<PAGE>
 
                      HOMECAPITAL INVESTMENT CORPORATION

                            1996 STOCK OPTION PLAN


                                MARCH 21, 1996



                  AS APPROVED BY STOCKHOLDERS AUGUST 16, 1996
<PAGE>
 
                      HOMECAPITAL INVESTMENT CORPORATION
                            1996 STOCK OPTION PLAN

                          SUMMARY OF PLAN PROVISIONS

PLAN PURPOSE

  The HomeCapital Investment Corporation 1996 Stock Option Plan is designed to
  provide significant financial incentives to key directors, executive officers
  and employees of the Company and its operating subsidiary, HomeOwners Mortgage
  & Equity, Inc., to increase stockholder value. To accomplish this, the Plan
  will offer management and a select group of employees the opportunity to
  accumulate substantial equity ownership in the Company. The Plan will also
  assist in retaining and recruiting talented management.

TYPE OF OPTIONS

  Options granted to Participants under the Plan may be Incentive Stock Options,
  Non-Qualified Stock Options or a combination of Incentive Stock Options and
  Non-Qualified Stock Options.

EFFECTIVE DATE

  The effective date of the Plan is March 21, 1996. The Plan must be approved by
  the stockholders of the Company within twelve months before or after the date
  on which the Board of Directors of the Company adopted the Plan.

ADMINISTRATION OF THE PLAN

  The Board of Directors or a Stock Option Committee appointed by the Board will
  administer the Plan.

PARTICIPANTS

  Directors, officers and other key employees are recommended by the President
  and selected by the Board to participate in the Plan.

NUMBER OF SHARES RESERVED FOR OPTIONS

  Shares will be reserved initially for Options under the Plan to purchase an
  aggregate of 500,000 shares of Company common stock. However, in the event of
  changes in the existing composition of the Company's Stock (such as a stock
  dividend, recapitalization, reorganization, merger, consolidation, or similar
  change), the Board or Committee may adjust the number of shares of Stock
  subject to Options, as well as the number of Options and their Exercise Price.

GRANT OF OPTIONS

  Options may be granted to Participants at any time during the ten-year period
  following the Effective Date of the Plan.

VESTING

  Options granted to a Participant shall vest at a rate determined by the Board
  or Committee subject to any condition of continued employment of the
  Participant with the Company. 
<PAGE>
 
  In the event of a Change of Control of the Company, all outstanding Options
  will become fully vested.

OPTION AGREEMENT

  The Company and each Participant shall execute an Option Agreement which will
  specify: (a) the type of Options granted, (b) the Exercise Price of the
  Options, (c) the number of shares of Stock to which each Option pertains, (d)
  the vesting provision, (e) a requirement to notify the Board or Committee, if
  stock acquired through the exercise of an Incentive Stock Option is disposed
  of prior to certain holding periods, and (f) any other provision determined by
  the Board or Committee.

EXERCISE OF OPTIONS

  Participants may exercise Options by tendering the Exercise Price in cash, in
  Company Stock or in a combination of cash and such Stock. All Options expire
  ten (10) years following the date of grant.

DEATH

  If a Participant dies while employed by the Company or Home, Options which
  were outstanding and exercisable immediately prior to death of the Participant
  may be exercised for a period of one (1) year (not to exceed the expiration
  date of the Options) by a person entitled thereto under a will or the laws of
  descent and distribution.

DISABILITY

  If a Participant becomes disabled and subsequently terminates employment with
  the Company and Home, Options which were outstanding and exercisable
  immediately prior to the disability may be exercised for a period of one year
  (not to exceed the expiration dated of the Options). A Participant is
  considered disabled for purposes of the Plan if the Participant qualifies to
  receive disability payments under the Social Security Administration's
  disability program.

TERMINATION OF EMPLOYMENT

  If a Participant terminates employment with the Company and Home for any
  reason other than death or disability, Options which were outstanding and
  exercisable immediately prior to termination of employment may be exercised
  for a period of three months (not to exceed the expiration date of the
  Options) thereafter. In the event that the employment of a Participant is
  terminated because of Termination-for-Cause, all Options shall immediately
  expire as of the date of the termination and may no longer be exercised. 
<PAGE>
 
                      HOMECAPITAL INVESTMENT CORPORATION
                            1996 STOCK OPTION PLAN

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
Article                                                       Page
-------                                                       ----
<S>  <C>                                                      <C>
I.   Purpose and Effective Date of Plan..........................1
 
     1.1  Purpose................................................1
     1.2  Effective Date.........................................1
 
II.  Definitions.................................................2
 
     2.1  Definitions............................................2
          (a)    "Board".........................................2
          (b)    "Change of Control".............................2
          (c)    "Code"..........................................2
          (d)    "Committee".....................................2
          (e)    "Company".......................................2
          (f)    "Exchange Act"..................................2
          (g)    "Exercise Price"................................2
          (h)    "Fair Market Value".............................3
          (i)    "Home"..........................................3
          (j)    "Incentive Stock Option"........................3
          (k)    "Non-Qualified Stock Option"....................3
          (l)    "Option"........................................3
          (m)    "Participant"...................................4
          (n)    "Permanent Disability"..........................4
          (o)    "Plan"..........................................4
          (p)    "Securities Act"................................4
          (q)    "Stock".........................................4
          (r)    "Ten Percent Stockholder".......................4
          (s)    "Termination-for-Cause".........................4
          (t)    "Vested"........................................4
 
     2.2  Gender and Number......................................4
 
III. Eligibility and Participation...............................5
 
IV.  Administration..............................................6
 
V.   Stock Subject to Plan.......................................7
 
     5.1  Number.................................................7
     5.2  Unused Stock...........................................7
     5.3  Adjustment in Capital..................................7
</TABLE>

                                      -i-
<PAGE>
 
TABLE OF CONTENTS (continued)
-----------------------------

<TABLE>
<CAPTION>
Article                                                       Page
-------                                                       ----
<S>    <C>                                                    <C>
 
VI.    Duration of Plan.......................................   9
 
VII.   Terms of Options.......................................  10
 
       7.1  Grant of Options..................................  10 
       7.2  Option Agreement..................................  10 
       7.3  Exercise Price....................................  10 
       7.4  Term of Options...................................  10 
       7.5  Vesting of Options................................  11 
       7.6  Nontransferability of Options.....................  11 
       7.7  Restriction on Stock Transferability..............  11 
       7.8  Exercise of Options...............................  11 
       7.9  Purchase for Investment...........................  11 
       7.10 Notice of Certain Dispositions....................  12  
 
VIII.  Termination of Employment..............................  13
 
       8.1  Termination of Employment.........................  13
       8.2  Death.............................................  13
       8.3  Permanent Disability..............................  13
       8.4  Termination-for-Cause.............................  13
 
IX.    No Contract of Employment..............................  14
 
X.     Amendment, Modification, and Termination of Plan.......  15
 
XI.    Withholding Tax........................................  16
 
XII.   Unfunded Plan..........................................  17
 
XIII.  Requirement of Law.....................................  18
 
       13.1    Requirement of Law.............................  18
       13.2    Governing Law..................................  18
</TABLE>

Stock Option Agreement                                   Appendix A

                                     -ii-
<PAGE>
 
                                   ARTICLE I
                          PURPOSE AND EFFECTIVE DATE

1.1  Purpose.
     ------- 

     The Plan is intended to enable the Company to remain competitive and
     innovative in its ability to attract, motivate, reward and retain a strong
     management team of superior capability and to encourage the holding of
     proprietary interests in the Company to make awards that recognize the
     creation of value for the stockholders of the Company and promote the
     Company's growth and success. In furtherance of that purpose, eligible
     persons may receive Incentive Stock Options or Non-Qualified Stock Options
     or a combination of Incentive Stock Options or Non-Qualified Stock Options.

1.2  Effective Date.
     -------------- 

     The Effective Date of the Plan shall be March 21, 1996. The Plan must be
     approved by stockholders within twelve months before or after the date on
     which the Board of Directors of the Company adopts the Plan. If the Plan is
     not approved by the stockholders within the period of time designated
     within this Section 1.2, this Plan and all Options granted hereunder, if
     any, shall be voided.

                                      -1-
<PAGE>
 
                                  ARTICLE II
                                  DEFINITIONS

2.1  Definitions.
     ----------- 

     Whenever used herein, the following terms shall have the respective
     meanings set forth below:

     (a)  "Board" means the Board of Directors of HomeCapital Investment
          Corporation.

     (b)  "Change of Control" shall be deemed to have occurred if (i) a tender
          offer by any person other than existing stockholders shall be made and
          consummated for the ownership of 50% or more of the outstanding voting
          securities of the Company, (ii) the Company shall be merged or
          consolidated with another corporation and as a result of such merger
          or consolidation less than 50% of the outstanding voting securities of
          the surviving or resulting corporation shall be owned in the aggregate
          by the former stockholders of the Company, (iii) the Company shall
          sell at least 75% of its assets by value in a single transaction or in
          a series of transactions to another person or corporation which is not
          a wholly owned subsidiary of the Company, or (iv) a person, within the
          meaning of Section 3(a)(9) or of Section 13(d)(3) (as in effect on the
          date thereof) of the Exchange Act, shall acquire 50% or more of the
          outstanding voting securities of the Company (whether directly,
          indirectly, beneficially or of record). For purposes hereof, ownership
          of voting securities shall take into account and shall include
          ownership as determined by applying the provisions of Rule 13d-
          3(d)(1)(i) (as in effect of the date thereof) pursuant to the Exchange
          Act.

     (c)  "Code" means the Internal Revenue Code of 1986, as amended.

     (d)  "Committee" means the Board of Directors of HomeCapital Investment
          Corporation or a Stock Option Committee appointed from time to time by
          the Board of Directors to administer this Plan, however designated.

     (e)  "Company" means HomeCapital Investment Corporation, a Nevada
          corporation.

     (f)  "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     (g)  "Exercise Price" means:

          (1)  With respect to an Incentive Stock Option, a value which is not
               less than (i) the Fair Market Value, or (ii) in the case of
               Incentive Stock Options granted to a Ten Percent Stockholder, 110
               percent of the Fair

                                      -2-
<PAGE>
 
               Market Value of a share of Stock on the date the Incentive Stock
               Option is granted, as determined by the Committee.

          (2)  With respect to a Non-Qualified Stock Option, a value which may
               be more or less than the Fair Market Value on the date the Non-
               Qualified Stock Option is granted, as determined by the
               Committee.

     (h)  "Fair Market Value" means for a share of Stock as of any date,

          (1)  The closing price, regular way, for the shares on the New York
               Stock Exchange on such date (or if such Exchange was not open for
               trading on such date, the next preceding date on which it was
               open); or

          (2)  If there is no price as specified in (1), the mean of the last
               reported bid-and-asked quotations, regular way, for the shares on
               the New York Stock Exchange on such date or next preceding date
               as the case may be; or

          (3)  If there is no price as specified in (2), the closing sales
               price, regular way, or in the absence thereof the mean of the
               last reported bid-and-asked quotations, for the shares on any
               other exchange on which the shares are permitted to trade having
               the greatest volume of trading in the shares during the thirty-
               day period preceding such date, on such date or next preceding
               date as the case may be; or

          (4)  If there is no price as specified in (3), the final reported
               sales price, or, if not so reported, then the highest bid
               quotation, in the over-the-counter market for the shares as
               reported by the National Association of Securities Dealers
               Automated Quotation System, or if not so reported, then as
               reported by the National Quotation Bureau Incorporated, or if
               such organization is not in existence, by an organization
               providing similar services, on such date (or if such date is not
               a date for which such system or organization generally provides
               reports, then on the next preceding date for which it does so);
               or

          (5)  If there is no price as specified in (4), the price determined by
               the Committee by reference to bid-and-asked quotations for the
               shares provided by members of an association of brokers and
               dealers registered pursuant to subsection 15(b) of the Exchange
               Act, which members make a market in the shares, on such recent
               dates as the Committee shall determine to be appropriate for
               fairly determining current market value; or

          (6)  If there is no price as specified in (5), the amount determined
               in good faith by the Committee based on such relevant facts,
               which may include opinions of independent experts, as may be
               available to the Committee. 

                                      -3-
<PAGE>
 
     (i)  "Home" means HomeOwners Mortgage & Equity, Inc., a Delaware
          corporation and wholly-owned subsidiary of the Company.

     (j)  "Incentive Stock Option" means an Option granted under the Plan that
          complies with the terms and conditions of Section 422 of the Code and
          is designated by the Committee as an Incentive Stock Option.

     (k)  "Non-Qualified Stock Option" means an Option granted under the Plan
          other than an Incentive Stock Option.

     (l)  "Option" means the contractual right granted to a Participant to
          purchase a number of shares of Stock under the Plan at a stated
          Exercise Price for a specified period of time.  An Option may be
          either an Incentive Stock Option or a Non-Qualified Stock Option.

     (m)  "Participant" means any director, executive officer or key employee
          designated by the Committee to participate in the Plan pursuant to
          Article III.

     (n)  "Permanent Disability" means the physical or mental condition of a
          Participant which renders a Participant incapable of continuing his
          customary employment with the Company and Home.  A Participant will be
          considered disabled for purposes of this Plan if the Participant
          qualifies to receive disability payments under the Social Security
          Administration's disability program.

     (o)  "Plan" means the HomeCapital Investment Corporation 1996 Stock Option
          Plan, as it may be amended from time to time.

     (p)  "Securities Act" means the Securities Act of 1933, as amended.

     (q)  "Stock" means the common stock, par value $.01 per share, of the
          Company.

     (r)  "Ten Percent Stockholder" means an individual who owns stock
          possessing more than 10 percent of the total combined voting power of
          all classes of capital stock of the Company.

     (s)  "Termination-for-Cause" means the termination of a Participant's
          employment by the Company or Home, by written notice to the
          Participant, specifying the event relied upon for such termination,
          due to the Participant's conviction of a felony or perpetration of a
          common law fraud involving the Company or Home or any of its
          affiliates or subsidiaries, or theft, fraud, embezzlement, dishonesty
          or other conduct which is or has resulted or is likely to result in
          material economic damage to the Company or any of its affiliates or
          subsidiaries.

                                      -4-
<PAGE>
 
     (t)  "Vested" means that an Option is nonforfeitable and exercisable with
          regard to a designated number of shares of Stock as specified in
          Section 7.5, except as provided in Article VIII.

2.2  Gender and Number.
     ----------------- 

     Except when otherwise indicated by the context, words in the masculine
     gender when used in the Plan shall include the feminine gender, the
     feminine gender shall include the masculine gender, the singular shall
     include the plural, and the plural shall include the singular.

                                      -5-
<PAGE>
 
                                  ARTICLE III
                         ELIGIBILITY AND PARTICIPATION

Participants in the Plan shall be recommended by the President of the Company
and approved by the Committee from among directors, executive officers and key
employees of the Company or Home who have or are expected to have a significant
and lasting impact on long-term Company strategy and on the long-term success of
the Company.

                                      -6-
<PAGE>
 
                                  ARTICLE IV
                                ADMINISTRATION

The Board of Directors shall be responsible for the administration of the Plan.
The Board of Directors may appoint a Stock Option Committee to administer the
Plan on behalf of the Board of Directors. The Committee shall consist of two or
more directors, each of whom is a "disinterested person" within the meaning of
Rule 16b-3(c)(2)(i) promulgated under Section 16 of the Exchange Act. From time
to time, the Board of Directors may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members to fill any vacancies. The Board of Directors may also
administer the Plan directly, if each member of the Board is a "disinterested
person."

The Committee, subject to the approval of the Board, is authorized to interpret
the Plan and any Options awarded thereunder, to prescribe, amend, and rescind
rules and regulations relating to the Plan, to provide for conditions and
assurances deemed necessary or advisable to protect the interests of the
Company, and to make all other determinations necessary or advisable for the
administration of the Plan. Determinations, interpretations, or other actions
made or taken by the Committee pursuant to the provisions of the Plan shall be
final, binding and conclusive for all purposes and upon all persons.

The Committee may, in its absolute discretion, (i) accelerate the date on which
any Option granted under the Plan becomes exercisable or (ii) extend the date on
which any Option granted under the Plan ceases to be exercisable.

In addition, the Committee may, in its absolute discretion, grant Options to
Participants on the condition that such Participants surrender to the Committee
for cancellation such other Options (including, without limitation, Options with
higher exercise prices) as the Committee specifies. Options granted on the
condition of surrender of outstanding Options shall not count against the
limitation on the Stock subject to the Plan set forth in Article V until such
time as such Options are surrendered.

No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and the Company shall indemnify and hold
harmless each member of the Committee and each other director or employee of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated from and against any cost or
expense (including reasonable attorneys' fees) or liability (including any sum
paid in settlement of a claim with the approval of the Board or the Committee)
arising out of any action, omission or determination relating to the Plan,
unless, in either case, such action, omission or determination was taken or made
by such member, director or employee in bad faith and without reasonable belief
that it was in the best interests of the Company.

                                      -7-
<PAGE>
 
                                   ARTICLE V
                             STOCK SUBJECT TO PLAN

5.1  Number.
     ------ 

     Except as provided in Section 5.2 and subject to adjustment as provided by
     Section 5.3, the total number of shares of Stock reserved for Options and
     subject to issuance under the Plan may not exceed 500,000 shares of Stock.
     The shares to be delivered under the Plan may consist, in whole or in part,
     of authorized but unissued Stock or treasury Stock, not reserved for any
     other purpose.

5.2  Unused Stock.
     ------------ 

     In the event any shares of Stock are subject to an Option which, for any
     reason, expires or is terminated unexercised as to such shares, such shares
     again shall become available for issuance under the Plan.

5.3  Adjustment in Capitalization.
     ---------------------------- 

     (a)  Outstanding Options:  Increase or Decrease in Issued Shares Without
          -------------------------------------------------------------------
          Consideration
          -------------

          Subject to any required action by the stockholders of the Company, in
          the event of any increase or decrease in the number of issued shares
          of Stock resulting from a subdivision or consolidation of shares of
          Stock or the payment of a stock dividend (but only on the shares of
          Stock), or any other increase in the number of such shares effected
          without receipt of consideration by the Company, the Committee shall
          proportionally adjust the number of shares and the exercise price per
          share of Stock subject to each outstanding Option.

     (b)  Outstanding Options: Certain Mergers
          ------------------------------------

          Subject to any required action by the stockholders of the Company, if
          the Company shall be the surviving corporation in any merger or
          consolidation (except a merger or consolidation as a result of which
          the holders of shares of Stock receive securities of another
          corporation), each Option outstanding on the date of such merger or
          consolidation shall entitle the Participant to acquire on exercise the
          securities that a holder of the number of shares of Stock subject to
          such Option would have received in such merger or consolidation.

     (c)  Outstanding Options:  Certain Other Transactions
          ------------------------------------------------

          In the event of a dissolution or liquidation of the Company, a sale of
          all or substantially all of the Company's assets, a merger or
          consolidation involving

                                      -8-
<PAGE>
 
          the Company in which the Company is not the surviving corporation or a
          merger or consolidation involving the Company in which the Company is
          the surviving corporation but the holders of shares of Stock receive
          securities of another corporation and/or other property, including
          cash, the Committee shall, in its absolute discretion, have the power
          to:

          (i)  cancel, effective immediately prior to the occurrence of such
               event, each Option outstanding immediately prior to such event
               (whether or not then exercisable), and, in full consideration of
               such cancellation, pay to the Participant to whom such Option was
               granted an amount in cash for each share of Stock subject to such
               Option equal to the excess of (A) the value, as determined by the
               Committee in its absolute discretion, of the property (including
               cash) received by the holder of a share of Stock as a result of
               such event, over (B) the exercise price of such Option; or

          (ii) provide for the exchange of each Option outstanding immediately
               prior to such event (whether or not then exercisable) for an
               option on some or all of the property for which such Option is
               exchanged and, incident thereto, make an equitable adjustment as
               determined by the Committee in its absolute discretion in the
               exercise price of the Option, or the number of shares or amount
               of property subject to the Option or, if appropriate, provide for
               a cash payment to the Participant to whom such Option was granted
               in partial consideration for the exchange of the Option.

     (d)  Outstanding Options: Other Changes
          ----------------------------------

          In the event of any change in the capitalization of the Company or
          corporate change other than those specifically referred to in Sections
          5.3(a), (b) or (c) hereof, the Committee may, in its absolute
          discretion, make such adjustments in the number and class of shares
          subject to Options outstanding on the date on which such change occurs
          and in the per share exercise price of each such Option as the
          Committee may consider appropriate to prevent dilution or enlargement
          of rights.

     (e)  No Other Rights
          ---------------

          Except as expressly provided in the Plan, no Participant shall have
          any rights by reason of any subdivision or consolidation of shares of
          stock of any class, the payment of any dividend, any increase or
          decrease in the number of shares of stock of any class or any
          dissolution, liquidation, merger or consolidation of the Company or
          any other corporation.  Except as expressly provided in the Plan, no
          issuance by the Company of shares of stock of any class, or securities
          convertible into shares of stock of any class, shall affect, and no
          adjustment by reason thereof shall be made with respect to, the

                                      -9-
<PAGE>
 
          number of shares of Stock subject to, or the Exercise Price of, any
          Option granted under the Plan.

                                     -10-
<PAGE>
 
                                  ARTICLE VI
                               DURATION OF PLAN

The Plan shall remain in effect, subject to the Board's right to terminate the
Plan pursuant to Article X, until all Stock subject to the Plan shall have been
purchased or acquired pursuant to the provisions hereof.  Notwithstanding the
foregoing, no Option may be granted under the Plan on or after the tenth
anniversary of the Effective Date of the Plan.

                                     -11-
<PAGE>
 
                                  ARTICLE VII
                               TERMS OF OPTIONS

7.1   Grant of Options.
      ---------------- 

      Subject to the provisions of Section 5.1 and Articles III and VI, Options
      may be granted to Participants at any time following the Effective Date of
      the Plan as determined by the Committee. With input from the President,
      the Committee shall have complete discretion in determining the number of
      Options granted to each Participant. The Committee shall also determine
      whether an Option is to be an Incentive Stock Option, or a Non-Qualified
      Stock Option or a combination of both, which shall be clearly designated
      by the terms of the Option Agreement. To the extent, however, that any
      Option designated as an Incentive Stock Option fails to qualify as such
      pursuant to the provisions of Section 422 of the Code, it shall
      automatically be considered a Non-Qualified Stock Option. Incentive Stock
      Options may only be granted to Participants who are employed by the
      Company or Home.

      The aggregate Fair Market Value (determined at the date of grant) of Stock
      with respect to which the Incentive Stock Options are exercisable for the
      first time by a Participant in any calendar year under this Plan or any
      other plan of the Company meeting the requirements of Section 422 of the
      Code, may not exceed $100,000. To the extent that the $100,000 limit is
      exceeded, such Options shall not be treated as Incentive Stock Options,
      and the determination of which Options are Incentive Stock Options and
      which are not Incentive Stock Options will be made on the basis of the
      order in which such Options are granted. Nothing in this Article VII of
      the Plan shall be deemed to prevent the grant of Non-Qualified Stock
      Options in excess of the maximum established by Section 422(d)(1) of the
      Code.

7.2   Option Agreement.
      ---------------- 

      Each Option shall be evidenced by an Option Agreement that shall specify
      the type of Options granted, the Exercise Price, the term of the Options,
      the number of shares of Stock subject to the Option, the vesting schedule,
      the events by which the Options become Vested, a requirement to notify the
      Committee if Stock acquired pursuant to the exercise of an Incentive Stock
      Option is disposed of prior to the expiration of the holding periods
      specified in Section 422(a)(1) of the Code (as described in Section 7.10
      hereof), and such other provisions as the Committee may determine.

7.3   Exercise Price.
      -------------- 

      Any Option granted pursuant to the Plan shall have an Exercise Price,
      defined in Section 2.1(g), that is established by the Committee.

                                     -12-
<PAGE>
 
7.4   Term of Options.
      --------------- 

      Subject to the provisions of Article VIII, each Option shall expire at
      such time as the Committee shall determine at the time it is granted;
      provided, however, that no Option shall be exercisable on or after ten
      (10) years following the date of grant. In the case of a Ten Percent
      Stockholder, such period shall not exceed five (5) years from the date of
      grant regarding any grant of an Incentive Stock Option.

7.5   Vesting of Options.
      ------------------ 

      (a)  The Committee has the discretion to determine the schedule by which
           an Option becomes exercisable. This vesting schedule shall be set
           forth in the Option Agreement.

      (b)  Notwithstanding Section 7.5(a), in the event of a Change of Control,
           any Option granted under the Plan shall become 100% Vested and
           exercisable for a period of one year or until expiration, whichever
           is earlier, except to the extent that the exercisability of any such
           Option would result in an "excess parachute payment" within the
           meaning of Section 280G of the Code, as determined by the Board based
           on information available to it at said time.

7.6   Nontransferability of Options.
      ----------------------------- 

      No Option granted under the Plan, may be sold, transferred, pledged,
      assigned, or otherwise alienated or hypothecated, otherwise than by will
      or by the laws of descent and distribution. During the lifetime of a
      Participant, Options may be exercised only by such Participant.

7.7   Restriction on Stock Transferability.
      ------------------------------------ 

      Shares of Stock purchased pursuant to an Incentive Stock Option cannot be
      sold or otherwise transferred within two (2) years from the date the
      Option was granted, or within one (1) year from the date the Option was
      exercised, whichever is later.

      Shares of Stock purchased upon exercise of an Option may not be sold or
      otherwise transferred except pursuant to transactions that are exempt from
      registration under applicable securities laws, including sales (after the
      applicable holding period) in accordance with the requirements of Rule 144
      promulgated under the Securities Act.

      The Committee may impose such restrictions on any shares of Stock acquired
      pursuant to the exercise of an Option under the Plan as it may deem
      advisable, including, without limitation, restrictions under applicable
      federal securities laws, under the requirements of any stock exchange upon
      which such shares of Stock are then listed, under any blue sky or state
      securities laws applicable to such shares and under any buy/sell
      agreements entered into by the existing stockholders, and the Articles of
      Incorporation of the Company. Certificates evidencing any shares of

                                     -13-
<PAGE>
 
      Stock acquired upon exercise of an Option shall bear a legend, describing
      any applicable transfer restrictions.

7.8   Exercise of Options.
      ------------------- 

      A Participant shall exercise an Option which has Vested by written notice
      to the Company, directed to the attention of the Secretary and delivered
      not less than five (5) business days prior to the proposed exercise date,
      specifying the number of shares of Stock to be purchased. Options shall be
      exercisable in whole or in part with respect to whole shares of Stock.
      Upon the partial exercise of an Option, the new Option Agreement shall be
      returned to the Participant with a notation thereon of the remaining
      unexercised shares of Stock subject to the Option. The Exercise Price of
      any Vested Option shall be payable to the Company in full at the time of
      the exercise of the Option either (i) in cash or its equivalent, (ii) by
      tendering shares of previously acquired Stock having a Fair Market Value
      on the date of exercise equal to the total Exercise Price (subject to any
      applicable federal and state securities laws), or (iii) by a combination
      of (i) and (ii). The notice of exercise to the Company shall be
      accompanied by the Exercise Price and the Option Agreement. The proceeds
      from such a payment shall be added to the general funds of the Company and
      shall be used for general corporate purposes.

7.9   Purchase for Investment.
      ----------------------- 

      At the time of any exercise of any Option, the Committee may, if it shall
      deem it necessary for any reason connected with any law or regulation of
      any governmental authority relating to the regulation of securities,
      require as a condition to the issuance of Stock that the Participant
      represent in writing to the Company an intention to acquire the Stock for
      the account of the Participant for investment only and not for resale or
      distribution. In the event such a representation is required and made, no
      Stock shall be issued to the Participant unless and until the Company is
      satisfied with respect to the validity of such representation.
      Certificates for Stock as to which such representations are required and
      made may, in the discretion of the Committee, be endorsed with a legend
      noting such representations and any appropriate restrictions resulting
      therefrom.

7.10  Notice of Certain Dispositions .
      ------------------------------- 

      Any Participant who disposes of any Stock acquired through the exercise of
      an Incentive Stock Option granted hereunder either (i) within two years
      from the date of the grant of the Option pursuant to which the subject
      shares were acquired or (ii) within one year after the transfer of such
      Stock to the Participant, whichever is later, shall promptly notify the
      Company of such disposition and the amount of consideration realized upon
      such disposition.

                                     -14-
<PAGE>
 
                                 ARTICLE VIII
                           TERMINATION OF EMPLOYMENT

8.1   Termination of Employment.
      ------------------------- 

      In the event that an employee Participant shall cease to be employed by
      the Company or Home for any reason other than death, Disability, or
      Termination-for-Cause, any outstanding Vested Options may be exercised by
      the Participant for a period of three (3) months following termination of
      employment, or such earlier date as the Options would have expired
      according to their terms. All non-Vested Options shall expire at the close
      of business on the date of such termination.

8.2   Death.
      ----- 

      If the Participant shall die while in the employ of the Company or Home,
      the Participant's estate or personal representative shall have the right
      to exercise any outstanding Vested Options for a period of one (1) year
      from said date of death or such earlier date as the Options would have
      expired according to their terms. All non-Vested Options shall expire at
      the close of business on the date of death of the Participant.

8.3   Permanent Disability.
      -------------------- 

      In the event the Participant shall cease to be employed by the Company or
      Home by reason of Permanent Disability, any outstanding Vested Options may
      be exercised by the Participant for a period of the earlier of one (1)
      year following termination of employment, or the expiration date of the
      Options. All non-Vested Options shall expire at the close of business on
      the date of termination of employment.

8.4   Termination-for-Cause.
      --------------------- 

      In the event the Participant shall cease to be employed by the Company or
      Home by reason of Termination-for-Cause, any outstanding Options, whether
      Vested or not, shall immediately expire at the close of business on the
      date of termination of employment and may no longer be exercised.

                                     -15-
<PAGE>
 
                                  ARTICLE IX
                           NO CONTRACT OF EMPLOYMENT

Nothing in the Plan shall interfere with or limit in any way the right of the
Company or Home to terminate any Participant's employment at any time, nor does
participation in the Plan confer upon any Participant any right to continue in
the employ of the Company or Home.

                                     -16-
<PAGE>
 
                                   ARTICLE X
               AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN

The Board may at any time terminate, and from time to time may amend or modify
the Plan, provided, however, that no such action of the Board, without the
approval by vote of the holders of a majority of the outstanding shares of Stock
may:

     (a)  Increase the total amount of Stock which may be issued under the Plan,
          except as provided in Sections 5.1 and 5.3 of the Plan.

     (b)  Change the class of individuals eligible to receive Options.

     (c)  Change the provisions of the Plan regarding the Exercise Price, except
          as permitted by Section 5.3.

     (d)  Materially increase the cost of the Plan or materially increase the
          benefits to Participants.

     (e)  Extend the period during which Options may be granted under the Plan.

     (f)  Extend the maximum period after the date of grant during which Options
          may be exercised.

No amendment, modification, or termination of the Plan shall in any manner
adversely affect any Option previously granted under the Plan without the
consent of the affected Participant.

                                     -17-
<PAGE>
 
                                  ARTICLE XI
                                WITHHOLDING TAX

Whenever shares of Stock are to be issued under the Plan, the Company shall have
the power to require the recipient of the Stock to remit to the Company an
amount sufficient to satisfy federal, state, and local tax and payroll
withholding requirements deemed by the Company to be applicable in its sole
discretion.  The Company may also deduct the necessary amount of minimum
withholding from the Participant's salary or, upon the exercise of an Option,
withhold from delivery to the recipient a number of shares, the Fair Market
Value of which is sufficient to satisfy federal, state, and local minimum
withholding requirements.

                                     -18-
<PAGE>
 
                                  ARTICLE XII
                                 UNFUNDED PLAN

The Plan shall be unfunded.  The Company shall not be required to segregate any
assets that may be represented by Options.  The Company shall not be deemed to
be a trustee of any amounts to be paid under any Option.  Any liability of the
Company to pay any Participant with respect to an Option shall be based solely
upon any contractual obligations created pursuant to the provisions of the Plan;
no such obligation shall be deemed to be secured by any pledge or encumbrance on
any property of the Company.

                                     -19-
<PAGE>
 
                                 ARTICLE XIII
                              REQUIREMENT OF LAW

13.1  Requirement of Law.
      ------------------ 

      The granting of Options and the issuance of shares of Stock shall be
      subject to all applicable laws, rules, and regulations, and to such
      approvals by any governmental agencies or national securities exchanges as
      may be required. The Company shall be under no obligation to effect the
      registration pursuant to the Securities Act of any shares of Stock to be
      issued hereunder or to effect similar compliance under any state laws.
      Notwithstanding anything herein to the contrary, the Company shall not be
      obligated to cause to be issued or delivered any certificates evidencing
      shares of Stock pursuant to the Plan, unless and until the Company is
      advised by its counsel that the issuance and delivery of such certificates
      is in compliance with all applicable laws, regulations of governmental
      authority and the requirements of any securities exchange on which shares
      of Stock are traded. The Committee may require, as a condition of the
      issuance and delivery of certificates evidencing shares of Stock pursuant
      to the terms hereof, that the recipient of such shares make such
      covenants, agreements and representations, and that such certificates bear
      such legends, as the Committee, in its sole discretion, deems necessary or
      desirable.

      The exercise of any Option granted hereunder shall only be effective at
      such time as counsel to the Company shall have determined that the
      issuance and delivery of shares of Stock pursuant to such exercise is in
      compliance with all applicable laws, regulations of governmental
      authorities and the requirements of any securities exchange on which
      shares of Stock are traded.

13.2  Governing Law.
      ------------- 

      The Plan, and all agreements hereunder, shall be construed in accordance
      with and governed by the laws of the State of Texas and applicable federal
      law. No person shall have any rights as a stockholder with respect to any
      shares of Stock covered by or relating to any Option granted pursuant to
      this Plan until the date of the issuance of a stock certificate with
      respect to such shares. Except as otherwise expressly provided in Section
      5.3 hereof, no adjustment to any Option shall be made for dividends or
      other rights for which the record date occurs prior to the date such stock
      certificate is issued.

                                     -20-
<PAGE>
 
                                                                      Appendix A

                      HOMECAPITAL INVESTMENT CORPORATION

                          INCENTIVE OR NON-QUALIFIED
                          --------------------------

                            STOCK OPTION AGREEMENT
                            ----------------------
                                        

     THIS STOCK OPTION AGREEMENT ("Agreement") is entered into between
HomeCapital Investment Corporation Holding Company ("Company"), a Nevada
corporation and __________________________ ("Grantee").

                                  WITNESSETH:

     WHEREAS, the Board of Directors ("Board") of the Company has approved the
grant of stock options to directors, executive officers and key employees
pursuant to the HomeCapital Investment Corporation 1996 Stock Option Plan
("Plan"); and

     WHEREAS, the Grantee is an employee of the Company or HomeOwners Mortgage &
Equity, Inc., a Delaware corporation and wholly-owned subsidiary of the Company
("Home"), and has been selected to receive Incentive Stock Options and/or Non-
Qualified Stock Options under the Plan.

     NOW, THEREFORE, in consideration of the premises, the Company and the
Grantee agree as follows:
                          I.  GRANT OF STOCK OPTIONS

     Incentive Stock Options.  Subject to the terms and conditions set forth
     -----------------------                                                
herein and in the Plan which is attached hereto and incorporated herein by
reference and made a part hereof for all purposes, the Grantee is hereby awarded
Incentive Stock Options to purchase ____________ shares of the Company's common
stock, par value $.01 per share (the "Stock").  For purposes of this Agreement
the date of grant of the Option is __________________.  As of the date of grant,
this Option shall have an Exercise Price equal to _______ per share.

     Non-Qualified Stock Options.  Subject to the terms and conditions set forth
     ---------------------------                                                
herein and in the Plan which is attached hereto and incorporated herein by
reference and made a part hereof for all purposes, the Grantee is hereby awarded
Non-Qualified Stock Options to purchase ___________ shares of the Company's
common stock, par value $.01 per share (the "Stock").  For purposes of this
Agreement, the date of grant of the Option is ________________.  As of the date
of grant, this Option shall have an Exercise Price equal to _______ per share.

                                     -21-
<PAGE>
 
                            II.  VESTING OF OPTIONS

     The Grantee may exercise this Option only with respect to those shares that
have vested in accordance with this Section II.  Options granted pursuant to
this Agreement shall vest during Grantee's employment with the Company with
respect to ___________ percent (__%) of the shares of Stock subject to this
Agreement each year beginning on _________________, 199_, and shall be fully
vested on __________________, 199_.

     In event of a Change of Control (as defined in the Plan) of the Company,
all Options subject to this Agreement will be fully vested.

     This Option may not be exercised after the earlier of (i) _____________ (no
longer than ten years following the date of grant), or (ii) the day that is
three (3) months (one year in the event of disability or if employment is
terminated by death) after the date of termination of the employment of Grantee.

     Neither Grantee nor any other person entitled to exercise the Option under
the terms of the Plan shall be, or have any of the rights or privileges of, a
stockholder of the Company in respect of any shares of Stock issuable on
exercise of the Option, unless and until the Exercise Price for such shares has
been paid in full.

                          III.  EXERCISE AND PAYMENT

     Subject to the limitations set forth in this Agreement, the Grantee may
exercise this Option by delivering, no less than five (5) business days prior to
the proposed date of exercise, written notice to the Secretary of the Company
specifying the number of shares of Stock to be purchased.  The Exercise Price of
any Option shall be payable to the Company in full at the time of exercise of
the Option either (i) in cash or its equivalent, (ii) by tendering shares of
Stock previously acquired by the Grantee having a Fair Market Value on the date
of exercise equal to the total Exercise Price, or (iii) by a combination of (i)
and (ii).

     Any Option granted under the Plan may be exercised by a broker-dealer
acting on behalf of a Participant if (i) the broker-dealer has received from the
Participant or the Company a duly endorsed Stock Option Agreement evidencing
such Option and instructions signed by the Participant requesting the Company to
deliver the shares of Stock subject to such Option to the broker-dealer on
behalf of the Participant and specifying the account into which such shares
should be deposited, (ii) adequate provision has been made with respect to the
payment of any withholding taxes due on such exercise and (iii) the broker-
dealer and the Participant have otherwise complied with Section 220.3(e)(4) of
Regulation T, 12 CFR Part 220.

     Notation of any partial exercise shall be made by the Company on Schedule 1
attached hereto, and thereafter this Agreement shall be effective only as to the
balance of the Option shares remaining.

                                     -22-
<PAGE>
 
                          IV.  DISPOSITIONS OF STOCK

     Grantee hereby recognizes that the Options granted pursuant to this
Agreement may not be transferred, except by will or under the laws of intestacy,
descent and distribution upon the death of Grantee; and represents and warrants
that shares of Stock acquired upon exercise of the Option shall be acquired only
for the account of Grantee and not with a view to resale or distribution.  In no
event shall Grantee sell or otherwise dispose of shares of Stock acquired upon
exercise of the Option prior to two (2) years from the date of grant of the
Option or one (1) year from the date the shares of Stock were acquired, whatever
is later.  No sale or disposition of shares of Stock will be permitted, unless
the Company is satisfied, by opinion of legal counsel satisfactory to the
Company at the expense of the Grantee, that the proposed transaction is exempt
from registration or qualification under, or otherwise complies with, applicable
securities laws.

     The Grantee shall be required to promptly notify the Company in the event
of a sale or other disposition of any Stock acquired through the exercise of an
Incentive Stock Option granted hereunder either (i) within two (2) years from
the date of grant of the Option pursuant to which the subject shares of Stock
were acquired, or (ii) within one (1) year after the acquisition of such Stock
pursuant to the exercise of the Option.  The Grantee shall also be required to
disclose in the notice to the Company the amount of consideration realized upon
such disposition.

                                  V.  GENERAL

     Administration.  Administration of this agreement will be governed by the
     --------------                                                           
terms and conditions set forth in the HomeCapital Investment Corporation 1996
Stock Option Plan (the "Plan") in effect on the date of this grant, which
document is incorporated herein in its entirety.

     Notices.  Every notice or other communication relating to this Agreement
     -------                                                                 
shall be in writing, and shall be mailed to or delivered to the party for whom
its is intended at such address as may from time to time be designated by such
party.  Unless and until some other address is so designated, all notices or
communications by the Grantee to the Company shall be mailed to HomeCapital
Investment Corporation, 6836 Austin Center Blvd., Suite 280, Austin, Texas
78731, Attention: John W. Ballard, President.

     All notices by the Company to the Grantee may be delivered to the Grantee
personally or may be mailed to the Grantee at the address shown on the records
of the Company.

     Withholding.  The Company shall deduct from a payment of any kind due to
     -----------                                                             
the Grantee, any federal, state or local taxes of any kind required by law to be
withheld with respect to the exercise of the Stock Options.

     Interpretation.  This Agreement is subject in all respects to the terms of
     --------------                                                            
the Plan, and in the event that any provision of the Agreement shall be
inconsistent with the terms of the Plan, then the terms of the Plan shall
govern.  Any question of interpretation arising

                                     -23-
<PAGE>
 
under this Agreement shall be determined by the Committee and its determinations
shall be final and conclusive upon all parties in interest.

     Counterparts.  This Agreement may be executed in one or more counterparts,
     ------------                                                              
each counterpart of which will be regarded for all purposes as an original.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
_______ day of ___________________, 19_______.

GRANTEE:                      COMPANY:

                              HOMECAPITAL INVESTMENT CORPORATION



_________________________     By:  ____________________________________
Name:                              JOHN W. BALLARD, President

Address: ________________
_________________________
_________________________

                                     -24- 
<PAGE>
 
                                  SCHEDULE 1
                                  ----------

                       NOTATIONS AS TO PARTIAL EXERCISE


Date of          Number of         Balance of      Authorized     Notation
Exercise      Purchased Shares    Option Shares    Signature        Date
---------------------------------------------------------------------------