Date or (b) in the event Buyer calls for a Settlement other than on
Payment Date, then the fifth (5th) Business Day next following the Seller's
receipt of Buyer's written request for a Settlement.

      "Subsidiary" shall mean, with respect to any Person, any corporation,
partnership, limited liability company or other entity of which at least a
majority of the securities or other ownership interests having by the terms
thereof ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions of such corporation, partnership,
limited

                                       15

<PAGE>

liability company or other entity (irrespective of whether or not at the time
securities or other ownership interests of any other class or classes of such
corporation, partnership or other entity shall have or might have voting power
by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person.

      "Tangible Net Worth" shall mean, with respect to any Person, as of a
particular date,

      (a)   all amounts which would be included under capital on a balance sheet
of such Person at such date, determined in accordance with GAAP, less

      (b)   (i) amounts owing to such Person from Affiliates, or from officers,
employees, partners, members, directors, shareholders or other Persons similarly
affiliated with such Person or their respective Affiliates, (ii) Intangible
Assets of such Person, and (iii) the value of REO Property and Foreclosed Loans.

      "Termination Date" shall mean the 364th day next following the date of
this Agreement, but if such day is not a Business Day, then the immediately
preceding Business Day.

      "Test Period" shall have the meaning specified in Section 11(m).

      "Total Indebtedness" shall mean with respect to any Person, for any
period, the aggregate consolidated Indebtedness of such Person during such
period maintained in accordance with GAAP.

      "Transaction" has the meaning specified in Section 1.

      "Transaction Request" means a request from Seller to Buyer, in the form
attached as Exhibit I hereto, to enter into a Transaction.

      "True Sale Certification" shall mean a true sale certification in the form
of Exhibit VI attached hereto.

      "Trust Receipt" shall mean a trust receipt issued by Custodian to Buyer
confirming Custodian's possession of certain Mortgage Files which are held by
Custodian for the benefit of Buyer or the registered holder of such trust
receipt as set forth in the Custodial Agreement.

      "Underwriting Guidelines" shall mean the underwriting guidelines delivered
by Seller to Buyer on or prior to the Effective Date and attached hereto as
Exhibit II, as the same may be modified or supplemented from time to time
thereafter in accordance with Section 11(h).

      "Uniform Commercial Code" or "UCC" shall mean the Uniform Commercial Code
as in effect on the date hereof in the Commonwealth of Pennsylvania; provided
that if by reason of mandatory provisions of law, the perfection, the effect of
perfection or non-perfection and the priority of the security interest in any
Purchased Items is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than Pennsylvania, "Uniform Commercial Code" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the

                                       16

<PAGE>

provisions hereof relating to such perfection, effect of perfection or
non-perfection and the priority.

      "Unused Fee" has the meaning specified in Section 5.

      "Unused Fee Rate" shall mean five (5) basis points (0.05%) per annum.

      "Warehouse Lender's Release" means the written release from any Person
having a Lien on the Purchased Items and which shall be substantially in form
set forth as Exhibit XII.

3.    INITIATION; TERMINATION

      (a) Conditions Precedent to each Transaction. Buyer's obligation to enter
into each Transaction, in Buyer's sole discretion, is subject, among other
requirements, to the satisfaction, immediately prior to or concurrently with the
making of such Transaction, of the condition precedent that Buyer shall have
received from Seller any fees and expenses payable hereunder, if any, and all of
the following documents, each of which shall be satisfactory in form and
substance to Buyer and its counsel:

          (1)  The following documents, as well as certain other documents,
delivered to Buyer:

              (A) Master Repurchase Agreement. This Master Repurchase Agreement
    duly completed and executed by the parties thereto. In addition, Seller and
    Buyer shall have taken such other action as Buyer shall require in order to
    perfect the security interests created pursuant to this Agreement, including
    filing of UCC financing statements in form and substance satisfactory to
    Buyer;

              (B) Custodial Agreement. The Custodial Agreement duly executed and
    delivered by each party thereto. In addition, Seller shall have taken such
    other action as Buyer shall have determined is necessary in its good faith
    judgment in order to transfer the Purchased Assets pursuant to this
    Agreement;

              (C) Reserved.

              (D) Reserved.

              (E) Reserved.

              (F) Consents and Waivers. Any and all consents and waivers
    required under the Existing Financing Facilities, if any; and

              (G) UCC Financing Statements. UCC Financing Statements in form and
    substance satisfactory to Buyer naming Seller as Debtor and Buyer as Secured
    Party and describing the Purchased Items.

                                       17

<PAGE>

          (2)  Opinions of Counsel. An opinion or opinions of outside counsel to
each of Hanover Holdings and Hanover Partners, substantially in the form of
Exhibit III, in form and substance satisfactory to Buyer in its sole discretion;

          (3)  Organizational Documents. A good standing certificate and
certified copies of charter and by-laws (or equivalent documents) of Seller and
of all corporate or other authority for Seller with respect to the execution,
delivery and performance of the Repurchase Documents and each other document to
be delivered by Seller, from time to time in connection herewith (and Buyer may
conclusively rely on such certificate until it receives notice in writing from
Seller, as applicable, to the contrary);

          (4)  Underwriting Guidelines. A copy of Seller's current Underwriting
Guidelines, and any material changes to the Underwriting Guidelines made since
the Underwriting Guidelines were last delivered to Buyer;

          (5)  Servicing Agreement(s). Any Servicing Agreement, certified as a
true, correct and complete copy of the original, with a letter attached thereto
acknowledged by the applicable Servicer directing Servicer to remit all payments
on account of the Mortgage Loans directly to Buyer upon receipt of notice from
Buyer of the occurrence of an Event of Default;

          (6)  Reserved.

          (7)  Reserved;

          (8)  Reserved:

          (9)  Reserved; and

          (10) Other Documents. Such other documents as Buyer may reasonably
request, in form and substance reasonably acceptable to Buyer.

     (b) Additional Conditions Precedent to each Transaction. Buyer's obligation
to enter into each Transaction, in Buyer's sole discretion, is subject, among
other requirements, to the satisfaction of the following further conditions
precedent, both immediately prior to entering into such Transaction and also
after giving effect to the consummation thereof and the intended use of the
proceeds of the sale:

          (1)  Seller shall have delivered a Transaction Request via Electronic
Transmission in accordance with the procedures set forth in Section 3(c).

          (2)  no Default or Event of Default shall have occurred and be
continuing under the Repurchase Documents;

          (3)  after giving effect to the requested Transaction, the Adjusted
Purchase Price of the Transactions outstanding shall not exceed 97% of the
Maximum Amount;

          (4)  both immediately prior to the requested Transaction and also
after giving effect thereto and to the intended use thereof, the representations
and warranties made by Seller in

                                       18

<PAGE>

Section 10, shall be true, correct and complete on and as of such Purchase Date
in all material respects with the same force and effect as if made on and as of
such date (or, if any such representation or warranty is expressly stated to
have been made as of a specific date, as of such specific date);

          (5)  after giving effect to the requested Transaction, the Adjusted
Purchase Price of the Transactions outstanding shall not exceed the Asset Value
of all the Purchased Assets subject to outstanding Transactions;

          (6)  subject to Buyer's right to perform one or more Due Diligence
Reviews pursuant to Section 26, Buyer shall have completed its due diligence
review of the Mortgage File for each Purchased Asset, and such other documents,
records, agreements, instruments, mortgaged properties or information relating
to such Purchased Asset as Buyer in its sole discretion deems appropriate to
review and such review shall be satisfactory to Buyer in its sole discretion;

          (7)  with respect to any Eligible Asset to be purchased hereunder on
the related Purchase Date which is not serviced by the Seller, Seller shall have
provided to Buyer a copy of the related Servicing Agreement, certified as a
true, correct and complete copy of the original, together with a Servicer
Notice, fully executed by Seller and the Servicer;

          (8)  Buyer shall have received all fees and expenses of counsel to
Buyer as contemplated by Section 14(b) and, to the extent Seller is required
hereunder to reimburse Buyer for such amounts, Buyer shall have received the
reasonable costs and expenses incurred by it in connection with the entering
into of any Transaction hereunder, including, without limitation, costs
associated with appraisal review and due diligence recording or other
administrative expenses necessary or incidental to the execution of any
Transaction hereunder, which amounts, at Buyer's option, may be withheld from
the sale proceeds of any Transaction hereunder;

          (9)  Buyer shall have approved all material exceptions to the
Underwriting Guidelines, such approval not to be unreasonably withheld;

          (10) to the extent there are any MERS Designated Mortgage Loans, Buyer
shall have received from Seller a copy of a fully executed Electronic Tracking
Agreement;

          (11) Buyer shall have received from Seller, with respect to MERS
Designated Mortgage Loans, a MERS Report reflecting Seller as Investor and no
Person named in the Interim Funder field for each such MERS Designated Mortgage
Loan;

          (12) none of the following shall have occurred and/or be continuing:

               (A) an event or events shall have occurred in the good faith
     determination of Buyer resulting in the effective absence of a "repo
     market" or comparable "lending market" for financing debt obligations
     secured by mortgage loans or securities or an event or events shall have
     occurred resulting in Buyer not being able to finance Purchased Assets
     through the "repo market" or "lending market" with traditional
     counterparties at rates which would have been reasonable prior to the
     occurrence of such event or events; or

                                       19

<PAGE>

               (B) an event or events shall have occurred resulting in the
     effective absence of a "securities market" for securities backed by
     mortgage loans or an event or events shall have occurred resulting in Buyer
     not being able to sell securities backed by mortgage loans at prices which
     would have been reasonable prior to such event or events; or

               (C) there shall have occurred a material adverse change in the
     financial condition of Buyer which affects (or can reasonably be expected
     to affect) materially and adversely the ability of Buyer to fund its
     obligations under this Agreement;

          (13) with respect to each Eligible Asset, Buyer shall have received
from Custodian on each Purchase Date a Trust Receipt, dated the Purchase Date,
duly completed and with exceptions acceptable to Buyer in its sole discretion in
respect of Eligible Assets to be purchased hereunder on such Business Day;

          (14) Buyer shall have received from Seller, a Warehouse Lender's
Release covering each Eligible Asset to be sold to Buyer; provided (a) all such
releases shall be in forms acceptable to Buyer; and (b) all Purchased Assets
shall be sold and transferred to Buyer with such releases as are necessary to
remove all Liens, and all other claims and encumbrances from the Purchased
Assets on the Purchase Date;

          (15) prior to the purchase of any Mortgage Loan acquired (by purchase
or otherwise) by Seller from any Affiliate of Seller, Buyer shall have received
a True Sale Certification;

          (16) the Repurchase Date for such Transaction is not later than the
Termination Date;

          (17) Buyer shall not have determined that the introduction of, or a
change in, any Requirement of Law or in the interpretation or administration of
any Requirement of Law applicable to Buyer has made it unlawful, and no
Governmental Authority shall have asserted that it is unlawful, for Buyer to
enter into Transactions;

          (18) Seller shall have delivered to Buyer a sufficient number of fully
executed and acknowledged Powers of Attorney as set forth in the Purchase
Confirmation;

          (19) Seller and Purchaser shall have duly executed a Purchase
Confirmation substantially in the form attached hereto as Exhibit IX.

     Each Transaction Request delivered by Seller hereunder shall constitute a
certification by Seller that all the conditions set forth in this Section 3(b)
(other than 18 and 19) have been satisfied (both as of the date of such notice
or request and as of the date of such purchase) and shall be deemed to be a
request for a Transaction.

     (c) This Agreement is not a commitment by Buyer to enter into Transactions
with Seller but rather sets forth the procedures to be used in connection with
periodic requests for Buyer to enter into Transactions with Seller. Seller
hereby acknowledges that Buyer is under no obligation to agree to enter into, or
to enter into, any Transaction pursuant to this Agreement. Seller shall request
a Transaction by delivering to Buyer via Electronic Transmission a request in

                                       20

<PAGE>

the form of Exhibit I attached hereto (a "Transaction Request"). Such
Transaction Request shall describe the Purchased Assets in a Mortgage Loan
Schedule and set forth (i) the Purchase Date, (ii) the Purchase Price, (iii) the
Repurchase Date, (iv) the Pricing Rate applicable to the Transaction, (v) the
Seller Purchase Percentage, (vi) Cut-off Date, (vii) the outstanding principal
balance of each Mortgage Loan as of the Cut-off Date, and (viii) additional
terms or conditions not inconsistent with this Agreement.

     With respect to any request for a Transaction, unless otherwise agreed in
writing, upon receipt of the Transaction Request, Buyer may, in its sole
discretion, agree to enter into that portion of the requested Transaction
representing a transfer of Eligible Assets and such agreement shall be evidenced
by a Purchase Confirmation to be executed by the Seller and the Buyer on the
Purchase Date.

     On each Purchase Date, Buyer shall forward to Seller a Purchase
Confirmation executed by Buyer and Seller by Electronic Transmission setting
forth with respect to each Transaction funded on such date, the Mortgage Loan
Schedule and (1) the Pricing Rate applicable to the Transaction, (2) the
Purchase Price for such Purchased Assets, (3) the Seller Purchase Percentage,
(4) the outstanding principal balance of the related Mortgage Loans as of the
Cut-off Date, (5) the Repurchase Date, (6) the Purchase Date, (7) the Cut-off
Date, (8) the minimum FICO score for any Mortgage Loan, (9) the initial number
of Powers of Attorney required by Buyer, (10) the maximum LTV and (11)
additional terms and conditions to the Transaction as the Buyer and Seller may
agree as of the Purchase Date.

     (d) Any Purchase Confirmation by Buyer shall be deemed to have been
received by Seller on the date actually received by Seller.

     (e) Each Purchase Confirmation, together with this Agreement, shall
constitute conclusive evidence of the terms agreed between Buyer and Seller with
respect to the Transaction to which the Purchase Confirmation relates, and
Seller's execution thereof shall constitute Seller's agreement to the terms of
such Purchase Confirmation. It is the intention of the parties that each
Purchase Confirmation shall not be separate from this Agreement but shall be
made a part of this Purchase Agreement.

     (f) Seller shall repurchase the Mortgages Loans in each Transaction on the
applicable Repurchase Date. On the Repurchase Date, termination of a Transaction
will be effected by transfer to Seller or its designee of the Purchased Assets
(and any Income in respect thereof received by Buyer not previously credited,
transferred to, or applied to the obligations of Seller pursuant to Section 5,
which amount shall be netted against the simultaneous receipt of the Repurchase
Price by Buyer). To the extent a net amount is owed to one party, the other
party shall pay such amount to such party. Seller is obligated to obtain the
Mortgage Files from Buyer or its designee (including Custodian) at Seller's
expense on the Repurchase Date. In addition, on demand of Buyer but not later
than the Repurchase Date Seller shall pay to Buyer any accrued and outstanding
fees of the Custodian.

     (g) Subject to the terms and conditions of this Agreement, during the term
of this Agreement Seller may sell to Buyer, repurchase from Buyer and resell to
Buyer Eligible Assets hereunder.

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<PAGE>

     (h) In no event shall a Transaction be entered into when any Default or
Event of Default has occurred and is continuing.

     (i) With respect to each Eligible Asset, Seller shall deliver to Buyer or
Buyer's designee the Mortgage File pertaining to each Eligible Asset to be
purchased by Buyer.

     (j) Reserved.

     (k) Reserved.

     (l) Seller may repurchase Purchased Assets without penalty or premium on
any date. The Repurchase Price payable for the repurchase of any such Purchased
Asset shall be reduced as provided in Section 5(d). If Seller intends to make
such a repurchase, Seller shall give three (3) Business Day's prior written
notice thereof to Buyer, designating the Purchased Assets to be repurchased. If
such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein, and, on receipt, such amount shall be
applied to the Repurchase Price for the designated Purchased Assets. The amount
of the original Purchase Price of the Purchased Assets thus repurchased shall be
available for subsequent Transactions subject to the terms of this Agreement.

     (m) Reserved.

     (n) Reserved.

4.   RESERVED.

5.   INCOME PAYMENTS; SETTLEMENTS

     (a) Buyer agrees that until a Default or an Event of Default has occurred
and Buyer otherwise directs as contemplated in each Servicer Notice, each
Servicer that is not Seller shall be permitted to continue to remit Income in
accordance with the respective Servicing Agreement, but only after payment to
Buyer on each Settlement Date of the Periodic Advance Repurchase Payment, the
Payment Due and the Unused fee. In the event that Seller is the Servicer of any
Mortgage Loans, Buyer agrees that until a Default or an Event of Default has
occurred, Seller shall be permitted to continue to remit or retain Income with
respect to such Mortgage Loans in accordance with its current existing business
practice, but only after payment to Buyer on each Settlement Date of the
Periodic Advance Repurchase Payment, the Payment Due and the Unused fee. Upon
notice of a Default or an Event of Default to Seller hereunder or to Servicer
pursuant to a Servicer Notice, Seller shall establish a deposit account (the
title of which shall indicate that the funds therein are being held in trust for
Buyer) (the "Collection Account") and shall enter into the Account Agreement,
and pursuant to the Servicer Notice, Servicer shall be required to, deposit
within one (1) Business Day of receipt of all Income in the Collection Account.
All funds in the Collection Account may be withdrawn by Buyer and applied as
determined by Buyer. Seller may not give any instruction with respect to the
Collection Account.

     (b) Notwithstanding that Buyer and Seller intend that the Transactions
hereunder be sales to Buyer of the Purchased Assets, Seller shall pay to Buyer a
sum of money on each Settlement Date equal to the product calculated daily of
(i) the Pricing Rate, (ii) the Advance Rate, (iii) the

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<PAGE>

Market Value, (iv) the Updated Principal Balance and (v) a fraction (A) whose
numerator is (1) the actual number of days from and including the first day of
the month preceding the prior Settlement Date through and including the last day
of the month immediately preceding the Settlement Date or (2) with respect to a
Transaction for which there was no prior Settlement Date, the actual number of
days, from and including the Purchase Date of such Transaction through and
including the last day of the month immediately preceding the Settlement Date
and (B) whose denominator is 360 (each such payment, a "Periodic Advance
Repurchase Payment"). If Seller fails to make all or part of the Periodic
Advance Repurchase Payment, the Unused Fee (as defined below) and/or the Payment
Due (as defined below) in immediately available funds by wire transfer by 5:00
p.m., New York City time, on the Settlement Date, Seller shall be obligated to
pay to Buyer (in addition to, and together with, the Periodic Advance Repurchase
Payment, the Unused Fee and/or Payment Due) interest on the unpaid amount of the
Periodic Advance Repurchase Payment, the Unused Fee and/or Payment Due at a rate
per annum equal to the Post-Default Rate (the "Late Payment Fee") until the
overdue Periodic Advance Repurchase Payment, Unused Fee and/or Payment Due, as
applicable, is received in full by Buyer.

     (c) Prior to issuance of notice of a Default or an Event of Default, Seller
shall hold in trust for Buyer (i) all principal payments and (ii) all other
Income up to an amount equal to the sum of (A) the Periodic Advance Repurchase
Payment, (B) the Payment Due and (C) the Unused Fee due on the next successive
Settlement Date for the benefit of, and in trust for, Buyer. All such monies
(and all Income received by Seller after notice of a Default or an Event of
Default) shall be held in trust for Buyer, shall constitute the property of
Buyer and shall not be commingled with other property of Seller, any affiliate
of Seller or the applicable Servicer. Funds deposited in the Collection Account
during any month shall be held therein, in trust for Buyer.

     (d) Buyer shall offset against the Repurchase Price of each such
Transaction all Income (and without duplication), all Periodic Advance
Repurchase Payments and all Payments Due actually received by Buyer for such
Transaction pursuant to Sections 5(a), 5(b), and 5(f) as of the applicable
Repurchase Date, respectively, excluding any Late Payment Fees paid pursuant to
Section 5(b); it being understood that the Late Payment Fees are properties of
Buyer that are not subject to offset against the Repurchase Price.

     (e) Notwithstanding anything contained herein to the contrary (other than
delinquencies permitted by this Agreement), and without otherwise limiting
Buyer's rights and remedies hereunder, should Seller receive two (2) successive
monthly Servicer reports indicating that any Mortgage Loan is at least thirty
(30) days past due, then Seller shall promptly notify the Buyer in writing and
Seller shall, on the next successive Payment Date, repurchase the Mortgage Loan
from Buyer at the Repurchase Price for such Mortgage Loan pursuant to a
repurchase agreement substantially in the form set forth as Exhibit X attached
hereto ("Delinquent Mortgage Loan Repurchase Agreement").

     (f) On each Payment Calculation Date during the term of this Agreement,
Seller shall deliver to Buyer an electronic schedule substantially in the form
of Exhibit XIII attached hereto (the "Borrowing Base Certificate") showing for
each Mortgage Loan comprising the Purchased Assets certain information including
the following: (i) an amount (the "Loan Purchase Price") equal to the product of
(A) the Advance Rate, (B) the Seller Purchase Percentage, and (C) the

                                       23

<PAGE>

outstanding principal balance as of the applicable Cut-off Date of the
Transaction in which Buyer purchased the Mortgage Loan (the "Initial Outstanding
Principal Balance"), and (ii) an amount (the "Market Price") equal to the
product of (A) the Advance Rate, (B) the Market Value, and (C) the Initial
Outstanding Principal Balance less all amounts of principal paid by or on behalf
of the Mortgager on such Mortgage Loan on or before the last day of the month
preceding the month of such Payment Calculation Date (the "Updated Principal
Balance"). The positive difference determined by subtracting the Market Price
from the Loan Purchase Price shall be the amount of money due from Seller to
Buyer with respect to such Mortgage Loan (the "Payment Due"). Seller shall pay
to Buyer the Payment Due for all Mortgage Loans by wire transfer by 5:00 p.m.
New York City time, on the Settlement Date. The negative difference determined
by subtracting the Market Price from the Loan Purchase Price shall be the
additional amount (the "Additional Availability") which may be a part of the
Asset Value and the Adjusted Purchase Price. Seller pay to Buyer by wire
transfer on or before 5:00 p.m., New York City time on the Settlement Date the
fee equal to the product of (x) the Unused Fee Rate and (y) the positive
difference determined by subtracting the Market Price from the Maximum Amount
(the "Unused Fee").

     (g) Buyer, in its sole discretion, may require that the parties conduct a
Settlement by requesting at any time before the Termination Date that a
Settlement occur. Seller shall deliver to Buyer a Borrowing Base Certificate on
the related Payment Calculation date and make all payments due on the Settlement
Date, or if earlier, the Termination Date.

6.   REQUIREMENTS OF LAW

     (a) If any Requirement of Law (other than with respect to any amendment
made to Buyer's certificate of incorporation and by-laws or other organizational
or governing documents) or any change in the interpretation or application
thereof or compliance by Buyer with any request or directive (whether or not
having the force of law) from any central bank or other Governmental Authority
made subsequent to the date hereof:

          (1) shall subject Buyer to any tax of any kind whatsoever with respect
to this Agreement or any Transaction (excluding net income taxes) or change the
basis of taxation of payments to Buyer in respect thereof;

          (2) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by, deposits
or other liabilities in or for the account of, advances, or other extensions of
credit by, or any other acquisition of funds by, any office of Buyer which is
not otherwise included in the determination of the Eurodollar Rate hereunder;

          (3) shall impose on Buyer any other condition;

and the result of any of the foregoing is a material increase to the cost to
Buyer of entering, continuing or maintaining any Transaction or to reduce any
amount due or owing hereunder in respect thereof, then, in any such case, Seller
shall promptly pay Buyer such additional amount or amounts as calculated by
Buyer in good faith as will compensate Buyer for such increased cost or reduced
amount receivable.

                                       24

<PAGE>

     (b) If Buyer shall have determined that the adoption of or any change in
any Requirement of Law (other than with respect to any amendment made to Buyer's
certificate of incorporation and by-laws or other organizational or governing
documents) regarding capital adequacy or in the interpretation or application
thereof or compliance by Buyer or any corporation controlling Buyer with any
request or directive regarding capital adequacy (whether or not having the force
of law) from any Governmental Authority made subsequent to the date hereof shall
have the effect of reducing the rate of return on Buyer's or such corporation's
capital as a consequence of its obligations hereunder to a level below that
which Buyer or such corporation could have achieved but for such adoption,
change or compliance (taking into consideration Buyer's or such corporation's
policies with respect to capital adequacy) by a material amount, then from time
to time, Seller shall promptly pay to Buyer such additional amount or amounts as
will compensate Buyer for such reduction.

     (c) Any payments made by Seller to Buyer shall be free and clear of, and
without deduction or withholding for, any taxes; provided, however, that if
Seller shall be required by law to deduct or withhold any taxes from any sums
payable to Buyer, then Seller shall (A) make such deductions or withholdings and
pay such amounts to the relevant authority in accordance with applicable law,
(B) pay to Buyer the sum that would have been payable had such deduction or
withholding not been made, and (C) at the time the Price Differential is paid,
pay to Buyer all additional amounts as specified by Buyer to preserve the
after-tax yield Buyer would have been received had such tax not been imposed.

     (d) If Buyer becomes entitled to claim any additional amounts pursuant to
this Section, it shall promptly notify Seller of the event by reason of which it
has become so entitled. A certificate as to any additional amounts payable
pursuant to this Section 6 submitted by Buyer to Seller shall be conclusive in
the absence of manifest error. Buyer shall not claim any additional amounts
under this Section 6 from Seller unless Buyer is making such claim with respect
to all borrowers or counterparties of Buyer who have provisions comparable to
this Section 6 in their agreements with Buyer.

7.   SECURITY INTEREST

     (a) Each of the following items or types of property, whether now owned or
hereafter acquired, now existing or hereafter created and wherever located, is
hereinafter referred to as the "Purchased Items": all Mortgage Loans, all rights
under each Purchase Agreement (but not the obligations thereunder), all Mortgage
Files, including without limitation all promissory notes, all Servicing Records
relating to the Mortgage Loans, all Servicing Agreements relating to the
Mortgage Loans and any other collateral pledged hereunder or otherwise relating
to such Mortgage Loans, together with all files, documents, instruments,
surveys, certificates, correspondence, appraisals, computer programs, computer
storage media, accounting records and other books and records relating thereto,
all mortgage guaranties and insurance (issued by governmental agencies or
otherwise) and any mortgage insurance certificate or other document evidencing
such mortgage guaranties or insurance relating to any Mortgage Loan, all
servicing fees to which such Seller is entitled and servicing and other rights
relating to the Mortgage Loans, all Servicer Accounts established pursuant to
any Servicing Agreement and all amounts on deposit therein, from time to time,
all Purchase Agreements or other agreements or contracts relating to,
constituting, or otherwise governing, any or all of the foregoing to the extent
they

                                       25

<PAGE>

relate to the Purchased Assets including the right to receive principal and
interest payments with respect to the Purchased Assets and the right to enforce
such payments, the Collection Account and all monies from time to time on
deposit in the Collection Account, all "general intangibles", "accounts",
"chattel paper", "deposit accounts" and "investment property" as defined in the
Uniform Commercial Code as in effect from time to time relating to or
constituting any and all of the foregoing, and any and all replacements,
substitutions, distributions on or proceeds of any and all of the foregoing.

     (b) Buyer and Seller intend that the Transactions hereunder be sales to
Buyer of the Purchased Assets and not loans from Buyer to Seller secured by the
Purchased Assets. However, in order to preserve Buyer's rights under this
Agreement in the event that a court or other forum recharacterizes the
Transactions hereunder as loans and as security for the performance by Seller of
all of Seller's obligations to Buyer hereunder and the Transactions entered into
hereunder ("Repurchase Obligations") and the Seller-Related Obligations, Seller
hereby assigns, pledges and grants a security interest in all of its right,
title and interest in, to and under the Purchased Items and the Purchased Assets
to Buyer to secure the Repurchase Obligations and the Seller-Related
Obligations, including without limitation the repayment of all amounts owing to
Buyer hereunder. The assignment, pledge and grant of security interest contained
herein shall be, and Seller hereby represents and warrants to Buyer that it is,
a first priority perfected security interest. Seller agrees to mark its computer
records and tapes to evidence the interests granted to Buyer hereunder. All
Purchased Items shall secure the payment of all obligations of Seller now or
hereafter existing under this Agreement, including, without limitation, Seller's
obligation to repurchase Purchased Assets, or if such obligation is so
recharacterized as a loan, to repay such loan, for the Repurchase Price and to
pay any and all other amounts owing to Buyer hereunder.

     (c) Pursuant to the Custodial Agreement, Custodian shall hold the Mortgage
Files as exclusive bailee and agent for Buyer pursuant to the terms of the
Custodial Agreement and shall deliver to Buyer Trust Receipts each to the effect
that Custodian has reviewed such Mortgage Files in the manner and to the extent
required by the Custodial Agreement and identifying any deficiencies in such
Mortgage Files as so reviewed.

8.   PAYMENT, TRANSFER AND CUSTODY

     (a) Unless otherwise mutually agreed in writing, all transfers of funds to
be made by Seller hereunder shall be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to Buyer at the following
account maintained by Buyer: Bank: Sovereign Bank; ABA Number: 231372691; A/C
Number: 9608191500; A/C Name: Sovereign Bank; Ref: Hanover Capital Repo, not
later than 4:00 p.m., New York City time, on the date on which such payment
shall become due (and each such payment made after such time shall be deemed to
have been made on the next succeeding Business Day). Seller acknowledges that it
has no rights of withdrawal from the foregoing account.

     (b) On the Purchase Date for each Transaction, ownership of the Purchased
Assets shall be transferred to Buyer or its designee (including Custodian)
against the simultaneous transfer of the Purchase Price not later than 4:00
p.m., New York City time, simultaneously with the delivery to Custodian of the
Purchased Assets relating to each Transaction. Seller hereby sells, transfers,
conveys and assigns to Buyer or its designee (including Custodian) without
recourse,

                                       26

<PAGE>

but subject to the terms of this Agreement, all the right, title and interest of
Seller in and to the Purchased Assets together with all right, title and
interest in and to the proceeds of any related Purchased Items. Upon Buyer's
request, the parties shall cause each MERS Designated Loan to be noted by MERS
to be held for Buyer's benefit.

     (c) In connection with such sale, transfer, conveyance and assignment,
Seller shall deliver or cause to be delivered and released to Buyer or its
designee (including Custodian) (i) the MERS number for each MERS Designated
Loan, (ii) the Mortgage Files, (iii) the Mortgage Loan Schedule and (iv) the
Electronic Tracking Agreement.

     (d) Any Mortgage Files not delivered to Buyer or its designee (including
Custodian) are and shall be held in trust by Seller or its designee for the
benefit of Buyer as the owner thereof. Seller or its designee shall maintain a
copy of the Mortgage File and the originals of the Mortgage File not delivered
to Buyer or its designee (including Custodian). The possession of the Mortgage
File by Seller or its designee is at the will of Buyer for the sole purpose of
servicing the related Purchased Asset, and such retention and possession by
Seller or its designee is in a custodial capacity only. Each Mortgage File
retained or held by Seller or its designee shall be segregated on Seller's books
and records from the other assets of Seller or its designee and the books and
records of Seller or its designee shall be marked appropriately to reflect
clearly the sale of the related Purchased Asset to Buyer. Seller or its designee
shall release its custody of the Mortgage File only in accordance with written
instructions from Buyer, unless such release is required as incidental to the
servicing of the Purchased Assets or is in connection with a repurchase of any
Purchased Asset by Seller.

9.   HYPOTHECATION OR PLEDGE OF PURCHASED ASSETS

     Title to all Purchased Assets and Purchased Items shall pass to Buyer and
Buyer shall have free and unrestricted use of all Purchased Assets and Purchased
Items. Nothing in this Agreement shall preclude Buyer from engaging in
repurchase transactions with the Purchased Assets and Purchased Items or
otherwise pledging, repledging, transferring, hypothecating, or rehypothecating
the Purchased Assets and Purchased Items, all on terms that Buyer may determine
in its sole discretion; provided, that no such transaction shall relieve Buyer
of its obligations to transfer Purchased Assets to Seller pursuant to Section 3.
Nothing contained in this Agreement shall obligate Buyer to segregate any
Purchased Assets and Purchased Items delivered to Buyer by Seller.

10.  SELLER REPRESENTATIONS

     Each Seller represents and warrants to Buyer that as of the Purchase Date
for the purchase of any Purchased Assets by Buyer from Seller and as of the date
of this Agreement and any Transaction hereunder and at all times while the
Repurchase Documents and any Transaction hereunder is in full force and effect:

     (a) Acting as Principal. Seller will engage in such Transactions as
principal;

     (b) Solvency. Neither the Repurchase Documents nor any Transaction
thereunder are entered into in contemplation of insolvency or with intent to
hinder, delay or defraud any of

                                       27

<PAGE>

Seller's creditors. The transfer of the Mortgage Loans subject hereto and the
obligation to repurchase such Mortgage Loans is not undertaken with the intent
to hinder, delay or defraud any of Sellers creditors. Seller is not insolvent
within the meaning of 11 U.S.C. Section 101(32) or any successor provision
thereof and the transfer and sale of the Mortgage Loans pursuant hereto and the
obligation to repurchase such Mortgage Loan (i) will not cause Seller to become
insolvent, (ii) will not result in Seller being inadequately capitalized for its
operations and liabilities, and (iii) will not result in debts that would be
beyond Seller's ability to pay as the same mature. Seller received reasonably
equivalent value in exchange for the transfer and sale of the Purchased Assets
and Purchased Items subject hereto;

     (c) No Broker. Seller has not dealt with any broker, investment banker,
agent, or other person, except for Buyer, who may be entitled to any commission
or compensation in connection with the sale of Purchased Assets pursuant to this
Agreement;

     (d) Ability to Perform. Seller does not believe, nor does it have any
reason or cause to believe, that either Seller cannot perform each and every
covenant contained in the Repurchase Documents applicable to it to which it is a
party;

     (e) No Defaults. No Default or Event of Default has occurred and is
continuing hereunder;

     (f) Legal Name; Existence: Organizational Identification Number. Hanover
Holdings' exact legal name is, and for the immediately preceding four months has
been Hanover Capital Mortgage Holdings, Inc. Hanover Holdings (i) is, and since
its formation has been, a business corporation duly organized, validly existing
and in good standing under the laws of the State of Maryland and is not
organized under any other jurisdiction; (ii) has all requisite corporate or
other power, and has all governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now being or
as proposed to be conducted, except where the lack of such licenses,
authorizations, consents and approvals would not be reasonably likely to have a
Material Adverse Effect; and (iii) is qualified to do business and is in good
standing in all other jurisdictions in which the nature of the business
conducted by it makes such qualification necessary, except where failure so to
qualify could not be reasonably likely (either individually or in the aggregate)
to have a Material Adverse Effect. Hanover Holdings' organizational
identification number assigned by the State of Maryland is 9200114824. Hanover
Partners' exact legal name is, and for the immediate preceding four months has
been Hanover Capital Partners, Ltd. Hanover Partners (i) is, and since its
formation has been, a business corporation duly organized, validly existing and
in good standing under the laws of the State of New York and is not organized
under any other jurisdiction; (ii) has all requisite corporate or other power,
and has all governmental licenses, authorizations, consents and approvals
necessary to own its assets and carry on its business as now being or as
proposed to be conducted, except where the lack of such licenses,
authorizations, consents and approvals would not be reasonably likely to have a
Material Adverse Effect; and (iii) is qualified to do business and is in good
standing in all other jurisdictions in which the nature of the business
conducted by it makes such qualification necessary, except where failure so to
qualify could not be reasonably likely (either individually or in the aggregate)
to have a Material Adverse Effect. Hanover Partners' organizational
identification number assigned by the State of New York is 9100358172.

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<PAGE>

     (g) Financial Condition. Seller has heretofore furnished to Buyer a copy of
(a) the quarterly management financial statement (10Q) of Hanover Holdings and
its consolidated Subsidiaries for the most recent period, accompanied by a
certificate of a Responsible Officer of Seller, which certificate states that
said consolidated financial statements fairly present in all material respects
the consolidated financial condition and results of operations of Hanover
Holdings and its consolidated Subsidiaries in accordance with GAAP, consistently
applied, as at the end of, and for, such period (subject to normal year-end
adjustments); and (b) the consolidated balance sheets of Hanover Holdings and
its consolidated Subsidiaries and the related consolidated statements of income
and retained earnings and of cash flows for Hanover Holdings and Hanover
Holdings' consolidated Subsidiaries for the last fiscal year (Form 10K), setting
forth in each case in comparative form the figures for the previous year,
accompanied by an opinion thereon of independent certified public accountants of
recognized national standing, which opinion is not be qualified as to scope of
audit or going concern and states that said consolidated financial statements
fairly present the consolidated financial condition and results of operations of
Hanover Holdings and its consolidated Subsidiaries as at the end of, and for,
such fiscal year in accordance with GAAP, and a certificate of such accountants
stating that, in making the examination necessary for their opinion, they
obtained no knowledge, except as specifically stated, of any Default or Event of
Default. Since December 31, 2004, there has been no material adverse change in
the consolidated business, operations or financial condition of Hanover Holdings
and Hanover Holdings' consolidated Subsidiaries taken as a whole from that set
forth in said financial statements.

     (h) Litigation. There are no actions, suits, arbitrations, investigations
(including, without limitation, any of the foregoing which are pending or
threatened) or other legal or arbitrable proceedings affecting either Seller, or
any of their respective Subsidiaries or affecting any of the Property of any of
them before any Governmental Authority which (i) questions or challenges the
validity or enforceability of the Repurchase Documents or any action to be taken
in connection with the transactions contemplated hereby, (ii) makes a claim or
claims in an aggregate amount greater than $1,000,000, or (iii) individually or
in the aggregate, if adversely determined, could reasonably be likely to have a
Material Adverse Effect.

     (i) No Breach. Neither (a) the execution and delivery of the Repurchase
Documents nor (b) the consummation of the transactions therein contemplated to
be entered into by either Seller in compliance with the terms and provisions
thereof will (i) conflict with or result in a breach of the organizational
documents of Seller, or (ii) conflict with or result in a breach of any
applicable law, rule or regulation, or any order, writ, injunction or decree of
any Governmental Authority which conflict or breach would have a Material
Adverse Effect, or (iii) conflict with or result in a breach of any Servicing
Agreement or other material agreement or instrument to which either Seller or
any of their respective Subsidiaries is a party or by which any of them or any
of their Property is bound or to which any of them is subject, or constitute a
default under any such material agreement or instrument or result in the
creation or imposition of any Lien (except for the Liens created pursuant to the
Repurchase Documents) upon any Property of either Seller or any of their
respective Subsidiaries pursuant to the terms of any such agreement or
instrument.

     (j) Action. Each Seller has all necessary corporate or other power,
authority and legal right to execute, deliver and perform its obligations under
each of the Repurchase Documents, to which it is a party; the execution,
delivery and performance by it of each of the Repurchase

                                       29

<PAGE>

Documents to which it is a party has been duly authorized by all necessary
corporate or other action on its part; and each Repurchase Document to which it
is a party has been duly and validly executed and delivered by it, and
constitutes a legal, valid and binding obligation of it enforceable against it
in accordance with its terms.

     (k) Approvals. No authorizations, approvals or consents of, and no filings
or registrations with, any Governmental Authority or any securities exchange are
necessary for the execution, delivery or performance by either Seller of the
Repurchase Documents to which it is a party or for the legality, validity or
enforceability thereof, except for filings and recordings in respect of the
Liens created pursuant to the Repurchase Documents or any such authorizations,
approvals or consents of, or filings or registrations with, any Governmental
Authority or any securities exchange have been previously obtained, given or
made.

     (l) Margin Regulations. Neither any Transaction hereunder, nor the use of
the proceeds thereof, will violate or be inconsistent with the provisions of
Regulation T, U or X.

     (m) Taxes. Each Seller and its respective Subsidiaries have filed all
Federal income tax returns and all other material tax returns that are required
to be filed by them and have paid all taxes due pursuant to such returns or
pursuant to any assessment received by it or any of their respective
Subsidiaries, except for any such taxes as are being appropriately contested in
good faith by appropriate proceedings diligently conducted and with respect to
which adequate reserves have been provided. The charges, accruals and reserves
on the books of either Seller and their respective Subsidiaries in respect of
taxes and other governmental charges are, in the opinion of Seller, adequate.

     (n) Investment Company Act. Neither Hanover Holdings, nor Hanover Partners
nor any of their respective Subsidiaries is an "investment company", or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.

     (o) Purchased Assets.

          (1) Seller has not assigned, pledged, or otherwise conveyed or
encumbered any Mortgage Loan to any other Person, except the Buyer hereunder,
and immediately prior to the sale of such Mortgage Loan to Buyer, Seller was the
sole legal and beneficial owner of such Mortgage Loan and had good and
marketable title thereto, free and clear of all Liens, in each case except for
Liens to be released simultaneously with the sale to Buyer hereunder. No
Mortgage Loan sold to Buyer hereunder was acquired (by purchase or otherwise) by
Seller from an Affiliate of Seller unless a True Sale Certification has been
delivered to Buyer and in any event unless such transaction (1) is not otherwise
expressly prohibited under this Agreement, (2) was upon fair and reasonable
terms no less favorable to Seller than it would obtain in a comparable arm's
length transaction with a Person which is not an Affiliate and (3) was a sale
that would not be recharacterized as a financing in the event of a bankruptcy,
insolvency or other similar proceeding.

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<PAGE>

          (2) The provisions of this Agreement are effective to create in favor
of Buyer a valid and fully perfected first priority security interest in all
right, title and interest of Seller in, to and under the Purchased Items.

          (3) Upon receipt by Custodian of each Mortgage Note, endorsed in blank
by a duly authorized officer of Seller, Buyer shall have a valid and fully
perfected first priority security interest in the applicable Mortgage Note and
in such Seller's interest in the related Mortgaged Property.

          (4) Upon the filing of financing statements on Form UCC-1 naming Buyer
as "Secured Party", each Seller as "Debtor" and describing the Purchased Items,
in the jurisdictions and recording offices listed on Exhibit IV attached hereto,
the security interests granted hereunder in the Purchased Items will constitute
valid and fully perfected security interests under the Uniform Commercial Code
in all right, title and interest of Seller in, to and under such Purchased
Items, which can be perfected by filing under the Uniform Commercial Code.

          (5) Buyer shall have a valid and fully perfected first priority
security interest in the investment property and all deposit accounts comprising
Purchased Items.

          (6) With respect to each Purchased Asset, each of the representations
and warranties on Schedule 1 is true and correct.

     (p) Location of Books and Records. The location where Seller keeps its
books and records, including all computer tapes and records related to the
Purchased Items is its chief executive office.

     (q) Reserved.

     (r) Servicing Agreements. Seller has delivered to Buyer all Servicing
Agreements with respect to the Purchased Mortgage Loans and no default or event
of default exists thereunder.

     (s) Existing Financing Facilities. All credit facilities, repurchase
facilities or substantially similar facilities of Seller which are presently in
effect are listed under the definition of "Existing Financing Facilities." No
defaults or events of default exist under any of the Existing Financing
Facilities. Seller shall give Buyer prior notification if any amendment to any
financial covenant (with respect to Seller) in any Existing Financing Facility
increases the obligations or requirements of Seller or either Guarantor
thereunder, and such changed financial covenant shall, with no further action of
Seller or Buyer, automatically become a part hereof and be incorporated herein
upon the effectiveness of such amendment in the other Existing Financing
Facility.

     (t) True and Complete Disclosure. The information, reports, financial
statements, exhibits and schedules furnished in writing by or on behalf of each
Seller to Buyer in connection with the negotiation, preparation or delivery of
this Agreement and the other Repurchase Documents or included herein or therein
or delivered pursuant hereto or thereto (other than with respect to the Mortgage
Loans), when taken as a whole, do not contain any untrue statement of material
fact or omit to state any material fact necessary to make the statements herein
or therein, in light of the circumstances under which they were made, not
misleading. All written

                                       31

<PAGE>

information furnished after the date hereof by or on behalf of each Seller to
Buyer in connection with this Agreement and the other Repurchase Documents and
the transactions contemplated hereby (other than with respect to the Mortgage
Loans) and thereby will be true, complete and accurate in every material
respect, or (in the case of projections) based on reasonable estimates, on the
date as of which such information is stated or certified. There is no fact known
to a Responsible Officer of Seller, after due inquiry, that could reasonably be
expected to have a Material Adverse Effect that has not been disclosed herein,
in the other Repurchase Documents or in a report, financial statement, exhibit,
schedule, disclosure letter or other writing furnished to Buyer for use in
connection with the transactions contemplated hereby or thereby.

     (u) ERISA. Each Plan to which either Seller or any of their respective
Subsidiaries make direct contributions, and, to the knowledge of Seller, each
other Plan and each Multiemployer Plan, is in compliance in all material
respects with, and has been administered in all material respects in compliance
with, the applicable provisions of ERISA, the Code and any other Federal or
State law. No event or condition has occurred and is continuing as to which
either Seller would be under an obligation to furnish a report to Buyer under
Section 11 (a)(4).

     (v) No Reliance. Each Seller has made its own independent decisions to
enter into the Repurchase Documents and each Transaction and as to whether such
Transaction is appropriate and proper for it based upon its own judgment and
upon advice from such advisors (including without limitation, legal counsel and
accountants) as it has deemed necessary. Neither Seller is relying upon any
advice from Buyer as to any aspect of the Transactions, including without
limitation, the legal, accounting or tax treatment of such Transactions.

     (w) Compliance with Anti-Money Laundering Laws. Seller and, to the best of
Seller's knowledge, each originator of a Mortgage Loan have complied with all
applicable anti-money laundering laws and regulations, including without
limitation the USA Patriot Act of 2001 (collectively, the "Anti-Money Laundering
Laws"); Seller has established an adequate anti-money laundering compliance
program as required by the Anti-Money Laundering Laws, has conducted the
requisite due diligence in connection with the origination of each Mortgage Loan
for purposes of the Anti-Money Laundering Laws, including with respect to the
legitimacy of the applicable Mortgagor and the origin of the assets used by the
said Mortgagor to purchase the property in question, and maintains, and will
maintain, sufficient information to identify the applicable Mortgagor for
purposes of the Anti-Money Laundering Laws.

     (x) Other Security Agreements. Seller has not become bound under Section
9-203(d) of the UCC by a Security Agreement previously entered into by another
Person.

     (y) Reserved.

     (z) Reserved.

11.  COVENANTS OF EACH SELLER

     On and as of the date of this Agreement and each Purchase Date and until
this Agreement is no longer in force with respect to any Transaction, each
Seller covenants that:

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<PAGE>

      (a) Financial Statements. Seller shall deliver to Buyer:

            (1) as soon as available and in any event within the time frame for
filing with the Securities and Exchange Commission, the quarterly management
financial statement (Form 10Q) of Hanover Holdings and its consolidated
Subsidiaries as at the end of such period, accompanied by a certificate of a
Responsible Officer of Seller, which certificate shall state that said
consolidated financial statements fairly present in all material respects the
consolidated financial condition and results of operations of Hanover Holdings
and its consolidated Subsidiaries in accordance with GAAP, consistently applied,
as at the end of, and for, such period (subject to normal year-end adjustments);

            (2) as soon as available and in any event within the time frame for
filing with the Securities and Exchange Commission, beginning with the fiscal
year ending December 31, 2004, the annual consolidated financial statement of
Hanover Holdings and its consolidated Subsidiaries as at the end of such fiscal
year and the related consolidated statements of income and retained earnings and
of cash flows for Hanover Holdings and its consolidated Subsidiaries for such
year (Form 10K), setting forth in each case in comparative form the figures for
the previous year, accompanied by an opinion thereon of independent certified
public accountants of recognized national standing, which opinion shall not be
qualified as to scope of audit or going concern and shall state that said
consolidated financial statements fairly present the consolidated financial
condition and results of operations of Hanover Holdings and its consolidated
Subsidiaries as at the end of, and for, such fiscal year in accordance with
GAAP;

            (3) from time to time such other information regarding the financial
condition, operations, or business of either Seller as Buyer may reasonably
request; and

            (4) as soon as reasonably possible, and in any event within thirty
(30) days after a Responsible Officer of Seller knows, or with respect to any
Plan or Multiemployer Plan to which either Seller or any of their respective
Subsidiaries makes direct contributions, has reason to believe, that any of the
events or conditions specified below with respect to any Plan or Multiemployer
Plan has occurred or exists, a statement signed by a senior financial officer of
Seller setting forth details respecting such event or condition and the action,
if any, that Seller or its ERISA Affiliate proposes to take with respect thereto
(and a copy of any report or notice required to be filed with or given to PBGC
by either Seller or an ERISA Affiliate with respect to such event or condition):

            (A) any reportable event, as defined in Section 4043(c) of ERISA or
      any successor provision thereof and the regulations issued thereunder,
      with respect to a Plan, as to which PBGC has not by regulation waived the
      requirement of Section 4043(a) of ERISA that it be notified within thirty
      (30) days of the occurrence of such event (provided that a failure to meet
      the minimum funding standard of Section 412 of the Code or Section 302 of
      ERISA or any successor provision thereof, including without limitation the
      failure to make on or before its due date a required installment under
      Section 412(m) of the Code or Section 302(e) of ERISA or any successor
      provision thereof, shall be a reportable event regardless of the issuance
      of any waivers in accordance with Section 412(d) of the Code or any
      successor provision thereof); and any

                                       33
<PAGE>

      request for a waiver under Section 412(d) of the Code or any successor
      provision thereof for any Plan;

            (B) the distribution under Section 404l(c) of ERISA or any successor
      provision thereof of a notice of intent to terminate any Plan or any
      action taken by Seller or an ERISA Affiliate to terminate any Plan;

            (C) the institution by PBGC of proceedings under Section 4042 of
      ERISA or any successor provision thereof for the termination of, or the
      appointment of a trustee to administer, any Plan, or the receipt by Seller
      or any ERISA Affiliate of a notice from a Multiemployer Plan that such
      action has been taken by PBGC with respect to such Multiemployer Plan;

            (D) the complete or partial withdrawal from a Multiemployer Plan by
      Seller or any ERISA Affiliate that results in liability under Section 4201
      or 4204 of ERISA or any successor provision thereof (including the
      obligation to satisfy secondary liability as a result of a purchaser
      default) that would have a Material Adverse Effect or the receipt by
      Seller or any ERISA Affiliate of notice from a Multiemployer Plan that it
      is in reorganization or insolvency pursuant to Section 4241 or 4245 of
      ERISA or any successor provision thereof or that it intends to terminate
      or has terminated under Section 4041A of ERISA or any successor provision
      thereof;

            (E) the institution of a proceeding by a fiduciary of any
      Multiemployer Plan against Seller or any ERISA Affiliate to enforce
      Section 515 of ERISA or any successor provision thereof, which proceeding
      is not dismissed within thirty (30) days; and

            (F) the adoption of an amendment to any Plan that would result in
      the loss of tax-exempt status of the trust of which such Plan is a part if
      Seller or an ERISA Affiliate fails to provide timely security to such Plan
      in accordance with the provisions of Section 401(a)(29) of the Code or
      Section 307 of ERISA or any successor provision thereof.

      Seller will furnish to Buyer, at the time Seller furnishes each set of
financial statements pursuant to paragraphs (a)(1) and (a)(2) above, a
certificate of a Responsible Officer of each Seller to the effect that, to the
best of such Responsible Officer's knowledge, the Seller during such fiscal
period or year has observed or performed in all material respects all of its
covenants and other agreements, and satisfied every condition, contained in this
Agreement and the other Repurchase Documents to be observed, performed or
satisfied by it, and that such Responsible Officer has obtained no knowledge of
any Default or Event of Default except as specified in such certificate (and, if
any Default or Event of Default has occurred and is continuing, describing the
same in reasonable detail and describing the action Seller has taken or proposes
to take with respect thereto).

      (b) Litigation. Seller will promptly, and in any event within ten (10)
days after service of process on any of the following, give to Buyer notice of
all litigation, actions, suits, arbitrations, investigations (including, without
limitation, any of the foregoing which are threatened or pending) or other legal
or arbitrable proceedings affecting either Seller or any of their respective

                                       34
<PAGE>

Subsidiaries or affecting any of the Property of any of them before any
Governmental Authority that (i) questions or challenges the validity or
enforceability of any of the Repurchase Documents or any action to be taken in
connection with the transactions contemplated hereby, (ii) makes a claim or
claims in an aggregate amount greater than $1,000,000, or (iii) which,
individually or in the aggregate, if adversely determined, could be reasonably
likely to have a Material Adverse Effect.

      (c) Existence, etc. Each Seller will with respect to itself:

            (1) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises necessary for the operation
of its business (provided that nothing in this Section 11(c)(1) shall prohibit
any transaction expressly permitted under Section 11(d));

            (2) comply with the requirements of all applicable laws, rules,
regulations and orders of Governmental Authorities (including, without
limitation, all environmental laws) if failure to comply with such requirements
could be reasonably likely (either individually or in the aggregate) to have a
Material Adverse Effect;

            (3) keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied;

            (4) not (i) cause or permit any change to be made in its name,
organizational identification number, identity or corporate structure, each as
described in Section 10(f) or (ii) change its jurisdiction of organization,
unless it shall have provided Buyer thirty (30) days' prior written notice of
such change and shall have first taken all action required by Buyer for the
purpose of perfecting or protecting the lien and security interest of Buyer
established hereunder;

            (5) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any of its
Property prior to the date on which penalties attach thereto, except for any
such tax, assessment, charge or levy the payment of which is being contested in
good faith and by proper proceedings and against which adequate reserves are
being maintained; and

            (6) make available to Buyer and permit Buyer, subject to its
representatives entering to a confidentiality agreement with Seller with
provisions substantially similar to the provisions of Section 29, upon
reasonable notice (unless a Default shall have occurred and is continuing, in
which case, no prior notice shall be required), during normal business hours, to
examine, copy and make extracts from its books and records (subject to the
proviso at the end of this sentence), and to discuss its business and affairs
with its officers, all to the extent reasonably requested by Buyer; provided
Buyer shall not be allowed to (a) copy Seller's operating agreement or
subscription agreement, or (b) copy or review Seller's proprietary trading
systems. Any confidential information in the possession of Buyer pursuant to
this clause (6) shall, upon termination of this Agreement, be returned to Seller
or destroyed by Buyer other than certain information retained in the legal files
of Buyer pursuant to the determination of Buyer's general counsel.

                                       35
<PAGE>

      (d) Prohibition of Fundamental Changes. During the term of this Agreement,
none of Hanover Holdings or Hanover Partners, without the prior written consent
of Buyer, which consent shall not be unreasonably withheld, shall enter into any
transaction of merger or consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation, winding up or dissolution) or sell
all or substantially all of its assets; provided, that such Person may merge or
consolidate with (i) any wholly owned subsidiary, or (ii) any other Person if
such Person is the surviving corporation; and provided, further, that if after
giving effect thereto, no Default would exist hereunder.

      (e) Right to Examine each Seller's Records. The Buyer shall have the right
to examine and audit any and all of the books, records, or other information of
each Seller, whether held by the Seller or by another on its behalf, with
respect to or concerning this Agreement or the Purchased Assets, during business
hours or at such other times as may be reasonable under applicable
circumstances, upon reasonable advance notice, annually. The respective Seller
shall pay the Buyer's own expenses associated with such examination up to a
maximum of $4,000.00 excluding Travel expenses. The Buyer shall pay its
remaining expenses, if any.

      (f) Notices. Seller shall give notice to Buyer:

            (1) promptly upon receipt of notice or knowledge of the occurrence
of any Default or Event of Default;

            (2) with respect to any Purchased Asset, on the Payment Date next
following receipt of any principal prepayment (in full) of such Purchased Asset;

            (3) with respect to any Purchased Asset hereunder, promptly upon
receipt of notice or knowledge that the underlying Mortgaged Property has been
damaged by waste, fire, earthquake or earth movement, flood, tornado or other
casualty, or otherwise damaged so as to affect adversely the Asset Value of such
Purchased Asset;

            (4) promptly upon receipt of notice or knowledge of (i) any material
default related to any Purchased Item, (ii) any Lien or security interest on, or
claim asserted against, any Purchased Item (other than the Lien created hereby)
or (iii) any event or change in circumstances which could reasonably be expected
to have a Material Adverse Effect;

            (5) promptly upon any material change in the market value of any or
all of either Seller's assets which could reasonably be expected to have a
Material Adverse Effect;

            (6) reserved;

            (7) reserved; and

            (8) promptly upon the occurrence of any default or event of default
under the Existing Financing Facilities.

      Each notice pursuant to this Section shall be accompanied by a statement
of a Responsible Officer of Seller setting forth details of the occurrence
referred to therein and stating what action Seller has taken or proposes to take
with respect thereto.

                                       36
<PAGE>

      (g) Reports. On the Payment Calculation Date, Seller shall provide Buyer
with the Borrowing Base Certificate and such reports as Buyer may reasonably
request with respect to Seller or any Servicer's servicing portfolio or pending
originations of Mortgage Loans.

      (h) Underwriting Guidelines. All Eligible Assets will conform with the
Underwriting Guidelines. Seller shall not make any material change in the
Underwriting Guidelines without prior written consent of Buyer and shall review
the Underwriting Guidelines periodically to confirm that they are being complied
with in all material respects and are adequate to meet Seller's business
objectives. In the event Seller makes any amendment or modification to the
Underwriting Guidelines, Seller shall promptly deliver to Buyer a complete copy
of the amended or modified Underwriting Guidelines.

      (i) Transactions with Affiliates. In no event shall Seller transfer to
Buyer hereunder any Mortgage Loan acquired by Seller from an Affiliate of Seller
unless a True Sale Certification has been delivered to Buyer prior to such sale.

      (j) Limitation on Liens. Immediately upon notice of a Lien or any
circumstance which could give rise to a Lien on the Purchased Items, Seller will
defend the Purchased Items against, and will take such other action as is
necessary to remove, any Lien, security interest or claim on or to the Purchased
Items (other than any security interest created under this Agreement), and
Seller will defend the right, title and interest of Buyer in and to any of the
Purchased Items against the claims and demands of all persons whomsoever.

      (k) Reserved.

      (l) Reserved.

      (m) Maintenance of Profitability. Seller shall not permit, for any period
of six (6) consecutive calendar months (each such period, a "Test Period"), Net
Income for such Test Period determined on a monthly basis, before income taxes
for such Test Period and distributions made during such Test Period, to be less
than $1.00.

      (n) Maintenance of Cash or Cash Equivalents. Hanover Holdings shall
maintain at least $5,000,000 of Cash or Cash Equivalents at all times.

      (o) Reserved.

      (p) Servicer; Servicing Tape. Seller shall provide to Buyer via Electronic
Transmission, a remittance report on a monthly basis by no later than the
Settlement Date containing servicing information, including without limitation
those fields set forth on the Mortgage Loan Schedule or as otherwise reasonably
requested by Buyer from time to time, on a loan-by-loan basis and in the
aggregate, with respect to the Purchased Assets serviced hereunder by Seller or
any Servicer for the month preceding the month in which the Payment Calculation
Date occurs (such remittance report, an "Asset Tape"). Seller shall not cause
the Mortgage Loans to be serviced by any servicer other than a servicer
expressly approved by Buyer, which approval shall be deemed granted by Buyer
with respect to Seller with the execution of this Agreement. Further Seller
shall provide Buyer with such reports as Buyer may reasonably request with
respect to Seller or any Servicer's servicing portfolio or pending originations
of Mortgage Loans.

                                       37
<PAGE>

      (q) Required Filings. Seller shall promptly provide Buyer with notice of
regulatory investigations of Seller or any Subsidiary of Seller and copies of
(i) as applicable, all reports of regulatory audits of Seller or any Subsidiary
of Seller, and all responses thereto, (ii) as applicable, all filings required
to be made with the Securities and Exchange Commission or any filings with other
federal regulatory agencies which Seller is required to make in accordance with
the regulations of such regulatory agencies, and (iii) such other documents that
Buyer may reasonably request.

      (r) Remittance of Prepayments. Seller shall remit or cause to be remitted
to Buyer, with sufficient detail via Electronic Transmission to enable Buyer to
appropriately identify the Mortgage Loan to which any amount remitted applies,
all principal payments on any Purchased Asset that Seller or Servicer has
received no later than the Payment Date next following the date such prepayment
was received.

      (s) Reserved.

      (t) Reserved.

      (u) Borrowing Base Certificate. The information on the Borrowing Base
Certificate shall be certified by a Responsible Officer of each Seller, and
shall include a certification of compliance with the financial covenants set
forth in clauses (m) and (n) of this Section 11 as of the end of the immediately
preceding month demonstrating therein the calculations each Seller used to
determine its compliance.

      (v) Reserved,

      (w) Inconsistent Agreements. Seller will not, and will not permit any of
its Subsidiaries to, directly or indirectly, enter into any agreement containing
any provision which would be violated or breached by any Transaction hereunder
or by the performance by Seller of its obligations under any Repurchase
Document.

      (x) Escrow Imbalance. Following the occurrence of an Event of Default,
Seller will, no later than five (5) Business Days after learning (from any
source) of any material imbalance in any escrow account, fully and completely
correct and eliminate such imbalance including, without limitation, depositing
its own funds into such account to eliminate any overdrawal or deficit.

      (y) Reserved.

      (z) Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of an Event of Default or Default if such action is taken or
condition exists.

      (aa) Compliance with laws. Seller, on behalf of Buyer, shall cause to be
serviced and administered the Mortgage Loans and Mortgagor information and
records in accordance with the terms of the Mortgage Loan documents and the
requirements of applicable federal, state and

                                       38
<PAGE>

local laws, regulations and executive orders. Seller shall cause each Servicer,
at all times during the term of this Agreement to service and administer the
Mortgage Loans and Mortgagor information and records in compliance with Accepted
Servicing Practices and in accordance with the Gramm-Leach-Bliley Act (together
with regulations and guidelines promulgated thereunder), as amended from time to
time.

12. EVENTS OF DEFAULT

      If any of the following events (each, an "Event of Default") occur as to
either Seller, each Seller and Buyer shall have the rights set forth in Section
13, as applicable:

      (a) Seller shall default in the payment of any Repurchase Price due
(whether at stated maturity, upon acceleration or at mandatory or optional
prepayment); or

      (b) Seller shall default in the payment of any amount under Section 5 when
due, and such default shall have continued unremedied for one (1) Business Day;
or

      (c) Seller shall default in the payment of any other amount payable by it
hereunder or under any other Repurchase Document after notification by Buyer of
such default, and such default shall have continued unremedied for three (3)
Business Days; or

      (d) any representation, warranty or certification made or deemed made
herein, in a Purchase Confirmation, or in any other Repurchase Document by
Seller or any certificate furnished to Buyer pursuant to the provisions hereof
or thereof or any information with respect to the Mortgage Loans furnished in
writing by or on behalf of Seller shall prove to have been false or misleading
in any material respect as of the time made or furnished; provided, if (1) such
representation, warranty or certification, to Seller's actual knowledge, was not
false or misleading and (2) Buyer determines in its sole discretion that the
inaccuracy of such representation, warranty or certification does not have a
Material Adverse Effect, then Seller shall have three (3) Business Days to cure
such false or misleading representation, warranty or certification; or

      (e) Seller shall fail to comply with the requirements of Section 11(c)
through Section 11(f), Sections 11(g) through 11(r) or Section 11(y); or except
as otherwise set forth in Sections 12(a), 12(b), 12(c) or 12(d), Seller shall
fail to observe or perform any other covenant or agreement contained in this
Agreement or any other Repurchase Document and such failure to observe or
perform shall continue unremedied for a period of 20 days; or

      (f) a final judgment or judgments for the payment of money in excess of
$1,000,000 in the aggregate shall be rendered against Seller or any of its
Affiliates by one or more courts, administrative tribunals or other bodies
having jurisdiction and the same shall not be satisfied, discharged (or
provision shall not be made for such discharge) or bonded, or a stay of
execution thereof shall not be procured, within 30 days from the date of entry
thereof; or

      (g) an Act of Insolvency shall have occurred with respect to either Seller
or any of their respective Affiliates; or

                                       39
<PAGE>

      (h) any Repurchase Document shall for whatever reason be terminated or
cease to be in full force and effect, or the enforceability thereof shall be
contested by Seller; or

      (i) Seller shall grant, or suffer to exist, any Lien on any Purchased Item
(except any Lien in favor of Buyer); or the Purchased Items shall not have been
sold to Buyer free and clear of any Liens in favor of any Person other than
Buyer, or the Liens contemplated hereby shall cease or fail to be first priority
perfected Liens on any Purchased Items in favor of Buyer or shall be Liens in
favor of any Person other than Buyer; or

      (j) Seller or any of Seller's Affiliates shall be in default under (i) any
Indebtedness of Seller or of such Affiliate which default (1) involves the
failure to pay a matured obligation in excess of $500,000 after the expiration
of any applicable grace periods, or (2) permits the acceleration of the maturity
of obligations by any other party to or beneficiary with respect to such
Indebtedness, (ii) any other contract to which Seller or such Affiliate is a
party which default (1) involves the failure to pay a matured obligation in
excess of $500,000 after the expiration of any applicable grace periods, or (2)
permits the acceleration of the maturity of obligations by any other party to or
beneficiary of such contract, or (iii) any Seller-Related Obligation; or

      (k) any change that has a Material Adverse Effect, in each case as
determined by Buyer in its sole discretion exercised in good faith, or any other
condition shall exist which, in Buyer's sole discretion exercised in good faith,
constitutes a material impairment of Seller's ability to perform its obligations
under this Agreement or any other Repurchase Document; or

      (1) (i) any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(ii) any material "accumulated funding deficiency" (as defined in Section 302 of
ERISA), whether or not waived, shall exist with respect to any Plan or any Lien
in favor of the PBGC or a Plan shall arise on the assets of Seller or any
Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect
to, or proceedings shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any Plan, which Reportable
Event or commencement of proceedings or appointment of a trustee is, in the
reasonable opinion of Buyer, likely to result in the termination of such Plan
for purposes of Title IV of ERISA, (iv) any Plan shall terminate for purposes of
Title IV of ERISA, (v) Seller or any Commonly Controlled Entity shall, or in the
reasonable opinion of Buyer is likely to, incur any liability in connection with
a withdrawal from, or the insolvency or reorganization of, a Multiemployer Plan
or (vi) any other event or condition shall occur or exist with respect to a
Plan; and in each case in clauses (i) through (vi) above, such event or
condition, together with all other such events or conditions, if any, could
reasonably be expected to have a Material Adverse Effect; or

      (m) Reserved; or

      (n) upon any event of default or event which, with the passage of time or
expiration of any grace periods, would constitute an event of material default
under any Existing Financing Facility; or

                                       40
<PAGE>

      (o) if Buyer has purchased MERS Designated Mortgage Loans, the Electronic
Tracking Agreement has for whatever reason been terminated or ceases to be in
full force and effect and Buyer (or the Custodian as its designee) shall not
have received an assignment of mortgage with respect to each MERS Designated
Mortgage Loan, in blank, in recordable form, but unrecorded; or

      (p) Reserved.

13. REMEDIES

      (a) If an Event of Default occurs, the following rights and remedies are
available to Buyer; provided, that an Event of Default shall be deemed to be
continuing unless expressly waived by Buyer in writing.

            (1) At the option of Buyer, exercised by written notice to Seller
(which option shall be deemed to have been exercised, even if no notice is
given, immediately upon the occurrence of an Act of Insolvency of Seller), the
Repurchase Date for each Transaction hereunder, if it has not already occurred,
shall be deemed immediately to occur. Buyer shall (except upon the occurrence of
an Act of Insolvency of Seller) give notice to Seller of the exercise of such
option as promptly as practicable.

            (2) If Buyer exercises or is deemed to have exercised the option
referred to in subsection (a)(l) of this Section 13,

            (A) (i) Seller's obligations in such Transactions to repurchase all
      Purchased Assets, at the Repurchase Price therefor on the Repurchase Date,
      and to pay all other amounts owed by Seller hereunder, shall thereupon
      become immediately due and payable, (ii) all Income paid after such
      exercise or deemed exercise shall be retained by Buyer and applied to the
      aggregate unpaid Repurchase Prices and any other amounts owed by Seller
      hereunder, and (iii) Seller shall immediately deliver to Buyer any
      Purchased Assets subject to such Transactions then in Seller's possession
      or control;

            (B) to the extent permitted by applicable law, the Repurchase Price
      with respect to each such Transaction shall be increased by the aggregate
      amount obtained by daily application of, on a 360 day per year basis for
      the actual number of days during the period from and including the date of
      the exercise or deemed exercise of such option to but excluding the date
      of payment of the Repurchase Price, (x) the Post-Default Rate to (y) the
      Repurchase Price for such Transaction as of the Repurchase Date (decreased
      as of any day by (i) any amounts actually in the possession of Buyer
      pursuant to clause (C) of this subsection, (ii) any proceeds from the sale
      of Purchased Assets applied to the Repurchase Price pursuant to subsection
      (a)(4) of this Section 13, and (iii) any amounts applied to the Repurchase
      Price pursuant to subsection (a)(4) of this Section 13); and

            (C) all Income actually received by Buyer pursuant to Section 5
      (excluding any Late Payment Fees paid pursuant to Section 5(b)) shall be
      applied to the aggregate unpaid Repurchase Price owed by Seller.

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<PAGE>

            (3) Upon the occurrence of one or more Events of Default, Buyer
shall have the right to obtain physical possession of the Servicing Records
(subject to the provisions of the Custodial Agreement) and all other files of
Seller relating to the Purchased Assets and all documents relating to the
Purchased Assets which are then or may thereafter come in to the possession of
Seller or any third party acting for Seller and Seller shall deliver to Buyer
such assignments as Buyer shall request and Buyer shall have the right to
appoint any Person to act as Servicer for the Purchased Assets. Buyer shall be
entitled to specific performance of all agreements of Seller contained in the
Repurchase Documents.

            (4) At any time on the Business Day following notice to Seller
(which notice may be the notice given under subsection (a)(l) of this Section
13), in the event Seller has not repurchased all Purchased Assets, Buyer may (A)
immediately sell, without demand or further notice of any kind, at a public or
private sale and at such price or prices as Buyer may deem satisfactory any or
all Purchased Assets subject to such Transactions hereunder and apply the
proceeds thereof to the aggregate unpaid Repurchase Price and any other amounts
owing by Seller hereunder or (B) in its sole discretion elect, in lieu of
selling all or a portion of such Purchased Assets, to give Seller credit for
such Purchased Assets in an amount equal to the Market Value of the Purchased
Assets against the aggregate unpaid Repurchase Price and any other amounts owing
by Seller hereunder. The proceeds of any disposition of Purchased Assets shall
be applied first to the costs and expenses incurred by Buyer in connection with
Seller's default; second to costs of related covering and/or related hedging
transactions; third to the Repurchase Price; and fourth to any other outstanding
obligation of Seller to Buyer or its Affiliates.

            (5) Seller agrees that Buyer may obtain an injunction or an order of
specific performance to compel Seller to fulfill its obligations as set forth in
Section 24, if Seller fails or refuses to perform its obligations as set forth
therein.

            (6) Seller shall be liable to Buyer, payable as and when incurred by
Buyer, for (A) the amount of all actual out-of-pocket expenses, including
reasonable legal or other expenses incurred by Buyer in connection with or as a
consequence of an Event of Default, and (B) all direct costs incurred in
connection with hedging or covering transactions.

            (7) Buyer shall have, in addition to its rights hereunder, any
rights otherwise available to it under any other agreement or applicable law.

      (b) Buyer may exercise one or more of the remedies available to Buyer
immediately upon the occurrence of an Event of Default and, except to the extent
provided in subsections (a)(l) and (4) of this Section 13, at any time
thereafter without notice to Seller. All rights and remedies arising under this
Agreement as amended from time to time hereunder are cumulative and not
exclusive of any other rights or remedies which Buyer may have.

      (c) Buyer may enforce its rights and remedies hereunder without prior
judicial process or hearing, and Seller hereby expressly waives any defenses
Seller might otherwise have to require Buyer to enforce its rights by judicial
process. Seller also waives any defense (other than a defense of payment or
performance) Seller might otherwise have arising from the use of non- judicial
process, enforcement and sale of all or any portion of the Purchased Items, or
from any

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<PAGE>

other election of remedies. Seller recognizes that non-judicial remedies are
consistent with the usages of the trade, are responsive to commercial necessity
and are the result of a bargain at arm's-length.

      (d) To the extent permitted by applicable law, Seller shall be liable to
Buyer for interest on any amounts owing by Seller hereunder, from the date
Seller becomes liable for such amounts hereunder until such amounts are (i) paid
in full by Seller or (ii) satisfied in full by the exercise of Buyer's rights
hereunder. Interest on any sum payable by Seller to Buyer under this paragraph
13(d) shall be at a rate equal to the Post-Default Rate.

14. INDEMNIFICATION AND EXPENSES

      (a) Seller agrees to hold Buyer and its Affiliates and their present and
former respective officers, directors, employees, agents, advisors and other
representatives (each, an "Indemnified Party") harmless from and indemnify any
Indemnified Party against all liabilities, losses, damages, judgments, costs and
expenses of any kind which may be imposed on, incurred by or asserted against
such Indemnified Party (including counsel's fees and disbursements)
(collectively, "Costs"), relating to or arising out of this Agreement, any other
Repurchase Document or any transaction contemplated hereby or thereby, or any
amendment, supplement or modification of, or any waiver or consent under or in
respect of, this Agreement, any other Repurchase Document or any transaction
contemplated hereby or thereby, that, in each case, results from anything other
than the Indemnified Party's gross negligence or willful misconduct. Without
limiting the generality of the foregoing, Seller agrees to hold any Indemnified
Party harmless from and indemnify such Indemnified Party against all Costs with
respect to all Mortgage Loans relating to or arising out of any violation or
alleged violation of any environmental law, rule or regulation or any consumer
credit laws, including without limitation the federal Truth in Lending Act
and/or the federal Real Estate Settlement Procedures Act, or any rule,
regulation or order of any regulator, including the Office of Thrift
Supervision, that, in each case, results from anything other than the
Indemnified Party's gross negligence or willful misconduct. In any suit,
proceeding or action brought by an Indemnified Party in connection with any
Mortgage Loan for any sum owing thereunder, or to enforce any provisions of any
Mortgage Loan, Seller will save, indemnify and hold such Indemnified Party
harmless from and against all expense, loss or damage suffered by reason of any
defense, set-off, counterclaim, recoupment or reduction or liability whatsoever
of the account debtor or obligor thereunder, arising out of a breach by Seller
of any obligation thereunder or arising out of any other agreement, indebtedness
or liability at any time owing to or in favor of such account debtor or obligor
or its successors from Seller. Seller also agrees to reimburse an Indemnified
Party as and when billed by such Indemnified Party for all the Indemnified
Party's costs and expenses incurred in connection with the enforcement or the
preservation of Buyer's rights under this Agreement, any other Repurchase
Document or any transaction contemplated hereby or thereby, including without
limitation the fees and disbursements of its counsel.

      Seller agrees to hold Buyer, and its Affiliates and their officers,
directors, employees, agents and advisors harmless with respect to all claims,
expenses, fees, liabilities, losses, damages, judgments, costs (including any
reasonable attorneys fees) and expenses of any kind which may be incurred or
suffered by, Seller, arising out of, or alleged to arise out of, any action
taken by Buyer as required by this Agreement.

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<PAGE>

      (b) Seller agrees to pay as and when billed by Buyer all of the
out-of-pocket costs and expenses (including legal fees) incurred by Buyer in
connection with the development, preparation and execution of, and any
amendment, supplement or modification to, this Agreement, any other Repurchase
Document or any other documents prepared in connection herewith or therewith and
any reasonable costs and expenses incurred by Buyer in connection with its
annual review upon any renewal of the terms of this Agreement, any other
Repurchase Document or any other documents prepared in connection herewith or
therewith. Seller agrees to pay as and when billed by Buyer all of the
out-of-pocket costs and expenses incurred in connection with the consummation
and administration of the transactions contemplated hereby and thereby including
without limitation all fees, disbursements and expenses of the Custodian and of
counsel to Buyer which amount shall be deducted from the Purchase Price paid for
any Transaction hereunder. Subject to the limitations set forth in Section 26,
Seller agrees to pay Buyer all the out of pocket due diligence, inspection,
appraisals, testing and review costs and expenses incurred by Buyer with respect
to Mortgage Loans submitted by Seller for purchase under this Agreement,
including, but not limited to, those out of pocket costs and expenses incurred
by Buyer pursuant to Sections 24 and 26.

15. RECORDING OF COMMUNICATIONS

      Buyer and Seller shall have the right (but not the obligation) from time
to time to make or cause to be made tape recordings of communications between
its employees and those of the other party with respect to Transactions upon
notice to the other party of such recording. Buyer and Seller consent to the
admissibility of such tape recordings in any court, arbitration, or other
proceedings. The parties agree that a duly authenticated transcript of such a
tape recording shall be deemed to be a writing conclusively evidencing the
parties' agreement.

16. SINGLE AGREEMENT

      Buyer and Seller acknowledge that, and have entered hereinto and will
enter into each Transaction hereunder in consideration of and in reliance upon
the fact that, all Transactions hereunder constitute a single business and
contractual relationship and that each has been entered into in consideration of
the other Transactions. Accordingly, each of Buyer and Seller agrees (i) to
perform all of its obligations in respect of each Transaction hereunder, and
that a default in the performance of any such obligations shall constitute a
default by it in respect of all Transactions hereunder, (ii) that each of them
shall be entitled to set off claims and apply property held by them in respect
of any Transaction against obligations owing to them in respect of any other
Transaction hereunder; (iii) that payments, deliveries, and other transfers made
by either of them in respect of any Transaction shall be deemed to have been
made in consideration of payments, deliveries, and other transfers in respect of
any other Transactions hereunder, and the obligations to make any such payments,
deliveries, and other transfers may be applied against each other and netted and
(iv) to promptly provide notice to the other after any such set off or
application.

17. NOTICES AND OTHER COMMUNICATIONS

      Except as otherwise expressly permitted by this Agreement, all notices,
requests and other communications provided for herein and under the other
Repurchase Documents (including

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<PAGE>

without limitation any modifications of, or waivers, requests or consents under,
this Agreement) shall be given or made in writing (including without limitation
by Electronic Transmission, telex or telecopy) delivered to the intended
recipient at the "Address for Notices" specified below its name on the signature
pages hereof or thereof) and any such notice, request and other communication
address to Buyer shall also be sent to David A. Silverman, Chief Legal Officer,
Sovereign Bank, 1130 Berkshire Boulevard, Wyomissing, Pennsylvania 19610,
Telephone (610) 208-6120, Telecopier No. (610) 736-1452; or, as to any party, at
such other address as shall be designated by such party in a written notice to
each other party. Except as otherwise provided in this Agreement and except for
notices given under Section 3 (which shall be effective only on receipt), all
such communications shall be deemed to have been duly given when transmitted by
telecopy or personally delivered or, in the case of a mailed notice or notice
sent via Electronic Transmission, upon receipt.

18. ENTIRE AGREEMENT; SEVERABILITY

      This Agreement together with the other Repurchase Documents constitute the
entire understanding between Buyer and Seller with respect to the subject matter
it covers and shall supersede any existing agreements between the parties
containing general terms and conditions for repurchase transactions involving
Purchased Assets. By acceptance of this Agreement, Buyer and Seller acknowledge
that they have not made, and are not relying upon, any statements,
representations, promises or undertakings not contained in this Agreement. Each
provision and agreement herein shall be treated as separate and independent from
any other provision or agreement herein and shall be enforceable notwithstanding
the unenforceability of any such other provision or agreement.

19. NON-ASSIGNABILITY; AMENDMENTS

      The rights and obligations of the parties under this Agreement and under
any Transaction shall not be assigned by either party without the prior written
consent of the other party, and any attempted assignment without such consent
shall be null and void. Notwithstanding the foregoing, Buyer may assign its
rights and remedies under this Agreement and under any Transaction without the
consent of Seller (a) to any Affiliate, and (b) in connection with any pledge,
rehypothecation or other right permitted pursuant to Section 9. Subject to the
foregoing, this Agreement and any Transactions shall be binding upon and shall
inure to the benefit of the parties and their respective successors and assigns.
Nothing in this Agreement express or implied, shall give to any person, other
than the parties to this Agreement and their successors hereunder, any benefit
of any legal or equitable right, power, remedy or claim under this Agreement.
This Agreement may not be amended or modified unless such amendment or
modification is in writing and signed by Buyer and Seller.

20. TERMINABILITY

      This Agreement may be terminated by Seller upon giving 30 days written
notice to Buyer, except that this Agreement shall, notwithstanding such notice,
remain applicable to any Transaction then outstanding. In addition, upon (i) any
of the events specified in Section 3(b)(12) or (ii) any default by either Seller
under any of the Existing Financing Facilities, at the option of Buyer,
exercised by written notice to Seller, Buyer may terminate this

                                       45
<PAGE>

Agreement and the Repurchase Date for each Transaction hereunder, if it has not
already occurred, (x) if such termination was caused due to events described in
clause (i) above, shall occur 30 days following such written notice, and (y)
with respect to events described in clause (ii) above, shall be deemed
immediately to occur. Each representation and warranty made or deemed to be made
by entering into a Transaction, herein or pursuant hereto shall survive the
making of such representation and warranty, and Buyer shall not be deemed to
have waived any Default that may arise because any such representation or
warranty shall have proved to be false or misleading, notwithstanding that Buyer
may have had notice or knowledge or reason to believe that such representation
or warranty was false or misleading at the time the Transaction was made.
Notwithstanding any such termination or the occurrence of an Event of Default,
all of the representations and warranties and covenants hereunder shall continue
and survive. The obligations of Seller under Section 14 shall survive the
termination of this Agreement.

21. GOVERNING LAW

      THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO THE CONFLICTS OF LAW
PRINCIPLES.

22. SUBMISSION TO JURISDICTION; WAIVERS

      EACH OF BUYER AND SELLER HEREBY IRREVOCABLY AND UNCONDITIONALLY:

            (A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
      PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER REPURCHASE DOCUMENTS,
      OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO
      THE EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF
      PENNSYLVANIA, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR THE
      EASTERN DISTRICT OF PENNSYLVANIA, AND APPELLATE COURTS FROM ANY THEREOF;

            (B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
      SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT
      IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING
      IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
      INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;

            (C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING
      MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL
      (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL, POSTAGE PREPAID, TO ITS
      ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF
      WHICH BUYER SHALL HAVE BEEN NOTIFIED;

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<PAGE>

            (D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
      SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
      RIGHT TO SUE IN ANY OTHER JURISDICTION; AND

            (E) WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
      AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
      RELATING TO THIS AGREEMENT, ANY OTHER REPURCHASE DOCUMENT OR THE
      TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

23. NO WAIVERS, ETC.

      No failure on the part of Buyer to exercise and no delay in exercising,
and no course of dealing with respect to, any right, power or privilege under
any Repurchase Document shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, power or privilege under any Repurchase
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law. An Event of Default shall be
deemed to be continuing unless expressly waived by Buyer in writing.

24. SERVICING

      (a) Seller covenants to maintain or cause the servicing of the Mortgage
Loans to be maintained in conformity with accepted and prudent servicing
practices in the industry for the same type of mortgage loans as the Mortgage
Loans, in a manner at least equal in quality to the servicing Seller provides
for mortgage loans which it owns and according to Accepted Servicing Practices.
In the event that the preceding language is interpreted as constituting one or
more servicing contracts, each such servicing contract shall terminate
automatically upon the earliest of (i) an Event of Default, (ii) the date on
which this Agreement terminates or (iii) the transfer of servicing approved by
Buyer.

      (b) If a Mortgage Loan is serviced by Seller, Seller agrees that Buyer is
the owner of all servicing records, including but not limited to any and all
servicing agreements, files, documents, records, data bases, computer tapes,
copies of computer tapes, proof of insurance coverage, insurance policies,
appraisals, other closing documentation, payment history records, and any other
records relating to or evidencing the servicing of such Mortgage Loan (the
"Servicing Records"). Seller covenants to safeguard such Servicing Records and
to deliver them promptly to Buyer or its designee (including Custodian) at
Buyer's request.

      (c) If the Mortgage Loans are serviced by a person other than Seller (such
third party, a "Third-Party Servicer" and together with Seller, as Servicer,
each a "Servicer"), Seller (i) shall, in accordance with Section (3)(b)(7),
provide a copy of the servicing agreement to Buyer, which shall be in form and
substance acceptable to Buyer (the "Servicing Agreement"), and shall provide a
Servicer Notice to Buyer substantially in the form of Exhibit VIII hereto, fully
executed by Seller and Servicer; and (ii) hereby irrevocably assigns to Buyer
and Buyer's successors and assigns all right, title and interest of Seller in,
to and under, and the benefits of,

                                       47
<PAGE>

any Servicing Agreement with respect to the Mortgage Loans. Seller agrees that
no Person shall assume the servicing obligations with respect to the Mortgage
Loans as successor to the Servicer unless such successor is approved in writing
by Buyer prior to such assumption of servicing obligations.

      (d) If the Servicer of the Mortgage Loans is Seller, upon the occurrence
of an Event of Default, Buyer shall have the right to terminate the Seller as
Servicer of the Mortgage Loans and transfer servicing to Buyer's designated
successor Servicer, at no cost or expense to Buyer, at any time thereafter. If
the Servicer of the Mortgage Loans is not Seller, Buyer shall have the right, as
contemplated in the applicable Servicer Notice, upon the occurrence of an Event
of Default related to a default under the Servicing Agreement, to terminate any
applicable Servicing Agreement and transfer servicing to Buyer's designated
successor Servicer, at no cost or expense to Buyer, it being agreed that Seller
will pay any and all fees required to terminate such Servicing Agreement and to
effectuate the transfer of servicing to Buyer's designated successor Servicer,
as well as any servicing fees and expenses payable to such Third-Party Servicer
and successor Servicer.

      (e) After the Purchase Date, until the repurchase of any Mortgage Loan,
Seller will have no right to modify or alter the terms of such Mortgage Loan
other than in accordance with the terms of the Servicing Agreement and Seller
will have no obligation or right to repossess such Mortgage Loan or substitute
another Mortgage Loan.

      (f) In the event Seller or its Affiliate is servicing the Mortgage Loans,
Seller shall permit Buyer to inspect Seller's or its Affiliate's servicing
facilities, as the case may be, for the purpose of satisfying Buyer that Seller
or its Affiliate, as the case may be, has the ability to service the Mortgage
Loans as provided in this Agreement.

25. INTENT

      (a) The parties recognize that each Transaction is a "repurchase
agreement" as that term is defined in Section 101 of Title 11 of the United
States Code, as amended (except insofar as the type of Purchased Assets subject
to such Transaction or the term of such Transaction would render such definition
inapplicable), and a "securities contract" as that term is defined in Section
741 of Title 11 of the United States Code, as amended (except insofar as the
type of Purchased Assets subject to such Transaction would render such
definition inapplicable).

      (b) It is understood that either party's right to liquidate Purchased
Assets delivered to it in connection with Transactions hereunder or to exercise
any other remedies pursuant to Section 16 hereof is a contractual right to
liquidate such Transaction as described in Sections 555 and 559 of Title 11 of
the United States Code, as amended,

      (c) The parties agree and acknowledge that if a party hereto is an
"insured depository institution," as such term is defined in the Federal Deposit
Insurance Act, as amended ("FDIA"), then each Transaction hereunder is a
"qualified financial contract," as that term is defined in FDIA and any rules,
orders or policy statements thereunder (except insofar as the type of Purchased
Assets subject to such Transaction would render such definition inapplicable).

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<PAGE>

      (d) It is understood that this Agreement constitutes a "netting contract"
as defined in and subject to Title IV of the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") and each payment entitlement and
payment obligation under any Transaction hereunder shall constitute a "covered
contractual payment entitlement" or "covered contractual payment obligation",
respectively, as defined in and subject to FDICIA (except insofar as one or both
of the parties is not a "financial institution" as that term is defined in
FDICIA or regulations promulgated thereunder).

26. PERIODIC DUE DILIGENCE REVIEW

      Seller acknowledges that Buyer has the right to perform continuing due
diligence reviews with respect to the Mortgage Loans, for purposes of verifying
compliance with the representations, warranties and specifications made
hereunder, or otherwise, and Seller agrees that upon reasonable (but no less
than three (3) Business Days') prior notice unless an Event of Default shall
have occurred, in which case no notice is required, to Seller, Buyer or its
authorized representatives will be permitted during normal business hours to
examine, inspect, and make copies and extracts of, the Mortgage Files and any
and all documents, records, agreements, instruments or information relating to
such Mortgage Loans in the possession or under the control of Seller and/or
Custodian. Seller also shall make available to Buyer a knowledgeable financial
or accounting officer for the purpose of answering questions respecting the
Mortgage Files and the Mortgage Loans. Without limiting the generality of the
foregoing, Seller acknowledges that Buyer may purchase Mortgage Loans from
Seller based solely upon the information provided by Seller to Buyer in the
Mortgage Loan Schedule and the representations, warranties and covenants
contained herein, and that Buyer, at its option, has the right at any time to
conduct a partial or complete due diligence review on some or all of the
Mortgage Loans purchased in a Transaction, including without limitation ordering
new credit reports and new appraisals on the related Mortgaged Properties and
otherwise re-generating the information used to originate such Mortgage Loan.
Buyer may underwrite such Mortgage Loans itself or engage a mutually agreed upon
third party underwriter to perform such underwriting. Seller agrees to cooperate
with Buyer and any third party underwriter in connection with such underwriting,
including, but not limited to, providing Buyer and any third party underwriter
with access to any and all documents, records, agreements, instruments or
information relating to such Mortgage Loans in the possession, or under the
control, of Seller. Buyer shall pay all out-of-pocket costs and expenses
incurred by Buyer in connection with Buyer's activities pursuant to this Section
26 ("Due Diligence Costs"); provided that (i) in the event that a Default or an
Event of Default shall have occurred or (ii) in connection with Buyer's annual
review of Seller in connection herewith, Seller shall in each case reimburse
Buyer for all Due Diligence Costs for any and all reasonable out-of-pocket costs
and expenses incurred by Buyer in connection with Buyer's activities pursuant to
this Section 26.

27. RESERVED.

28. MISCELLANEOUS

      (a) This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute this Agreement by signing any such counterpart.

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<PAGE>

      (b) The captions and headings appearing herein are for included solely for
convenience of reference and are not intended to affect the interpretation of
any provision of this Agreement.

      (c) Seller hereby acknowledges that:

            (1) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Repurchase Documents;

            (2) Buyer has no fiduciary relationship to Seller; and

            (3) no joint venture exists between Buyer and Seller.

29. CONFIDENTIALITY

      (a) Buyer and Seller hereby acknowledge and agree that all information
regarding the terms set forth in any of the Repurchase Documents or the
Transactions contemplated thereby (the "Confidential Terms") shall be kept
confidential by each of Buyer and Seller and shall not be divulged to any party
(other than an Affiliate of Buyer or Seller) without the prior written consent
of such other party except to the extent that (i) it is necessary to do so in
working with legal counsel, auditors, taxing authorities or other governmental
agencies or regulatory bodies or in order to comply with any applicable federal
or state laws, (ii) any of the Confidential Terms are in the public domain other
than due to a breach of this covenant, (iii) in the event of a Default or an
Event of Default, Buyer determines such information to be necessary or desirable
to disclose in connection with the marketing and sales of the Purchased Assets
or otherwise to enforce or exercise Buyer's rights hereunder, provided such
information is not regarding Seller's proprietary trading systems or (iv) Buyer
determines it necessary to disclose such information to its counterparties or
agents in connection with Buyer's rights under Section 9. The provisions set
forth in this Section 29 shall survive the termination of this Agreement for a
period of one year following such termination.

      (b) Notwithstanding any of the foregoing or to the contrary, in connection
with Treasury Regulations section 1.6011-4T, section 301.6111-1T and section
301.6112-1T of the Internal Revenue Code of 1986, as amended, the parties hereby
agree that, from the commencement of discussions with respect to the
transactions described herein, each party (and each of its employees,
representatives, affiliates or agents) is permitted to disclose to any and all
persons, without limitation of any kind (other than limitations imposed by state
or federal securities laws), the structure and tax aspects of the transactions,
and all material of any kind (including opinions or other tax analyses) that are
provided to each party related to such structure and tax aspects. In this
regard, each party acknowledges and agrees that its disclosure of the structure
or tax aspects of the transactions is not limited in any way by an express or
implied understanding or agreement, oral or written (whether or not such
understanding or agreement is legally binding) except as is reasonably necessary
to comply with state and federal securities laws. Furthermore, each party
acknowledges and agrees that it does not know or have reason to know that its
use or disclosure of information relating to the structure or tax aspects of the
transactions is limited in any other manner (such as where the transactions are
claimed to be proprietary or exclusive) for the benefit of any other person
(other than as it may be limited by state or federal securities laws).

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<PAGE>

30. CONFLICTS

      In the event of any conflict between the terms of this Agreement, any
other Repurchase Document and any Confirmation, the documents shall control in
the following order of priority: first, the terms of the Confirmation shall
prevail, then the terms of this Agreement shall prevail, and then the terms of
the other Repurchase Documents shall prevail.

31. SET-OFF

      In addition to any rights and remedies of Buyer provided by this Agreement
and by law, Buyer shall have the right, without prior notice to Seller, any such
notice being expressly waived by Seller to the extent permitted by applicable
law, upon any amount becoming due and payable by Seller to Buyer hereunder or
otherwise (whether at the stated maturity, by acceleration or otherwise) to
set-off and appropriate and apply against such amount any and all monies and
other property of Seller, any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any and all other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, and in each case at any
time held or owing by Buyer or any Affiliate thereof to or for the credit or the
account of Seller. Buyer agrees promptly to notify Seller after any such set-off
and application made by Buyer; provided that the failure to give such notice
shall not affect the validity of such set-off and application.

32. SELLER'S LIABILITY

      The liability of Hanover Partners and Hanover Holdings under this
Agreement shall be joint and several.

                            [SIGNATURE PAGE FOLLOWS]

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<PAGE>

      IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date set forth above.

                                        BUYER:

                                        SOVEREIGN BANK

                                        By: /s/ Dean G. DiGiovanni
                                            __________________________________
                                            Name: Dean G. DiGiovanni
                                            Title: Vice President

                                        Address for Notices:

                                        Sovereign Bank
                                        1500 Market Street
                                        Concourse Level
                                        Philadelphia, PA 19102
                                        Dean G. DiGiovanni, V.P.
                                        Telecopier No.: (610)520-7007
                                        Telephone No.: (610)520-7043

                                        SELLER:

                                        HANOVER CAPITAL MORTGAGE HOLDINGS, INC.

                                        By: /s/ John A. Burchett
                                            __________________________________
                                            Name:  John A. Burchett
                                            Title: C.E.O.

                                        Address for Notices:
                                        379 Thornall Street
                                        Edison, NJ 08837
                                        Attn: Irma N. Tavares, C.O.O.
                                        Telecopier No.: (732)548-0286
                                        Telephone No: (732)548-0101
                                        E-mail: irma.tavares@hanovertrade.com

                                       52
<PAGE>

                       SELLER:

                       HANOVER CAPITAL PARTNERS, LTD.

                        By: /s/ Irma N. Tavares
                           -----------------------
                           Name: Irma N. Tavares
                           Title: Sr. Managing Director

                       Address for Notices:
                       379 Thornall Street
                       Edison, NJ 08837
                       Attn: Irma N. Tavares, C.O.O.
                       Telecopier No.: (732)548-0286
                       Telephone No: (732)548-0101
                       E-mail: irma.tavares@hanovertrade.com

                                       53
<PAGE>

                                   SCHEDULE 1
                REPRESENTATIONS AND WARRANTIES RE: MORTGAGE LOANS

      Each of Hanover Holdings and Hanover Partners hereby makes the following
representations and warranties to Buyer, with respect to each Mortgage Loan, as
of the Purchase Date for the purchase of any Purchased Assets by Buyer from
Seller and as of the date of this Agreement and any Transaction hereunder and at
all times while the Repurchase Documents and any Transaction hereunder is in
full force and effect. For purposes of this Schedule 1 and the representations
and warranties set forth herein, a breach of a representation or warranty shall
be deemed to have been cured with respect to a Mortgage Loan if and when Seller
has taken or caused to be taken action such that the event, circumstance or
condition that gave rise to such breach no longer adversely affects such
Mortgage Loan.

      1.    Mortgage Loans as Described. The information set forth in the
            Mortgage Loan Schedule is complete, true and correct;

      2.    Payments Current. Except as set forth otherwise in this Agreement,
            all payments required to be made up to the related Purchase Date for
            the Mortgage Loan under the terms of the Mortgage Note have been
            made and credited. Except as set forth otherwise in this Agreement,
            no payment required under the Mortgage Loan is delinquent nor has
            any payment under the Mortgage Loan been delinquent for 30 days or
            more except as set forth on the Mortgage Loan Schedule. Except as
            set forth otherwise in this Agreement, the first and second Monthly
            Payments shall be made, or shall have been made, with respect to the
            Mortgage Loan on its Due Date or within the grace period, all in
            accordance with the terms of the related Mortgage Note;

      3.    No Outstanding Charges. There are no defaults in complying with the
            terms of the Mortgage securing the Mortgage Loan, and all taxes,
            governmental assessments, insurance premiums, water, sewer and
            municipal charges, leasehold payments or ground rents which
            previously became due and owing have been paid, or an escrow of
            funds has been established in an amount sufficient to pay for every
            such item which remains unpaid and which has been assessed but is
            not yet due and payable. Except for (A) payments in the nature of
            escrow payments and (B) interest accruing from the date of the
            Mortgage Note or date of disbursement of the Mortgage proceeds,
            whichever is greater to the day which precedes by one month the Due
            Date of the first installment of principal and interest, including,
            without limitation, taxes and insurance payments, Seller has not
            advanced funds, or induced, solicited or knowingly received any
            advance of funds by a party other than the Mortgagor, directly or
            indirectly, for the payment of any amount required under the
            Mortgage Loan, except for interest accruing from the date of the
            Mortgage Note or date of disbursement of the Mortgage Loan proceeds,
            whichever is earlier, to the day which precedes by one month the Due
            Date of the first installment of principal and interest;

      4.    Original Terms Unmodified. The terms of the Mortgage Note and
            Mortgage have not been impaired, waived, altered or modified in any
            respect, except by a written instrument which has been recorded, if
            necessary to protect the interests of Buyer and

                                    Sch. 1-1
<PAGE>

            which has been delivered to Custodian and the terms of which are
            reflected in the Mortgage Loan Schedule. The substance of any such
            waiver, alteration or modification has been approved by the title
            insurer, to the extent required by the policy, and its terms are
            reflected on the Mortgage Loan Schedule. No Mortgagor has been
            released, in whole or in part, except in connection with an
            assumption agreement approved by the title insurer, to the extent
            required by the policy, and which assumption agreement is part of
            the Mortgage File delivered to Custodian and the terms of which are
            reflected in the Mortgage Loan Schedule;

      5.    No Defenses. The Mortgage Loan is not subject to any right of
            rescission, set-off, counterclaim or defense, including without
            limitation the defense of usury, nor will the operation of any of
            the terms of the Mortgage Note or the Mortgage, or the exercise of
            any right thereunder, render either the Mortgage Note or the
            Mortgage unenforceable, in whole or in part, or subject to any right
            of rescission, set-off, counterclaim or defense, including without
            limitation the defense of usury, and no such right of rescission,
            set-off, counterclaim or defense has been asserted with respect
            thereto, and no Mortgagor was a debtor in any state or federal
            bankruptcy or insolvency proceeding at, or subsequent to, the time
            the Mortgage Loan was originated;

      6.    Hazard Insurance. With respect to a Mortgage Loan, pursuant to the
            terms of the Mortgage, all buildings or other improvements upon the
            Mortgaged Property are insured by a generally acceptable insurer
            against loss by fire, hazards of extended coverage and such other
            hazards as are customary in the area where the Mortgaged Property is
            located pursuant to insurance policies conforming to the
            requirements of Fannie Mae and Freddie Mac in an amount not less
            than the greater of (i) 100% of the replacement cost of all
            improvements to the Mortgaged Property or (ii) the outstanding
            principal balance of the Mortgage Loan, but in any event at least
            equal to the amount necessary to avoid the operation of any
            co-insurance provisions with respect to the Mortgaged Property, and
            consistent with the amount that would have been required as of the
            date of origination in accordance with that required by Fannie Mae
            and Freddie Mac. If upon origination of the Mortgage Loan, the
            Mortgaged Property was in an area identified in the Federal Register
            by the Federal Emergency Management Agency as having special flood
            hazards (and such flood insurance has been made available) a flood
            insurance policy meeting the requirements of the current guidelines
            of the Federal Flood Insurance Administration is in effect which
            policy conforms to the requirements of Fannie Mae and Freddie Mac.
            All individual insurance policies contain a standard mortgagee
            clause naming Seller and its successors and assigns as mortgagee,
            and all premiums thereon have been paid and such policies may not be
            reduced, terminated or cancelled without 30 days' prior written
            notice to the mortgagee. The Mortgage obligates the Mortgagor
            thereunder to maintain the hazard insurance policy at the
            Mortgagor's cost and expense, and on the Mortgagor's failure to do
            so, authorizes the holder of the Mortgage to obtain and maintain
            such insurance at such Mortgagor's cost and expense, and to seek
            reimbursement therefor from the Mortgagor. Where required by state
            law or regulation, the Mortgagor has been given an opportunity to
            choose the carrier of the required hazard insurance, provided the
            policy is not a "master" or "blanket" hazard

                                    Sch. 1-2
<PAGE>

            insurance policy covering the common facilities of a planned unit
            development. The hazard insurance policy is the valid and binding
            obligation of the insurer, is in full force and effect, and will be
            in full force and effect and inure to the benefit of Buyer upon the
            consummation of the transactions contemplated by this Agreement.
            Seller has not engaged in, and has no knowledge of the Mortgagor's
            or any subservicer's having engaged in, any act or omission which
            would impair the coverage of any such policy, the benefits of the
            endorsement provided for therein, or the validity and binding effect
            of either, including, without limitation, no unlawful fee,
            commission, kickback or other unlawful compensation or value of any
            kind has been or will be received, retained or realized by any
            attorney, firm or other person or entity, and no such unlawful items
            have been received, retained or realized by Seller;

      7.    Compliance with Applicable Laws. Any and all requirements of any
            federal, state or local law including, without limitation, usury,
            truth-in-lending, real estate settlement procedures, consumer credit
            protection, equal credit opportunity or disclosure laws applicable
            to the Mortgage Loan have been complied with in the origination and
            servicing of each Mortgage Loan, the consummation of the
            transactions contemplated hereby will not involve the violation of
            any such laws or regulations and Seller shall maintain in its
            possession, available for Buyer's inspection, and shall deliver to
            Buyer, upon demand, evidence of compliance with all such
            requirements;

      8.    No Satisfaction of Mortgage. The Mortgage has not been satisfied,
            canceled, subordinated or rescinded, in whole or in part, and the
            Mortgaged Property has not been released from the lien of the
            Mortgage, in whole or in part, nor has any instrument been executed
            that would effect any such release, cancellation, subordination or
            rescission. Seller has not waived the performance by the Mortgagor
            of any action, if the Mortgagor's failure to perform such action
            would cause the Mortgage Loan to be in default, nor has Seller
            waived any default resulting from any action or inaction by the
            Mortgagor;

      9.    Location and Type of Mortgaged Property. The Mortgaged Property is a
            fee simple property located in the state identified in the Mortgage
            Loan Schedule, and consists of a single parcel of real property with
            a detached single family residence erected thereon, or a two- to
            four-family dwelling, or an individual residential condominium unit
            in a low-rise condominium project, or an individual unit in a
            planned unit development, and no residence or dwelling is
            co-operative unit, a manufactured housing unit or a mobile home,
            provided, however, that any condominium unit, planned unit
            development shall not fall within any of the "Ineligible Projects"
            of part XII, Section 102 of the Fannie Mae Selling Guide and shall
            conform with the Underwriting Guidelines. No portion of the
            Mortgaged Property is used for commercial purposes; provided, that
            Mortgaged Properties which contain a home office shall not be
            considered as being used for commercial purposes as long as the
            Mortgaged Property has not been altered for commercial purposes and
            is not storing any chemicals or raw materials other than those
            commonly used for homeowner repair, maintenance and/or household
            purposes;

                                    Sch. 1-3
<PAGE>

      10.   Valid First or Second Lien. With respect to a Mortgage Loan, the
            related Mortgage is a valid, subsisting, enforceable and perfected
            first or second lien and first or second priority security interest
            on the Mortgaged Property, as set forth on the Mortgage Loan
            Schedule, including all buildings on the Mortgaged Property and all
            installations and mechanical, electrical, plumbing, heating and air
            conditioning systems located in or annexed to such buildings, and
            all additions, alterations and replacements made at any time with
            respect to the foregoing. The lien of the Mortgage is subject only
            to:

            (a)   the lien of current real property taxes and assessments not
                  yet due and payable;

            (b)   covenants, conditions and restrictions, rights of way,
                  easements and other matters of the public record as of the
                  date of recording acceptable to prudent mortgage lending
                  institutions generally and specifically referred to in the
                  lender's title insurance policy delivered to the originator of
                  the Mortgage Loan and (i) referred to or otherwise considered
                  in the appraisal made for the originator of the Mortgage Loan
                  or (ii) which do not adversely affect the appraised value of
                  the Mortgaged Property set forth in such appraisal;

            (c)   other matters to which like properties are commonly subject
                  which do not materially interfere with the benefits of the
                  security intended to be provided by the Mortgage or the use,
                  enjoyment, value or marketability of the related Mortgaged
                  Property; and

            (d)   with respect to each Second Lien Mortgage Loan a prior
                  mortgage lien on the Mortgaged Property.

                     Any Security Agreement, chattel mortgage or equivalent
            document related to and delivered in connection with the Mortgage
            Loan establishes and creates a valid, subsisting and enforceable (A)
            first lien and first priority perfected security interest with
            respect to each First Lien Mortgage Loan, or (B) second lien and
            second priority perfected security interest with respect to each
            Second Lien Mortgage Loan, in either case, on the property described
            therein and Seller has full right to sell and assign the same to
            Buyer.

      11.   Validity of Mortgage Loan Documents. The Mortgage Note, the Mortgage
            and any other agreement executed and delivered by a Mortgagor or
            guarantor, if applicable, in connection with the Mortgage Loan are
            genuine, and each is the legal, valid and binding obligation of the
            maker thereof enforceable in accordance with its terms. All parties
            to the Mortgage Note, the Mortgage and any other related agreement
            had legal capacity to enter into the Mortgage Loan and to execute
            and deliver the Mortgage Note, the Mortgage and any other related
            agreement, and the Mortgage Note, the Mortgage and any other related
            agreement have been duly and properly executed by such parties. The
            documents, instruments and agreements submitted for loan
            underwriting were not falsified and contain no untrue statement of
            material fact or omit to state a material fact required to be stated
            therein or necessary to make the information and statements therein
            not misleading. No fraud, error, negligence,

                                    Sch. 1-4
<PAGE>

            misrepresentation or omission of fact with respect to a Mortgage
            Loan has taken place on the part of Seller or, to the best of
            Seller's knowledge, the Mortgagor or any other party involved in the
            origination or servicing of the Mortgage Loan. Seller has reviewed
            all of the documents constituting the Servicing File and has made
            such inquiries as it deems necessary to make and confirm the
            accuracy of the representations set forth herein;

      12.   Full Disbursement of Proceeds. The Mortgage Loan has been closed and
            the proceeds of the Mortgage Loan have been fully disbursed and
            there is no requirement for future advances thereunder, and any and
            all requirements as to completion of any on-site or off-site
            improvement and as to disbursements of any escrow funds therefor
            have been complied with. All costs, fees and expenses incurred in
            making or closing the Mortgage Loan and the recording of the
            Mortgage were paid, and the Mortgagor is not entitled to any refund
            of any amounts paid or due under the Mortgage Note or Mortgage;

      13.   Ownership. Seller is the sole owner of record and holder of the
            Mortgage Loan. The Mortgage Loan is not assigned or pledged, and
            Seller has good, indefeasible and marketable title thereto, and has
            full right to transfer and sell the Mortgage Loan therein to Buyer
            free and clear of any encumbrance, equity, participation interest,
            lien, pledge, charge, claim or security interest, and has full right
            and authority subject to no interest or participation of, or
            agreement with, any other party, to sell and assign each Mortgage
            Loan pursuant to this Agreement and following the sale of each
            Mortgage Loan, Buyer will own such Mortgage Loan free and clear of
            any encumbrance, equity, participation interest, lien, pledge,
            charge, claim or security interest;

      14.   Doing Business. All parties which have had any interest in the
            Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise,
            are (or, during the period in which they held and disposed of such
            interest, were) (1) in compliance with any and all applicable
            licensing requirements of the laws of the state wherein the
            Mortgaged Property is located, and (2) organized under the laws of
            such state, or (3) qualified to do business in such state, or (4)
            federal savings and loan associations or national banks having
            principal offices in such state, or (5) not doing business in such
            state;

      15.   LTV; FICO. The Mortgage Loan does not have an LTV in excess of the
            maximum LTV set forth in the Purchase Confirmation. With respect to
            each Second Lien Mortgage Loan, at the time of origination the
            related Mortgagor did not have a FICO score of less than 600, except
            as to any such Mortgage Loan guaranteed by the FHA or VA.

      16.   Title Insurance. With respect to any Mortgage Loan, the Mortgage
            Loan is covered by an ALTA lender's title insurance policy or other
            generally acceptable form of policy of insurance acceptable to
            Fannie Mae or Freddie Mac, issued by a title insurer acceptable to
            Fannie Mae or Freddie Mac and qualified to do business in the
            jurisdiction where the Mortgaged Property is located, insuring
            Seller, its successors and assigns, as to the first or second
            priority lien of the Mortgage in the original

                                     Sch.1-5
<PAGE>

            principal amount of the Mortgage Loan, and against any loss by
            reason of the invalidity or unenforceability of the lien resulting
            from the provisions of the Mortgage providing for adjustment in the
            Mortgage Interest Rate and Monthly Payment, subject only to the
            exceptions contained in clauses (a), (b), and (c), and with respect
            to each Second Lien Mortgage Loan clause (d) of Paragraph (10) of
            this Schedule I. Where required by state law or regulation, the
            Mortgagor has been given the opportunity to choose the carrier of
            the required mortgage title insurance. Additionally, such lender's
            title insurance policy affirmatively insures ingress and egress, and
            against encroachments by or upon the Mortgaged Property or any
            interest therein. The title policy does not contain any special
            exceptions (other than the standard exclusions) for zoning and uses
            and has been marked to delete the standard survey exception or to
            replace the standard survey exception with a specific survey
            reading. Seller its successors and assigns is the sole insured of
            such lender's title insurance policy, and such lender's title
            insurance policy is in full force and effect and will be in force
            and effect upon the consummation of the transactions contemplated by
            this Agreement. No claims have been made under such lender's title
            insurance policy, and no prior holder or servicer of the Mortgage,
            including Seller, has done, by act or omission, anything which would
            impair the coverage of such lender's title insurance policy,
            including, without limitation, no unlawful fee, commission, kickback
            or other unlawful compensation or value of any kind has been or will
            be received, retained or realized by any attorney, firm or other
            Person, and no such unlawful items have been received, retained or
            realized by Seller;

      17.   No Defaults. There is no default, breach, violation or event of
            acceleration existing under the Mortgage or the Mortgage Note and no
            event which, with the passage of time or with notice and the
            expiration of any grace or cure period, would constitute a default,
            breach, violation or event of acceleration, and neither Seller nor
            its predecessors have waived any default, breach, violation or event
            of acceleration. With respect to each Second Lien Mortgage Loan, (i)
            the prior mortgage is in full force and effect, (ii) there is no
            default, breach, violation or event of acceleration existing under
            such prior mortgage or the related mortgage note, (iii) no event
            which, with the passage of time or with notice and the expiration of
            any grace or cure period, would constitute a default, breach,
            violation or event of acceleration thereunder, and either (A) the
            prior mortgage contains a provision which allows or (B) applicable
            law requires, the mortgagee under the Second Lien Mortgage Loan to
            have an opportunity to cure any default by payment in full or
            otherwise under the prior mortgage;

      18.   No Mechanics' Liens. There are no mechanics' or similar liens or
            claims which have been filed for work, labor or material (and no
            rights are outstanding that under the law could give rise to such
            liens) affecting the related Mortgaged Property which are or may be
            liens prior to, or equal or coordinate with, the lien of the related
            Mortgage;

      19.   Location of Improvements: No Encroachments. All improvements which
            were considered in determining the Appraised Value of the Mortgaged
            Property lay wholly within the boundaries and building restriction
            lines of the Mortgaged Property and no improvements on adjoining
            properties encroach upon the Mortgaged Property. No

                                    Sch. 1-6
<PAGE>

            improvement located on or being part of the Mortgaged Property is in
            violation of any applicable zoning and building law, ordinance or
            regulation;

      20.   Origination: Payment Terms. At the time the Mortgage Loan was
            originated, the originator was a mortgagee approved by the Secretary
            of Housing and Urban Development pursuant to Sections 203 and 211 of
            the National Housing Act or a savings and loan association, a
            savings bank, a commercial bank or similar banking institution which
            is supervised and examined by a Federal or State authority. No
            Mortgage Loan contains terms or provisions which would result in
            negative amortization. Principal payments on the Mortgage Loan
            commenced no more than 60 days after funds were disbursed in
            connection with the Mortgage Loan. The Mortgage Interest Rate is
            adjusted, with respect to Adjustable Rate Mortgage Loans, on each
            Interest Rate Adjustment Date to equal the applicable index plus the
            Gross Margin (rounded up or down to the nearest 0.125%), subject to
            the Maximum Mortgage Interest Rate. The Mortgage Note is payable on
            the first day of each month in equal monthly installments of
            principal and interest, which installments of interest, with respect
            to Adjustable Rate Mortgage Loans, are subject to change due to the
            adjustments to the Mortgage Interest Rate on each Interest Rate
            Adjustment Date, with interest calculated and payable in arrears,
            sufficient to amortize the Mortgage Loan fully by the stated
            maturity date, over an original term of not more than 30 years from
            commencement of amortization. The due date of the first payment
            under the Mortgage Note is no more than 60 days from the date of the
            Mortgage Note;

      21.   Customary Provisions. The Mortgage contains customary and
            enforceable provisions such as to render the rights and remedies of
            the holder thereof adequate for the realization against the
            Mortgaged Property of the benefits of the security provided thereby,
            including, (i) in the case of a Mortgage designated as a deed of
            trust, by trustee's sale, and (ii) otherwise by judicial
            foreclosure. Upon default by a Mortgagor on a Mortgage Loan and
            foreclosure on, or trustee's sale of, the Mortgaged Property
            pursuant to the proper procedures, the holder of the Mortgage Loan
            will be able to deliver good and merchantable title to the Mortgaged
            Property. There is no homestead or other exemption available to the
            Mortgagor which would interfere with the right to sell the Mortgaged
            Property at a trustee's sale or the right to foreclose the Mortgage
            subject to applicable federal and state laws and judicial precedent
            with respect to bankruptcy and right of redemption;

      22.   Conformance with Underwriting Guidelines and Agency Standards. The
            Mortgage Loan was underwritten in accordance with Seller's
            underwriting guidelines in effect at the time the Mortgage Loan was
            originated, a copy of which underwriting guidelines are attached as
            Exhibit II hereto. The Mortgage Note and Mortgage are on forms
            acceptable to Fannie Mae or Freddie Mac and Seller has not made any
            representations to a Mortgagor that are inconsistent with the
            mortgage instruments used;

      23.   Occupancy of the Mortgaged Property. As of the related Purchase Date
            the Mortgaged Property is lawfully occupied under applicable law.
            All inspections, licenses and certificates required to be made or
            issued with respect to all occupied

                                    Sch. 1-7
<PAGE>

            portions of the Mortgaged Property and, with respect to the use and
            occupancy of the same, including but not limited to certificates of
            occupancy and fire underwriting certificates, have been made or
            obtained from the appropriate authorities. Seller has not received
            notification from any Governmental Authority that the Mortgaged
            Property is in material non-compliance with such laws or
            regulations, is being used, operated or occupied unlawfully or has
            failed to have or obtain such inspection, licenses or certificates,
            as the case may be. Seller has not received notice of any violation
            or failure to conform with any such law, ordinance, regulation,
            standard, license or certificate. Except with respect to Non-Owner
            Occupied Loans, the Mortgagor represented at the time of origination
            of the Mortgage Loan that the Mortgagor would occupy the Mortgaged
            Property as the Mortgagor's primary residence;

      24.   No Additional Collateral. The Mortgage Note is not and has not been
            secured by any collateral except the lien of the corresponding
            Mortgage and the security interest of any applicable Security
            Agreement or chattel mortgage referred to in Paragraph (10) above;

      25.   Deeds of Trust. In the event the Mortgage constitutes a deed of
            trust, a trustee, authorized and duly qualified under applicable law
            to serve as such, has been properly designated and currently so
            serves and is named in the Mortgage, and no fees or expenses are or
            will become payable by Custodian or Buyer to the trustee under the
            deed of trust, except in connection with a trustee's sale after
            default by the Mortgagor;

      26.   Acceptable Investment. The Mortgagor is not in bankruptcy or
            insolvent and Seller has no knowledge of any circumstances or
            conditions with respect to the Mortgage, the Mortgaged Property, the
            Mortgagor or the Mortgagor's credit standing that can reasonably be
            expected to cause private institutional investors to regard the
            Mortgage Loan as an unacceptable investment, cause the Mortgage Loan
            to become delinquent, or adversely affect the value or marketability
            of the Mortgage Loan;

      27.   Delivery of Mortgage Loan Documents. The Mortgage File and any other
            documents required to be delivered by Seller under this Agreement
            have been delivered to Buyer or its Custodian; Seller is in
            possession of a complete, true and accurate Mortgage File in
            compliance with Section 2 of the Custodial Agreement, except for
            such documents the originals of which have been delivered to Buyer
            or its Custodian;

      28.   Due on Sale. The Mortgage contains an enforceable provision for the
            acceleration of the payment of the unpaid principal balance of the
            Mortgage Loan in the event that the Mortgaged Property is sold or
            transferred without the prior written consent of the Mortgagee
            thereunder;

      29.   Transfer of Mortgage Loans. The Assignment of Mortgage is in
            recordable form and is acceptable for recording under the laws of
            the jurisdiction in which the Mortgaged Property is located;

                                    Sch. 1-8

<PAGE>

      30.   No Buydown Provisions: No Graduated Payments or Contingent
            Interests. The Mortgage Loan does not contain provisions pursuant to
            which Monthly Payments are paid or partially paid with funds
            deposited in any separate account established by Seller, the
            Mortgagor or anyone on behalf of the Mortgagor, or paid by any
            source other than the Mortgagor nor does it contain any other
            similar provisions currently in effect which may constitute a
            "buydown" provision. The Mortgage Loan is not a graduated payment
            mortgage loan and the Mortgage Loan does not have a shared
            appreciation or other contingent interest feature;

      31.   Consolidation of Future Advances. Any future advances made prior to
            the related Purchase Date have been consolidated with the
            outstanding principal amount secured by the Mortgage, and the
            secured principal amount, as consolidated, bears a single interest
            rate and single repayment term. The lien of the Mortgage securing
            the consolidated principal amount is expressly insured as having
            first or second lien priority by a title insurance policy, an
            endorsement to the policy insuring the mortgagee's consolidated
            interest or by other title evidence acceptable to Fannie Mae and
            Freddie Mac. The consolidated principal amount does not exceed the
            original principal amount of the Mortgage Loan;

      32.   Mortgaged Property Undamaged. There is no proceeding pending or
            threatened for the total or partial condemnation of the Mortgaged
            Property. The Mortgaged Property is undamaged by waste, fire,
            earthquake or earth movement, windstorm, flood, tornado or other
            casualty so as to affect adversely the value of the Mortgaged
            Property as security for the Mortgage Loan or the use for which the
            premises were intended;

      33.   Collection Practices: Escrow Deposits: Adjustable Rate Mortgage Loan
            Adjustments. The origination and collection practices used with
            respect to the Mortgage Loan have been in accordance with Accepted
            Servicing Practices and in all respects in compliance with all
            applicable laws and regulations. With respect to escrow deposits and
            Escrow Payments (other than with respect to Second Lien Mortgage
            Loans for which the mortgagee under the prior mortgage lien is
            collecting Escrow Payments), all such payments are in the possession
            of Seller or Servicer and there exist no deficiencies in connection
            therewith for which customary arrangements for repayment thereof
            have not been made. Each Mortgage Loan is covered by a life of loan
            tax service contract. All Escrow Payments have been collected in
            full compliance with state and federal laws. An escrow of funds is
            not prohibited by applicable law and has been established in an
            amount sufficient to pay for every item which remains unpaid and
            which has been assessed but is not yet due and payable. No escrow
            deposits or Escrow Payments or other charges or payments due Seller
            have been capitalized under the Mortgage or the Mortgage Note. All
            Mortgage Interest Rate adjustments have been made in strict
            compliance with state and federal laws and the terms of the related
            Mortgage Note. Any interest required to be paid pursuant to state
            and local laws has been properly paid and credited;

      34.   Appraisal. The Servicing File includes an appraisal of the Mortgaged
            Property signed prior to the approval of the Mortgage application by
            a appraiser qualified under

                                    Sch. 1-9

<PAGE>

            Fannie Mae or Freddie Mac guidelines who (i) was licensed in the
            state where the Mortgaged Property is located, (ii) had no interest,
            direct or indirect, in the Mortgaged Property or in any Mortgage
            Loan or the security therefor, and (iii) does not receive
            compensation that is affected by the approval or disapproval of the
            Mortgage Loan. The appraisal shall have been made within one hundred
            and eighty (180) days of the origination of the Mortgage Loan, be
            completed in compliance with the Uniform Standards of Professional
            Appraisal Practice and all applicable Federal and state laws and
            regulations. If the appraisal was made more than one hundred and
            twenty (120) days before the origination of the Mortgage Loan,
            Seller shall have received and included in the Servicing File a
            recertification of the appraisal.

      35.   Servicemembers' Civil Relief Act. The Mortgagor has not notified
            Seller, and Seller has no knowledge of, any relief requested or
            allowed to the Mortgagor under the Servicemembers' Civil Relief Act
            of 2004, as amended, or any similar state statute;

      36.   Environmental Matters. The Mortgaged Property is free from any and
            all toxic or Hazardous Substances and there exists no violation of
            any local, state or federal environmental law, rule or regulation.
            There is no pending action or proceeding directly involving any
            Mortgaged Property of which Seller is aware in which compliance with
            any environmental law, rule or regulation is an issue; and to the
            best of Seller's knowledge, nothing further remains to be done to
            satisfy in full all requirements of each such law, rule or
            regulation consisting a prerequisite to use and enjoyment of said
            property;

      37.   No Construction Loans. The Mortgage Loan was not made in connection
            with (a) facilitating the trade-in or exchange of a Mortgaged
            Property or (b) the construction or rehabilitation of a Mortgaged
            Property unless the Mortgage Loan is a construction-to-permanent
            mortgage loan listed on the Mortgage Loan Schedule which has been
            fully disbursed, all construction work is complete and a completion
            certificate has been issued;

      38.   No Denial of Insurance. No action, inaction, or event has occurred
            and no state of fact exists or has existed that has resulted or will
            result in the exclusion from, denial of, or defense to coverage
            under any applicable pool insurance policy, primary mortgage
            insurance policy, special hazard insurance policy, or bankruptcy
            bond, irrespective of the cause of such failure of coverage. In
            connection with the placement of any such insurance, no commission,
            fee, or other compensation has been or will be received by Seller or
            any designee of Seller or any corporation in which Seller or any
            officer, director, or employee had a financial interest at the time
            of placement of such insurance;

      39.   Regarding the Mortgagor. The Mortgagor is one or more natural
            persons and/or trustees for an Illinois land trust or a trustee
            under a "living trust" and such "living trust" is in compliance with
            Fannie Mae guidelines for such trusts;

                                    Sch. 1-10
<PAGE>

      40.   Mortgagor Acknowledgment. The Mortgagor has received all disclosure
            materials required by applicable law with respect to the making of
            Adjustable Rate Mortgage Loans. Seller shall maintain such documents
            in the Mortgage File;

      41.   Predatory Lending Regulations; High Cost Loans. None of the Mortgage
            Loans are classified as (a) "high cost" loans under the Home
            Ownership and Equity Protection Act of 1994 or (b) "high cost,"
            "threshold," "covered," "predatory" or similar loans under any other
            applicable state, federal or local law (or a similarly classified
            loan using different terminology under a law imposing heightened
            regulatory scrutiny or additional legal liability for residential
            mortgage loans having high interest rates, points and/or fees);

      42.   Qualified Mortgage. The Mortgage Loan is a "qualified mortgage"
            within the meaning of Section 860G(a)(3) or any successor provision
            thereof of the Internal Revenue Code of 1986, as amended;

      43.   Insurance. Seller has caused or will cause to be performed any and
            all acts required to preserve the rights and remedies of Buyer in
            any insurance policies applicable to the Mortgage Loans including,
            without limitation, any necessary notifications of insurers,
            assignments of policies or interests therein, and establishments of
            coinsured, joint loss payee and mortgagee rights in favor of Buyer;

      44.   Simple Interest Mortgage Loans. None of the Mortgage Loans are
            simple interest Mortgage Loans;

      45.   Prepayment Fee. With respect to each Mortgage Loan that has a
            prepayment fee feature, each such prepayment fee is enforceable and
            will be enforced by Seller for the benefit of Buyer, and each
            prepayment fee is permitted pursuant to federal, state and local
            law. Each such prepayment fee is in an amount equal to the maximum
            amount permitted under applicable law;

      46.   Flood Certification Contract. Seller shall have obtained a life of
            loan, transferable flood certification contract for each Mortgage
            Loan and shall assign all such contracts to Buyer;

      47.   CLTV. No Second Lien Mortgage Loan has a CLTV in excess of 100%;

      48.   Consent. Either (a) no consent for the Second Lien Mortgage Loan is
            required by the holder of the related first lien or (b) such consent
            has been obtained and is contained i. n the Mortgage File;

      49.   Reserved.

      50.   No Equity Participation. No document relating to the Mortgage Loan
            provides for any contingent or additional interest in the form of
            participation in the cash flow of the Mortgaged Property or a
            sharing in the appreciation of the value of the Mortgaged Property.
            The indebtedness evidenced by the Mortgage Note is not convertible
            to an ownership interest in the Mortgaged Property or the Mortgagor
            and Seller has not

                                    Sch. 1-11
<PAGE>

            financed nor does it own directly or indirectly, any equity of any
            form in the Mortgaged Property or the Mortgagor;

      51.   Proceeds of Mortgage Loan. The proceeds of the Mortgage Loan have
            not been and Shall not be used to satisfy, in whole or in part, any
            debt owed or owing by the Mortgagor to Seller or any Affiliate or
            correspondent thereof unless such debt was originated more than 12
            months prior to the origination of such Mortgage Loan;

      52.   Reserved;

      53.   Origination Date. The Origination Date is no earlier than 270 days
            prior to the date the Mortgage Loan is initially purchased by Buyer;

      54.   No Exception. Custodian has not noted any material exceptions on a
            Trust Receipt with respect to the Mortgage Loan which would
            materially and adversely affect the Mortgage Loan or Buyer's
            ownership of the Mortgage Loan, unless consented to by Buyer;

      55.   Mortgage Submitted for Recordation. The Mortgage either has been or
            will promptly be Submitted for recordation in the appropriate
            governmental recording office of the jurisdiction where the
            Mortgaged Property is located;

      56.   Endorsements. Each Mortgage Note has been endorsed by Seller for its
            own account and as not as a fiduciary, trustee, trustor or
            beneficiary under a trust agreement;

      57.   servicing. Seller or other Servicer, as the case may be, is the
            servicer of the Mortgage Loan;

      58.   Georgia Fair Lending Act. No Mortgage Loan secured by owner-occupied
            Mortgaged Property located in the State of Georgia was originated
            (or modified) on or after October 1, 2002 through and including
            March 6, 2003;

      59.   Accuracy of Information. All information provided to Buyer by Seller
            with respect to the Mortgage Loans is accurate in all material
            respects;

      60.   Single Premium Credit Insurance. No Mortgagor is offered or required
            to purchase single premium credit insurance in connection with the
            origination of the related Mortgage Loan;

      61.   Eligible Asset. Each Mortgage Loan is an Eligible Asset.

      62.   Reserved;

      63.   Privacy. Seller agrees and acknowledges that as to all nonpublic
            personal information received or obtained by it with respect to any
            Mortgagor: (a) such information has been held by Seller in
            accordance with all applicable law, including but not limited to the
            privacy provisions of the Gramm-Leach Bliley Act; and

                                    Sch. 1-12
<PAGE>

            (b) Seller has not disclosed or used, and will not disclose and use
            any such information other than as permitted by applicable law.

      64.   No Blocked or Otherwise Prohibited Activity. (a) No Mortgage Loan or
            any related Mortgagor was or is (or would be if such Mortgage Loan
            was originated on the Purchase Date) subject to or in violation of
            the USA Patriot Act of 2001 or of the stated prohibitions of
            Executive Order 13224; and (b) no Mortgage Loan involves a person
            (as such term is defined in such Executive Order) identified as a
            Specially Designated National ("SDN") or any other similar
            designation by the Office of Foreign Asset Control or any other
            federal agency with similar charge or jurisdiction.

      65.   No Prohibited Loan. No Mortgage Loan is in violation of Section 402
            of the Sarbanes-Oxley Act of 2002.

      The representations and warranties in this Section shall survive the
execution and assignment of this Agreement and any subsequent transfers of each
Mortgage Loan.

                                    Sch. 1-13
<PAGE>

                                   SCHEDULE 2

                                    RESERVED

                                    Sch. 2-1
<PAGE>

                                   SCHEDULE 3

                                 CUSTODIAL FILE

            (i) the original Mortgage Note (or originally executed and
acknowledged lost note affidavit if the Mortgage Note has been lost) bearing all
intervening endorsements, endorsed in blank, "Pay to the order of
__________________, without recourse," and, if previously endorsed, signed in
the name of the last endorsee. If the Mortgage Loan was acquired by the last
endorsee in a merger, Seller shall notify Buyer and Custodian in writing before
delivering the Custodial File and the endorsement must be by "[name of last
endorsee], successor by merger to [name of predecessor]". If the Mortgage Loan
was acquired or originated by the last endorsee while doing business under
another name, Seller shall notify Buyer and Custodian in writing before
delivering the Custodial File and shall provide notice in the Custodial File,
and the endorsement must be by "[name of last endorsee], formerly known as
[previous name]";

            (ii) unless such Mortgage Loan is a MERS Designated Mortgage Loan,
the original Assignment of Mortgage for each Mortgage Loan, in recordable form,
signed in the name of the last assignee by an authorized officer. The Mortgage
shall be assigned, with assignee's name left blank. If the Mortgage Loan was
acquired by the last assignee in a merger, Seller shall notify Buyer and
Custodian in writing before delivering the Custodial File and the Assignment of
Mortgage must be made by "[name of last assignee], successor by merger to [name
of predecessor]". If the Mortgage Loan was acquired or originated by the last
assignee while doing business under another name, Seller shall notify Buyer and
Custodian in writing before delivering the Custodial File and shall provide
notice in the Custodial File, and the Assignment of Mortgage must be by "[name
of last assignee], formerly known as [previous name]";

            (iii) the original guarantee executed in connection with the
Mortgage Note, if any, for which Seller shall give Buyer and Custodian written
notice of such document, such notice to be provided in the Custodial File by the
Seller;

            (iv) the original Mortgage with evidence of recording thereon or, if
the original Mortgage with evidence of recording thereon has not been returned
by the public recording office where such Mortgage has been delivered for
recordation or such Mortgage has been lost or such public recording office
retains the original recorded Mortgage, a photocopy of such Mortgage, together
with (A) in the case of a delay caused by the public recording office, an
Officer's Certificate of the title insurer insuring the Mortgage, the escrow
agent or closing attorney stating that such Mortgage has been delivered to the
appropriate public recording office for recordation and that the original
recorded Mortgage or a copy of such Mortgage certified by such public recording
office to be a true and complete copy of the original recorded Mortgage will be
promptly delivered to the Buyer or Buyer's designee upon receipt thereof by the
party delivering the Officer's Certificate; or (B) in the case of a Mortgage
where a public recording office retains the original recorded Mortgage or in the
case where a Mortgage is lost after recordation in a public recording office, a
copy of such Mortgage with the recording information thereon certified by such
public recording office to be a true and complete copy of the original recorded
Mortgage;

                                    Sch. 3-1
<PAGE>

            (v) the originals (or if the original is lost after recordation in a
public recording office, a copy certified by such public recording office to be
a true and complete copy) of all assumption, modification, consolidation or
extension agreements, with evidence of recording thereon, if any, and Seller
shall give Buyer and Custodian written notice of such document, such notice to
be in the Custodial File, provided in the Mortgage Loan Schedule or otherwise
provided in writing to Buyer and Custodian by the Seller.

            (vi) unless such Mortgage Loan is a MERS Designated Mortgage Loan,
the originals, if any, of all intervening assignments of mortgage with evidence
of recording thereon evidencing a complete chain of ownership from the
originator of the Mortgage Loan to the last assignee, or if any such intervening
assignment of mortgage has not been returned from the applicable public
recording office or has been lost or if such public recording office retains the
original recorded intervening assignments of mortgage, a photocopy of such
intervening assignment of mortgage, together with (A) in the case of a delay
caused by the public recording office, an Officer's Certificate of the title
insurer insuring the Mortgage, the escrow agent or closing attorney stating that
such intervening assignment of mortgage has been delivered to the appropriate
public recording office for recordation and that such original recorded
intervening assignment of mortgage or a copy of such intervening assignment of
mortgage certified by the appropriate public recording office to be a true and
complete copy of the original recorded intervening assignment of mortgage will
be promptly delivered to Buyer or Buyer's designee upon receipt thereof by the
party delivering the Officer's Certificate; or (B) in the case of an intervening
assignment of mortgage where a public recording office retains the original
recorded intervening assignment of mortgage or in the case where an intervening
assignment of mortgage is lost after recordation in a public recording office, a
copy of such intervening assignment of mortgage with recording information
thereon certified by such public recording office to be a true and complete copy
of the original recorded intervening assignment of mortgage;

            (vii) the original lender's title policy, or, if such policy has not
been issued, a written commitment or interim binder issued by a title insurance
company evidencing that the required title insurance coverage is in effect and
unconditionally guaranteeing that such title insurance policy will be issued;

            (viii) the original of any security agreement, chattel mortgage or
equivalent document executed in connection with the Mortgage, if any and Seller
shall give Buyer and the Custodian written notice of such document, such notice
to be in the Custodial File, provided in the Mortgage Loan Schedule or otherwise
provided in writing to Buyer and the Custodian by the Seller;

            (ix) the original power of attorney with evidence of recording
thereon, if any; and

            (x) the original pmi policy or certificate of insurance, if any.

                                    Sch. 3-2
<PAGE>

                                   SCHEDULE 4

                        FIELDS FOR MORTGAGE LOAN SCHEDULE

      (1) the Mortgage Loan identifying number; (2) the Mortgagor's last name;
(3) the street address of the Mortgaged Property including the state and zip
code; (4) a code indicating whether the Mortgaged Property is owner-occupied;
(5) the type of Residential Dwelling constituting the Mortgaged Property; (6)
the original term to maturity; (7) the original date of the Mortgage Loan and
the remaining months to maturity from the Cut-off Date, based on the original
amortization schedule and, if different, the maturity expressed in the same
manner but based on the actual amortization schedule; (8) the original
Loan-to-Value Ratio; (9) a code indicating whether the Mortgage Loan is a Fixed
Rate Mortgage Loan or an Adjustable Rate Mortgage Loan; (10) the Mortgage
Interest Rate in effect immediately following the Cut-off Date; (11) the date on
which the first Monthly Payment was due on the Mortgage Loan and, if such date
is not consistent with the Due Date currently in effect, such Due Date; (12) the
stated maturity date; (13) the amount of the Monthly Payment at origination;
(14) the amount of the Monthly Payment as of the Cut-off Date; (15) the last Due
Date on which a Monthly Payment was actually applied to the unpaid stated
principal balance; (16) the original principal amount of the Mortgage Loan; (17)
the unpaid stated principal balance of the Mortgage Loan as of the close of
business on the Cut-off Date; (18) the Interest Rate Adjustment Date, if
applicable; (19) the Gross Margin, if applicable; (20) a code indicating the
purpose of the loan (i.e., purchase financing or Rate/Term Refinancing); (21)
the Maximum Mortgage Interest Rate under the terms of the Mortgage Note, if
applicable; (22) the Minimum Mortgage Interest Rate under the terms of the
Mortgage Note, if applicable; (23) the Mortgage Interest Rate at origination;
(24) the Periodic Rate Cap, if applicable; (25) a code indicating the
documentation style (i.e., full, alternative or reduced); (26) a code indicating
if the Mortgage Loan is a convertible Mortgage Loan; (27) the first Interest
Rate Adjustment Date; (28) the name of the Person who or which sold such
Mortgage Loan to Seller; and (29) the name of the Servicer.

                                    Sch. 4-1