Exhibit 10.2




 





 


 


 


 


CREDIT AGREEMENT


 


 






 


 


 


RYLAND MORTGAGE COMPANY,


as Borrower


 


 


GUARANTY BANK


as Lender


 


 






 


 


 


January 24, 2008


 


 


 




 





 













 


	
  TABLE
  OF CONTENTS

  
	
   

  
	
   

  	
   

  	
  Page

  
	
   

  	
   

  
	
  ARTICLE
  I

  	
  GENERAL TERMS

  	
  1

  
	
   

  	
   

  
	
  Section 1.1

  	
  Certain Definitions

  	
  1

  
	
  Section 1.2

  	
  Exhibits and Schedules

  	
  17

  
	
  Section 1.3

  	
  Calculations and Determinations

  	
  17

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  II

  	
  AMOUNT AND TERMS OF LOANS

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 2.1

  	
  Commitment and Loans

  	
  17

  
	
  Section 2.2

  	
  Promissory Note; Interest on the Note

  	
  17

  
	
  Section 2.3

  	
  Notice and Manner of Obtaining Loans

  	
  17

  
	
  Section 2.4

  	
  Fees

  	
  19

  
	
  Section 2.5

  	
  Mandatory Repayments

  	
  19

  
	
  Section 2.6

  	
  Payments to Lender

  	
  19

  
	
  Section 2.7

  	
  Increased Cost and Reduced Return

  	
  20

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  III

  	
  CONDITIONS PRECEDENT

  	
  21

  
	
   

  	
   

  	
   

  
	
  Section 3.1

  	
  Initial Loan

  	
  21

  
	
  Section 3.2

  	
  All Loans

  	
  22

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IV

  	
  BORROWER REPRESENTATIONS AND WARRANTIES

  	
  23

  
	
   

  	
   

  	
   

  
	
  Section 4.1

  	
  Organization and Good Standing

  	
  23

  
	
  Section 4.2

  	
  Authorization and Power

  	
  23

  
	
  Section 4.3

  	
  No Conflicts or Consents

  	
  23

  
	
  Section 4.4

  	
  Enforceable Obligations

  	
  24

  
	
  Section 4.5

  	
  Priority of Liens

  	
  24

  
	
  Section 4.6

  	
  No Liens

  	
  24

  
	
  Section 4.7

  	
  Financial Condition of Borrower

  	
  24

  
	
  Section 4.8

  	
  Full Disclosure

  	
  24

  
	
  Section 4.9

  	
  No Default

  	
  24

  
	
  Section 4.10

  	
  No Litigation

  	
  24

  
	
  Section 4.11

  	
  Taxes

  	
  25

  
	
  Section 4.12

  	
  Principal Office, etc

  	
  25

  
	
  Section 4.13

  	
  Compliance with ERISA

  	
  25

  
	
  Section 4.14

  	
  Subsidiaries

  	
  25

  
	
  Section 4.15

  	
  Indebtedness

  	
  25

  
	
  Section 4.16

  	
  Permits, Patents, Trademarks, etc.

  	
  25

  
	
  Section 4.17

  	
  Status Under Certain Federal Statutes

  	
  25

  
	
  Section 4.18

  	
  Securities Act

  	
  25

  
	
  Section 4.19

  	
  No Approvals Required

  	
  26

  
	
  Section 4.20

  	
  Survival of Representations

  	
  26

  
	
  Section 4.21

  	
  Compliance with Laws

  	
  26

  
	
  Section 4.22

  	
  Payment of Obligations

  	
  26

  
	
  Section 4.23

  	
  Individual Mortgage Loans

  	
  26

  
	
  Section 4.24

  	
  Environmental Matters

  	
  27

  
	
  Section 4.25

  	
  Status as Approved Seller/Servicer

  	
  28

  
	
  Section 4.26

  	
  Regulation U

  	
  28

  
					



 


i













 


	
  TABLE
  OF CONTENTS

  
	
   

  
	
   

  	
   

  	
  Page

  
	
   

  	
   

  
	
  ARTICLE
  V

  	
  AFFIRMATIVE COVENANTS

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 5.1

  	
  Financial Statements and Reports

  	
  28

  
	
  Section 5.2

  	
  Taxes and Other Liens

  	
  30

  
	
  Section 5.3

  	
  Maintenance

  	
  30

  
	
  Section 5.4

  	
  Further Assurances

  	
  31

  
	
  Section 5.5

  	
  Reimbursement of Expenses

  	
  31

  
	
  Section 5.6

  	
  Insurance

  	
  31

  
	
  Section 5.7

  	
  Accounts and Records: Servicing Records

  	
  32

  
	
  Section 5.8

  	
  Right of Inspection

  	
  32

  
	
  Section 5.9

  	
  Notice of Certain Events

  	
  32

  
	
  Section 5.10

  	
  Performance of Certain Obligations and Information
  Regarding Investors

  	
  33

  
	
  Section 5.11

  	
  Use of Proceeds: Margin Stock

  	
  33

  
	
  Section 5.12

  	
  Notice of Default

  	
  33

  
	
  Section 5.13

  	
  Compliance with Loan Documents

  	
  33

  
	
  Section 5.14

  	
  Operations and Properties

  	
  33

  
	
  Section 5.15

  	
  Environmental Matters

  	
  33

  
	
  Section 5.16

  	
  MERS Status

  	
  34

  
	
  Section 5.17

  	
  Hedging Arrangements

  	
  34

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VI

  	
  NEGATIVE COVENANTS

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 6.1

  	
  No Merger; Limitation on Issuance of Securities

  	
  35

  
	
  Section 6.2

  	
  Limitation on Indebtedness

  	
  35

  
	
  Section 6.3

  	
  Fiscal Year, Method of Accounting

  	
  35

  
	
  Section 6.4

  	
  Business

  	
  35

  
	
  Section 6.5

  	
  Liquidations, Consolidations and Dispositions of
  Substantial Assets

  	
  35

  
	
  Section 6.6

  	
  Loans, Advances, and Investments

  	
  36

  
	
  Section 6.7

  	
  Use of Proceeds

  	
  36

  
	
  Section 6.8

  	
  Actions with Respect to Mortgage Collateral

  	
  36

  
	
  Section 6.9

  	
  Transactions with Affiliates

  	
  37

  
	
  Section 6.10

  	
  Liens

  	
  37

  
	
  Section 6.11

  	
  ERISA Plans

  	
  37

  
	
  Section 6.12

  	
  Change of Principal Office

  	
  37

  
	
  Section 6.13

  	
  Tangible Net Worth

  	
  37

  
	
  Section 6.14

  	
  Total Indebtedness to Adjusted Tangible Net Worth

  	
  37

  
	
  Section 6.15

  	
  Profitability

  	
  37

  
	
  Section 6.16

  	
  Adjusted Tangible Net Worth

  	
  37

  
	
  Section 6.17

  	
  Dividends

  	
  38

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VII

  	
  EVENTS OF DEFAULT

  	
  38

  
	
   

  	
   

  	
   

  
	
  Section 7.1

  	
  Nature of Event

  	
  38

  
	
  Section 7.2

  	
  Default Remedies

  	
  40

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII

  	
  INDEMNIFICATION

  	
  40

  
				



 


ii













 


	
  TABLE
  OF CONTENTS

  
	
   

  
	
   

  	
   

  	
  Page

  
	
   

  	
   

  
	
  Section 8.1

  	
  Indemnification

  	
  40

  
	
  Section 8.2

  	
  Limitation of Liability

  	
  41

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IX

  	
  MISCELLANEOUS

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 9.1

  	
  Notices

  	
  41

  
	
  Section 9.2

  	
  Amendments, Etc

  	
  42

  
	
  Section 9.3

  	
  CHOICE OF LAW; VENUE

  	
  42

  
	
  Section 9.4

  	
  Invalidity

  	
  43

  
	
  Section 9.5

  	
  Survival of Agreements

  	
  43

  
	
  Section 9.6

  	
  Renewal, Extension or Rearrangement

  	
  43

  
	
  Section 9.7

  	
  Waivers

  	
  43

  
	
  Section 9.8

  	
  Cumulative Rights

  	
  43

  
	
  Section 9.9

  	
  Limitation on Interest

  	
  43

  
	
  Section 9.10

  	
  Bank Accounts; Offset

  	
  44

  
	
  Section 9.11

  	
  Assignments, Participations

  	
  44

  
	
  Section 9.12

  	
  Exhibits and Schedules

  	
  45

  
	
  Section 9.13

  	
  Titles of Articles, Sections and Subsections

  	
  45

  
	
  Section 9.14

  	
  Counterparts; Fax

  	
  45

  
	
  Section 9.15

  	
  Termination: Limited Survival

  	
  45

  
	
  Section 9.16

  	
  Disclosures

  	
  45

  
	
  Section 9.17

  	
  Time is of the Essence

  	
  46

  
	
  Section 9.18

  	
  USA Patriot Act Notice

  	
  46

  
	
  Section 9.19

  	
  Electronic Transactions

  	
  46

  
	
  Section 9.20

  	
  No Reliance

  	
  46

  
	
  Section 9.21

  	
  Confidential Information.

  	
  46

  
	
  Section 9.22

  	
  WAIVER OF JURY TRIAL

  	
  48

  
	
  Section 9.23

  	
  CONSEQUENTIAL DAMAGES

  	
  48

  
	
  Section 9.24

  	
  ENTIRE AGREEMENT

  	
  49

  
				



 


iii













 


TABLE OF CONTENTS


(continued)


 


	
  SCHEDULES

  	
   

  
	
   

  	
   

  
	
  Schedule 1.1

  	
  Approved Investors

  
	
   

  	
   

  
	
  Schedule 4.14

  	
  Subsidiaries

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  EXHIBITS

  	
   

  
	
   

  	
   

  
	
  Exhibit A

  	
  Form of Note

  
	
   

  	
   

  
	
  Exhibit B

  	
  Form of Borrowing
  Request

  
	
   

  	
   

  
	
  Exhibit C

  	
  Certificate
  Accompanying Financial Statement

  
	
   

  	
   

  
	
  Exhibit D

  	
  Borrowing Base
  Certificate

  
	
   

  	
   

  
	
  Exhibit E

  	
  Form of Security Agreement

  



 


iv


 












 


CREDIT AGREEMENT


 


THIS CREDIT AGREEMENT is made and entered into as of January 24,
2008, between RYLAND MORTGAGE COMPANY, an Ohio corporation (“Borrower”), and
GUARANTY BANK (“Lender”).


 


The parties hereto hereby agree as follows:


 


ARTICLE I



GENERAL TERMS


 


Section 1.1             Certain
Definitions.  As used in this
Agreement, the following terms have the following meanings:


 


“Adjusted Floating LIBOR”
means, for any day, the rate per annum equal to the sum of the Floating LIBOR
for such day plus the Applicable Floating LIBOR Margin, provided that the
Adjusted Floating LIBOR shall never exceed the Maximum Rate.


 


“Applicable Floating LIBOR Margin”
means nine-tenths percent (0.90%) per annum.


 


“Adjusted Tangible Net Worth”
means, as of any date, the Tangible Net Worth of Borrower minus
the outstanding amount of Intercompany Loans.


 


“Affiliate”
means, as to any Person, each other Person that directly or indirectly (through
one or more intermediaries or otherwise) controls, is controlled by, or is
under common control with, such Person.


 


“Aged Loan”
means an Eligible Mortgage Loan which has been included in the Borrowing Base
for more than sixty (60) days but less than or equal to one hundred and twenty
(120) days.


 


“Agreement”
means this Credit Agreement, as the same may from time to time be amended,
supplemented or restated.


 


“Agreement to
Pledge” means each agreement by Borrower set forth in a
Borrowing Request for Wet Loans, to deliver Required Mortgage Documents to
Lender.


 


“Applicable
Advance Rate Percentage”  means, for each Mortgage Loan classification listed
below, the percentage listed opposite such Mortgage Loan classification:


 


	
  Prime
  Loan (Dry Loan)

  	
   

  	
  98

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Prime
  Loan (Wet Loan)

  	
   

  	
  98

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Second
  Lien Loan (Dry Loan)

  	
   

  	
  90

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Second
  Lien Loan (Wet Loan)

  	
   

  	
  90

  	
  %

  



 


1













 


“Applicable Sublimit” means,
for each Mortgage Loan classification listed below, the percentage of the total
Commitment listed opposite such Mortgage Loan classification:


 


	
  Wet
  Loans

  	
   

  	
  35

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Second
  Lien Loans

  	
   

  	
  5

  	
  %

  



 


provided, however, that in the last five and first five
Business Days of every calendar month the Applicable Sublimit for Wet Loans
shall be 50% of the Commitment.


 


“Appraised Value”
means, for any Mortgage Loan, the current appraised value of the property
secured by the Mortgage as determined by an appraisal performed in full
compliance with FNMA/FHLMC appraisal requirements and on an appraisal form
approved by FNMA or FHLMC, and performed by a state licensed or state-certified
real estate appraiser (in accordance with the provisions of Title XI of
FIRREA).


 


“Borrower”
shall have the meaning assigned to such term in the preamble hereof.


 


“Borrowing”
means a borrowing of a new Loan.


 


“Borrowing Base”
means at any date all Eligible Mortgage Loans which have been delivered to and
held by Lender or otherwise identified as Mortgage Collateral.


 


“Borrowing Base
Certificate” means a certificate describing the Eligible
Mortgage Loans to be included in the Borrowing Base in a form acceptable to
Lender.


 


“Borrowing
Request” means a request, in the form of Exhibit B,
for a Loan pursuant to Article II.


 


“Business Day”
means a day, other than a Saturday or Sunday, on which commercial banks are
open for business with the public in Dallas, Texas.  Any Business Day in any way relating to the
LIBOR must also be a day on which, in the judgment of Lender, significant
transactions in dollars are carried out in the interbank Eurocurrency market.


 


“Cash
Equivalents” means (i) securities issued or directly and
fully guaranteed or insured by the United States Government or any agency or
instrumentality thereof which mature within ninety (90) days from the date of
acquisition, and (ii) time deposits and certificates of deposit, which
mature within ninety (90) days from the date of acquisition, of Lender or any
other domestic commercial bank having capital and surplus in excess of
$200,000,000, which has, or the holding company of which has, a commercial
paper rating of at least A-1 or the equivalent thereof by Standard &
Poors (a division of the McGraw-Hill Companies) or P-1 or the equivalent
thereof by Moody’s Investors Service, Inc.


 


“Change of
Control” means the Parent ceases to own one hundred percent
(100%) of the voting power of the voting stock of Borrower.


 


“CLTV”
means to any Mortgage Loan, the ratio expressed as a percentage determined by
dividing (i) the total amount owing and outstanding on all loans secured
by the residential real 


 


2













 


property and improvements serving as collateral for
the Mortgage Loan, by (ii) the Appraised Value of the residential real
property and improvements serving as collateral for the Mortgage Loan.


 


“Code”
means the Internal Revenue Code of 1986, as amended.


 


“Collateral”
has the meaning given to it in the Security Agreement.


 


“Collateral
Value of the Borrowing Base” means, on any day, the sum of the
Unit Collateral Values of all Eligible Mortgage Loans included in the Borrowing
Base on such day as determined by Lender based on information then available to
Lender.


 


“Commitment”
means at any date, the obligation of the Lender to make Loans to Borrower
pursuant to Section 2.1 hereof in an aggregate outstanding amount
not to exceed at any time $40,000,000.


 


“Confidential Information”
means, with respect to a Person, information about hardware, software, screens,
specifications, designs, plans, drawings, data, prototypes, discoveries,
research, developments, methods, processes, procedures, improvements, “know-how”,
compilations, market research, marketing techniques and plans, business plans
and strategies, customer names and all other information related to or provided
by customers, price lists, pricing policies and financial information or other
business and/or technical information and materials, in oral, demonstrative,
written, graphic or machine-readable form, which is (i) unpublished, (ii) not
available to the general public or trade, and (iii) maintained as
confidential and proprietary information by the disclosing party for
regulatory, customer relations, and/or competitive reasons.  Confidential Information also includes such
confidential and proprietary information or material belonging to a disclosing
party or to which the other party may obtain knowledge or access through or as
a result of the performance of its obligations under this Agreement.  Confidential Information also includes any
information described above which the disclosing party has obtained in
confidence from another party who treats it as proprietary or designates it as
Confidential Information, whether or not owned or developed by the disclosing
party.  Without limiting the foregoing,
Confidential Information includes all such information provided to each party
by the other party both before and after the date of this Agreement and also
includes the terms of this Agreement.


 


“Conforming Loan”
means a Mortgage Loan which (i) receives one of the following responses
from Fannie Mae Desktop Underwriter: (a) Approve/Eligible, (b) Approve/Ineligible,
(c) Refer/Eligible, or (d) EA-I,-II,-III/Eligible, or (ii) receives
one of the following responses from Freddie Mac Loan Prospector: (x) Accept/Accept,
or (y) A-Minus, or (iii) receives an Accept from Clout/Clues.  Mortgage Loans receiving a “Refer/Eligible”
response must be accompanied by the Investor’s approval to the exception.  Mortgage Loans receiving approval under the “Expanded
Approval” (“EA”) criteria or “A-Minus” criteria are permitted only if Borrower
provides Lender with a copy of the Fannie Mae or Freddie Mac contract which
allows delivery by Borrower for this loan type. 
Mortgage Loans receiving an “Approve/Ineligible” response are permitted
only if Borrower or applicable take-out investor represents and warrants to
Lender that Borrower possesses an agency waiver with respect to such Mortgage
Loan, thereby making such Mortgage Loan agency eligible.


 


3













 


“Consolidated”
refers to the consolidation of any Person, in accordance with GAAP, with its
properly consolidated subsidiaries. 
References herein to a Person’s Consolidated financial statements,
financial position, financial condition, liabilities, etc. refer to the
consolidated financial statements, financial position, financial condition,
liabilities, etc. of such Person and its properly consolidated subsidiaries.


 


“Debtor Laws”
means all applicable liquidation, conservatorship, bankruptcy, moratorium,
arrangement, receivership, insolvency, reorganization or similar Laws from time
to time in effect affecting the rights of creditors generally and general
principles of equity.


 


“Default”
means any of the events specified in Section 7.1 hereof, whether or
not any requirement for notice or lapse of time or any other condition has been
satisfied.


 


“Default Rate”
means, at the time in question, with respect to all Obligations, the sum of (i) four
percent (4%) per annum, plus (ii) the per annum interest rate
otherwise payable in respect of the Obligations; provided that in no event
shall the Default Rate ever exceed the Maximum Rate.


 


“Dividends,”
in respect of any corporation, means:  (a) cash
distributions or any other distributions on, or in respect of, any class of
equity security of such corporation, except for distributions made solely in
shares of securities of the same class; and (b) any and all funds, cash or
other payments made in respect of the redemption, repurchase or acquisition of
such securities.


 


“Drawdown
Termination Date” means the earlier of January 22, 2009, or
the day on which the Note first becomes due and payable in full.


 


“Dry Loan”
means an Eligible Mortgage Loan included in the Borrowing Base and for which
the Required Mortgage Documents have been delivered to Lender.


 


“Eligible
Mortgage Loan” means a Mortgage Loan with respect to which each
of the following statements is accurate and complete (and the Borrower by
including such Mortgage Loan in any computation of the Collateral Value of the
Borrowing Base shall be deemed to so represent and warrant to Lender at and as
of the date of such computation):


 


(a)           Such Mortgage Loan is a binding and
valid obligation of the Obligor thereon, in full force and effect and
enforceable in accordance with its terms, except as enforceability may be
limited by Debtor Laws;


 


(b)           The Mortgage Note evidencing such
Mortgage Loan is genuine in all respects as appearing on its face and as
represented in the books and records of Borrower, and all information set forth
therein is true and correct;


 


(c)           Such Mortgage Loan is free of any
default (other than as permitted by subparagraph (d) below) of
any party thereto (including Borrower), counterclaims, offsets and defenses,
including the defense of usury, and from any rescission, cancellation or
avoidance, and all right thereof, whether by operation of law or otherwise;


 


4













 


(d)           No payment under such Mortgage Loan
is more than thirty (30) days past due the payment due date set forth in the
underlying Mortgage Note and Mortgage;


 


(e)           The Mortgage Note evidencing such
Mortgage Loan contains the entire agreement of the parties thereto with respect
to the subject matter thereof, has not been modified or amended in any respect
not expressed in writing therein and is free of concessions or understandings
with the Obligor thereon of any kind not expressed in writing therein;


 


(f)            Such Mortgage Loan is in all
respects in accordance with all Requirements of Law applicable thereto,
including, without limitation, the federal Consumer Credit Protection Act and
the regulations promulgated thereunder and all applicable usury Laws and
restrictions, and all notices, disclosures and other statements or information
required by Law or regulation to be given, and any other act required by Law or
regulation to be performed, in connection with such Mortgage Loan have been
given and performed as required;


 


(g)           All advance payments and other
deposits on such Mortgage Loan have been paid in cash, and no part of said sums
has been loaned, directly or indirectly, by Borrower to the Obligor, and, other
than as disclosed to Lender in writing, there have been no prepayments;


 


(h)           Such Mortgage Loan will be free and
clear of all Liens, except Permitted Liens;


 


(i)            The Property covered by such
Mortgage Loan is insured against loss or damage by fire and all other hazards
normally included within standard extended coverage in accordance with the
provisions of such Mortgage Loan with Borrower named as a loss payee thereon;


 


(j)            Such Mortgage Loan is secured by a
first Mortgage, or in the case of any Second Lien Loan, a second Mortgage, on
Single Family property;


 


(k)           The date of origination of such
Mortgage Loan is not more than thirty (30) days prior to the date such Mortgage
Loan was first included in the Borrowing Base;


 


(l)            Such Mortgage Loan has not been
included in the Borrowing Base for more than one hundred and twenty (120) days;


 


(m)          If such Mortgage Loan is included in
the Borrowing Base and has been withdrawn from the possession of the Lender on
terms and subject to conditions set forth in the Security Agreement:


 


(i)            If such Mortgage Loan was withdrawn
by Borrower for purposes of correcting clerical or other non-substantive
documentation problems, the promissory note and other documents relating to
such Mortgage Loan are returned to the Lender within ten (10) Business
Days from the date of withdrawal; and the Unit Collateral Value of such
Mortgage Loan when added to the Unit Collateral 


 


5













 


Value of other Mortgage
Loans which have been similarly released to Borrower and have not been returned
does not exceed ten percent (10%) of the Commitment;


 


(ii)           If such Mortgage Loan was shipped by
the Lender directly to a permanent investor for purchase or to a custodian for
the formation of a pool, (x) such investor or custodian is in full compliance
with the terms of the bailee letter under which such Mortgage Loan was shipped,
and (y) the full purchase price for such Mortgage Loan has been received
by the Lender (or such Mortgage Loan has been returned to the Lender) within
forty-five (45) calendar days from the date of shipment by the Lender;


 


(n)           Such Mortgage Loan is subject to (A) a
Take-Out Commitment which is in full force and effect or (B) a Hedging
Arrangement which is acceptable to the Lender in its sole and absolute
discretion;


 


(o)           Such Mortgage Loan is a Prime Loan;


 


(p)           If such Mortgage is a Second Lien
Loan, the Unit Collateral Value of such Mortgage Loan when added to the
Collateral Value of all other Second Lien Loans does not exceed the Applicable
Sublimit for Second Lien Loans;


 


(q)           The Required Mortgage Documents have
been delivered to Lender prior to the inclusion of such Mortgage Loan in any
computation of the Borrowing Base or, if such items have not been delivered to
Lender on or prior to the date such Mortgage Loan is first included in any
computation of the Borrowing Base, (a) Borrower has pledged and agreed to
deliver all Required Mortgage Documents pursuant to a Borrowing Request
delivered to Lender prior to such inclusion, and (b) the Unit Collateral
Value of such Mortgage Loan when added to the Unit Collateral Value of all
other Mortgage Loans for which Lender has not received the Required Mortgage
Documents does not exceed the Applicable Sublimit for Wet Loans, provided that, all Required Mortgage
Documents with respect to such Mortgage Loan shall be delivered to Lender
within seven (7) Business Days after the date of the Agreement to Pledge
with respect thereto;


 


(r)            The Property covered by such
Mortgage Loan is located within the fifty United States;


 


(s)           Such Mortgage Loan has been
underwritten by the originator thereof in accordance with such originator’s
then current underwriting guidelines, which underwriting guidelines have been
previously approved by Lender; and


 


(t)            The representations and warranties
made by the Borrower in Section 4.23 with respect to each Mortgage
Note and Mortgage Loan are true and correct.


 


“Environmental
Laws” means any and all Laws relating to (a) the protection
of the environment, (b) emissions, discharges or releases of pollutants,
contaminants, chemicals or hazardous or toxic substances or wastes into the
environment including ambient air, surface water, ground water or land, or (c) the
manufacture, processing, distribution, use, treatment, 


 


6













 


storage, disposal, transport or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or wastes or the clean-up or other remediation thereof.


 


“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended from time
to time, together with the regulations from time to time promulgated with
respect thereto.


 


“ERISA Affiliate”
means all members of the group of corporations and trades or businesses
(whether or not incorporated) which, together with Borrower, are treated as a
single employer under Section 414 of the Code.


 


“ERISA Plan”
means any pension benefit plan subject to Title IV of ERISA or Section 412
of the Code maintained or contributed to by Borrower or any ERISA Affiliate
with respect to which Borrower has a fixed or contingent liability.


 


“E-Sign Act”
means the Electronic Signatures in Global and National Commerce Act, as amended
from time to time.


 


“Event of
Default” means any of the events specified in Section 7.1
hereof, provided that any requirement in connection with such event for the
giving of notice or the lapse of time, or the happening of any further
condition, event or act has been satisfied.


 


“FHA”
means the Federal Housing Administration or any successor thereto.


 


“FHA Loan”
means a Mortgage Loan insured by the FHA.


 


“FHLMC”
or “Freddie Mac”
means the Federal Home Loan Mortgage Corporation, or any successor thereto.


 


“Financing Lease”
means (i) any lease of Property if the then present value of the minimum
rental commitment thereunder should, in accordance with GAAP, be capitalized on
a balance sheet of the lessee, and (ii) any other lease obligations which
are capitalized on a balance sheet of the lessee.


 


“FIRREA”
means the Financial Institutions Reform Recovery and Enforcement Act of 1989,
as amended from time to time, together with the regulations from time to time
promulgated with respect thereto.


 


“Fiscal Quarter”
means each period of three calendar months ending March 31, June 30, September 30
and December 31 of each year.


 


“Fiscal Year”
means each period of twelve calendar months ending December 31 of each
year.


 


“Floating LIBOR” means, for
any day, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) equal to the rate appearing on Bloomberg Professional (or, if not
available, any other nationally recognized trading screen reporting the British
Bankers’ Association LIBOR) at 10:00 a.m. (Central time) as the British
Bankers’ Association LIBOR for 


 


7













 


deposits in U.S. Dollars with a term equivalent to one
month.  In the event that such rate does
not appear on Bloomberg Professional, “Floating LIBOR” for purposes of this
definition shall be determined by reference to such other comparable publicly
available service for displaying London inter-bank offered rates as may be
selected by the Lender.


 


“FNMA”
or “Fannie Mae”
means the Federal National Mortgage Association, or any successor thereto.


 


“Full
Documentation Mortgage Loan” means a Mortgage Loan supported by
all of the customary documentation required to underwrite the Mortgage Loan,
including, without limitation, the following: 
(i) Verification of Income (“VOI”), (ii) Verification of
Assets (“VOA”), and (iii) Verification of Employment (“VOE”).


 


“Funding Account”
means the non-interest bearing demand checking account established by Borrower
with Lender to be used for (a) the initial deposit of proceeds of Loans;
and (b) the funding or purchase of a Mortgage Note by Borrower; provided
that the Funding Account shall be pledged to Lender and that Borrower shall not
be entitled to withdraw funds from the Funding Account.


 


“GAAP”
means those generally accepted accounting principles and practices which are
recognized as such by the Financial Accounting Standards Board (or any
generally recognized successor) and which, in the case of Borrower and its
consolidated subsidiaries, are applied for all periods after the date hereof in
a manner consistent with the manner in which such principles and practices were
applied to the financial statements described in Section 4.7.  If any change in any accounting principle or
practice is required by the Financial Accounting Standards Board (or any such
successor) in order for such principle or practice to continue as a generally
accepted accounting principle or practice, all reports and financial statements
required hereunder with respect to Borrower or Parent may be prepared in
accordance with such change, but all calculations and determinations to be made
hereunder may be made in accordance with such change only after notice of such
change is given to Lender and Lender agrees to such change insofar as it
affects the accounting of Borrower.


 


“GLB Act”
means The Gramm-Leach-Bliely Financial Services Modernization Act of 1999, as amended.


 


“Governmental
Authority” means any nation or government, any agency,
department, state or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.


 


“Governmental
Requirement” means any law, statute, code, ordinance, order,
rule, regulation, judgment, decree, injunction, franchise, permit, certificate,
license, authorization or other direction or requirement (including, without
limitation, any of the foregoing which relate to environmental standards or
controls, energy regulations and occupational, safety and health standards or
controls) of any arbitrator, court or other Governmental Authority, which
exercises jurisdiction over any Related Person or any of its Property.


 


“Guaranty
Obligation” of any Person means any contract, agreement or
understanding of such Person pursuant to which such Person guarantees, or in
effect guarantees, any Indebtedness, 


 


8













 


lease, dividends or other obligations (the “Primary Obligations”)
of any other Person (the “Primary
Obligor”) in any manner, whether directly or indirectly,
contingently or absolutely, in whole or in part, including without limitation
agreements:


 


(a)           to purchase such Primary Obligation
or any property constituting direct or indirect security therefor,


 


(b)           to advance or supply funds (A) for
the purchase or payment of any such Primary Obligation, or (B) to maintain
working capital or other balance sheet conditions of the Primary Obligor or
otherwise to maintain the net worth or solvency of the Primary Obligor,


 


(c)           to purchase property, securities or
services primarily for the purpose of assuring the owner of any such Primary
Obligation of the ability of the Primary Obligor to make payment of such
Primary Obligation; or


 


(d)           otherwise to assure or hold harmless
the owner of any such Primary Obligation against loss in respect thereof;


 


provided, that “Guaranty
Obligation” shall not include endorsements that are made in the
ordinary course of business of negotiable instruments or documents for deposit
or collection.  The amount of any
Guaranty Obligation shall be deemed to be the maximum amount for which the guarantor
may be liable pursuant to the agreement that governs such Guaranty Obligation,
unless such maximum amount is not stated or determinable, in which case the
amount of such obligation shall be the maximum reasonably anticipated liability
thereon, as determined by such guarantor in good faith.


 


“Hedging Arrangement” means
any forward sales contract, forward trade contract, interest rate swap
agreement, interest rate cap agreement, or other contract pursuant to which
Borrower has protected itself from the consequences of a loss in the value of a
Mortgage Loan because of changes in interest rates or in the market value of
mortgage loan assets.


 


“Indebtedness”
of any Person at a particular date means the sum (without duplication) at such
date of (a) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services or which is evidenced by a
note, bond, debenture, or similar instrument, (b) all obligations of such
Person under any Financing Lease, (c) all obligations of such Person in
respect of letters of credit, acceptances, or similar obligations issued or
created for the account of such Person, (d) all Guaranty Obligations of
such Person, (e) all liabilities secured by any Lien on any property owned
by such Person, whether or not such Person has assumed or otherwise become
liable for the payment thereof, and (f) any liability of such Person in
respect of unfunded vested benefits under an ERISA Plan and (g) all
liabilities of such Person in respect of indemnities or repurchase obligations
made in connection with the sale of Mortgage Loans.


 


“Intercompany
Loan” means a loan or advance from a Related Person to an
Affiliate or shareholder, member or partner of any Related Person.


 


9


 












 


“Investor”
means any Person approved by Lender and listed on Schedule 1.1, as
such Schedule may be updated or supplemented from time to time; provided,
however, that Lender shall deliver a list of all Persons approved as
Investors by Lender upon each amendment of such Schedule by Lender, and an
Investor shall be removed from such list upon the written direction of Lender.


 


“Investment Property” means a
Single Family dwelling which is not the Principal Residence or Second/Vacation
Property of the Obligor under the related Mortgage Loan.


 


“Law”
means any statute, law, regulation, ordinance, rule, treaty, judgment, order,
decree, permit, concession, franchise, license, agreement or other governmental
restriction of the United States or any state or political subdivision
thereof.  Any reference to a Law includes
any amendment or modification to such Law, and all regulations, rulings, and
other Laws promulgated under such Law.


 


“Lender”
means Guaranty Bank and its successors and assigns.


 


“Lien”
means any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (whether statutory or otherwise), or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any Financing Lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction in respect of
any of the foregoing).


 


“Loan”
has the meaning given it in Section 2.1.


 


“Loan Balance”
means for any day, the principal balance of the Loans outstanding on such day.


 


“Loan Document”
means any, and “Loan
Documents” shall mean all, of this Agreement, the Note, the
Security Instruments, and any and all other agreements, certificates or
instruments now or hereafter executed and delivered by Borrower or any other
Person in connection with, or as security for the payment or performance of any
or all of the Obligations, as any of such may be renewed, amended or
supplemented from time to time.


 


“Market Value”
on any day shall be determined by Lender, in its sole discretion, based upon (a) information
then available to Lender regarding quotes from dealers for the purchase of
mortgage notes similar to the Mortgage Note that have been delivered to Lender
pursuant to this Agreement or (b) sales prices actually received by
Borrower for mortgage notes sold by Borrower during the immediately preceding thirty
(30) day period similar to the Mortgage Note that have been delivered to Lender
pursuant to this Agreement.


 


“Material
Adverse Effect” means any material adverse effect on (a) the
validity or enforceability of this Agreement, the Note or any other Loan
Document, (b) the business, operations, total Property, prospects or
condition (financial or otherwise) of any Related Person, (c) the
collateral under any Security Instrument, or (d) the ability of any
Related Person to fulfill 


 


10













 


its obligations under this Agreement, the Note, or any
other Loan Document to which it is a party.


 


“Maximum Rate”
means, with respect to each Lender, the maximum nonusurious rate of interest
that such Lender is permitted under applicable Law to contract for, take,
charge, or receive with respect to its Loans.


 


“MERS”
means Mortgage Electronic Registration Systems, Inc., a Delaware
corporation, or any successor thereto.


 


“MERS Agreement”
means those agreements by and among Borrower, Lender, MERS and MERSCORP, Inc.,
as amended, modified, supplemented, extended, restated or replaced from time to
time.


 


“MERS® System”
means the system of recording transfers of mortgages electronically maintained
by MERS.


 


“MIN”
means, with respect to each Mortgage Loan, the Mortgage Identification Number
for such Mortgage Loan registered with MERS on the MERS® System.


 


“MOM Loan”
means, with respect to any Mortgage Loan, MERS acting as the mortgagee of such
Mortgage Loan, solely as nominee for the originator or Borrower, as the case
may be, of such Mortgage Loan and its successors and assignees.


 


“Mortgage”
means a mortgage or deed of trust, on standard forms in form and substance
satisfactory to Lender, securing a Mortgage Note and granting a perfected,
first or second priority lien on residential real property consisting of land
and a one-to-four-family dwelling thereon which is completed and ready for
occupancy.


 


“Mortgage
Collateral” means all Mortgage Notes (a) which are made
payable to the order of Borrower or have been endorsed (without restriction or
limitation) payable to the order of Borrower, (b) in which Lender has been
granted and continues to hold a perfected first priority security interest, (c) which
are in form and substance acceptable to Lender in its reasonable discretion, (d) which
are secured by Mortgages, and (e) which conform in all respects with all
the requirements for purchase of such Mortgage Note under the Take-Out
Commitments and are valid and enforceable in accordance with their respective
terms.


 


“Mortgage Loan”
means a mortgage loan which is evidenced by a Mortgage Note and secured by a
Mortgage, together with the rights and obligations of a holder thereof and
payments thereon and proceeds therefrom.


 


“Mortgage Note”
means the note or other evidence of indebtedness evidencing the indebtedness of
an Obligor under a Mortgage Loan.


 


“Net Income”
of any Person means, for any period, the net income of such Person (excluding
extraordinary gains but including extraordinary losses) for such period,
calculated in accordance with GAAP.


 


11













 


“Net Worth”
of any Person means, as of any date, an amount equal to all Consolidated assets
of such Person minus such Person’s Consolidated liabilities, each as
determined in accordance with GAAP.


 


“Note”
means any promissory note delivered by Borrower to Lender pursuant to Section 2.2
in the form attached hereto as Exhibit A and all renewals,
modifications, amendments, restatements, and extensions thereof.


 


“Obligations”
means all present and future Indebtedness, obligations, and liabilities of
Borrower to Lender, and all renewals and extensions thereof, or any part
thereof, arising pursuant to this Agreement or any other Loan Document, and all
interest accrued thereon, and reasonable attorneys’ fees and other costs
incurred in the drafting, negotiation, enforcement or collection thereof,
regardless of whether such Indebtedness, obligations, and liabilities are
direct, indirect, fixed, contingent, joint, several or joint and several.


 


“Obligor”
means the Person or Persons obligated to pay the Indebtedness which is the
subject of a Mortgage Loan.


 


“Operating
Account” means the non-interest bearing demand checking accounts
(whether one or more) established by Borrower with Lender to be used for
Borrower’s operations.


 


“Parent”
means The Ryland Group, Inc., a Maryland corporation, and owner of all of
the outstanding capital stock of Borrower.


 


“Parent Debt Agreement” means
that certain Credit Agreement, dated as of January 12, 2006, among the
Parent, JPMorgan Chase Bank, N.A., as agent, and the lenders party thereto, and
all amendments, modifications and supplements thereto and amendments and
restatements thereof, and including any subsequent credit facilities
refinancing any indebtedness thereunder.


 


“PBGC”
means the Pension Benefit Guaranty Corporation or any Governmental Authority
succeeding to any of its functions.


 


“Permitted Liens”
means (i) Liens in favor of Lender, (ii) a first Lien in respect of a
Second Lien Loan, and (iii) ad valorem taxes and assessments not yet due
and payable.


 


“Person”
means any individual, corporation, partnership, joint venture, association,
joint stock company, limited liability company, trust, unincorporated
organization, Governmental Authority, or any other form of entity.


 


“Prime Loan”
means a Single Family Mortgage Loan which is secured by a first-lien or
second-lien Mortgage and is a Conforming Loan, FHA Loan or VA Loan.


 


“Principal
Residence” means a Single Family dwelling that the Obligor
occupies as his or her primary residence.


 


“Property”
means any interest in any kind of property or asset, whether real, personal or
mixed, or tangible or intangible.


 


12













 


“Regulation U”
means Regulation U issued by the Board of Governors of the Federal Reserve
System as in effect from time to time.


 


“Regulation X” means Regulation X issued by the
Board of Governors of the Federal Reserve System as in effect from time to
time.


 


“Related Persons”
means Borrower and each of Borrower’s Subsidiaries.


 


“Reportable
Event” means (1) a reportable event described in
Sections 4043(c)(5) or (6) of ERISA or the regulations
promulgated thereunder, or (2) any other reportable event described in Section 4043(c) of
ERISA or the regulations promulgated thereunder other than a reportable event
not subject to the provision for 30-day notice to the PBGC pursuant to a waiver
by the PBGC under Section 4043(a) of ERISA.


 


“Required
Mortgage Documents” means, as to any Mortgage Loan, the items
described on Schedule A to the Security Agreement.


 


“Requirement of
Law” as to any Person means the charter and by-laws or other
organizational or governing documents of such Person, and any law, statute,
code, ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other determination,
direction or requirement (including, without limitation, any of the foregoing
which relate to environmental standards or controls, energy regulations and
occupational, safety and health standards or controls) of any arbitrator, 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.


 


“Second Lien
Loan” means a Single Family Mortgage Loan which (i) is
secured by a traditional closed-end second-lien Mortgage, and is a Conforming
Loan, FHA Loan or VA Loan, (ii) has a CLTV less than or equal to 95%, and (iii) is
not in excess of $100,000.


 


“Second/Vacation
Property” means a Single Family dwelling that is not used for
rental purposes and that the Obligor occupies for some portion of the year.


 


“Security
Agreement” means the Security Agreement between Borrower and
Lender dated of even date herewith in substantially the form attached as Exhibit E,
as the same may from time to time be further supplemented, amended or restated.


 


“Security
Instrument” means (a) the Security Agreement and (b) such
other executed documents, instruments, certificates, agreements and financing
statements as are or may be necessary to grant to Lender a perfected first
prior and continuing security interest in and to all Mortgage Collateral, and
any and all other agreements, certificates or instruments now or hereafter
executed and delivered by Borrower in connection with, or as security for the
payment or performance of, all or any of the Obligations, including Borrower’s
obligations under the Note and this Agreement, as such agreements may be amended,
modified or supplemented from time to time.


 


“Servicing
Agreements” means all agreements between the Related Persons and
Persons other than a Related Person pursuant to which Borrower undertakes to
service Mortgage Loans.


 


13













 


“Servicing
Records” means all contracts and other documents, books, records
and other information (including without limitation, computer programs, tapes,
discs, punch cards, data processing software and related property and rights) maintained
with respect to the Servicing Rights.


 


“Servicing
Rights” means all of right, title and interest of any Related
Person in and under the Servicing Agreements, including, without limitation,
the rights of Borrower to income and reimbursement thereunder.


 


“Settlement
Account” means the non-interest bearing demand deposit account
established by Borrower with Lender to be used for (i) the deposit of
proceeds from the sale of Mortgage Collateral, and (ii) the payment of the
Obligations; provided that (a) the Settlement Account shall be
pledged to Lender for the benefit of Lender, (b) Borrower shall not be
entitled to withdraw funds from the Settlement Account, (c) as long as no
Event of Default has occurred and is continuing, to the extent that the deposit
of proceeds from the sale of Mortgage Loans exceeds the Unit Collateral Value
of such Mortgage Loans and any payments then due and owing under this Agreement
or the Note, Lender shall transfer such excess amount to the Operating Account,
and (d) if at any time the aggregate amount of funds in the Settlement
Account is insufficient to pay any and all payments due and owing under this
Agreement or the Note (such amount being referred to as the “Deficiency”), Lender
shall transfer an amount equal to the Deficiency from the Operating Account to
the Settlement Account.


 


“Single Family”
means residential real property consisting of land and a completed one-to-eight
unit single family dwelling thereon (including Principal Residences,
Second/Vacation Property and Investment Property), which is fully completed and
ready for occupancy, and which is not used for commercial purposes, is not a
leasehold interest, and is not a manufactured or mobile home.


 


“Subordinated
Debt” means Indebtedness of Borrower that has been subordinated
to the payment of the Obligations in writing on terms acceptable to Lender.


 


“Subsidiary”
means, with respect to any Person, any corporation, association, partnership,
joint venture, or other business or corporate entity, enterprise or organization
which is directly or indirectly (through one or more intermediaries) controlled
by or owned fifty percent (50%) or more by such Person.


 


“Take-Out
Commitment” means with respect to any Eligible Mortgage Loan, a
written master commitment of an Investor to purchase a pool of Mortgage Loans
or an individual commitment of an Investor to purchase an individual Mortgage
Loan under which such Eligible Mortgage Loan(s) will be delivered to such
Investor on terms satisfactory to Lender, in its reasonable discretion.


 


“Tangible Net
Worth” means, as of any date, for any Person, the Net Worth of
such Person minus all Consolidated assets of such Person which would be
classified as intangible assets under GAAP, including but not limited to
goodwill (whether representing the excess cost over book value of assets
acquired or otherwise), patents, trademarks, trade names, copyrights,
franchises, deferred charges, and capitalized servicing rights.


 


14













 


“Termination
Event” means (a) the occurrence with respect to any ERISA
Plan of a Reportable Event, (b) the withdrawal of the Borrower or any
ERISA Affiliate from an ERISA Plan during a plan year in which it was a “substantial
employer,” as defined in Section 4001(a)(2) of ERISA, (c) the
distribution to affected parties of a notice of intent to terminate any ERISA
Plan or the treatment of any ERISA Plan amendment as a termination under Section 4041
of ERISA, (d) the institution of proceedings to terminate any ERISA Plan
by the PBGC under Section 4042 of ERISA, or (e) any other event or
condition which might constitute grounds under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to administer, any ERISA
Plan.


 


“Total
Indebtedness” of any Person means, as of any date, the sum of (a) all
Indebtedness of such Person as of such date prepared in accordance with GAAP
and (b) the aggregate amount of Mortgage Loans purchased and remaining
under any Mortgage Loan purchase facility of such Person.


 


“UCC”
means the Texas Uniform Commercial Code, as the same may hereafter be amended.


 


“UETA”
means the Texas Uniform Electronic Transaction Act, as amended from time to
time.


 


“Unencumbered
Liquid Assets” means, as of any date of determination, the sum
of (a) United States cash which is not subject to any liens or security
interests, and (b) Cash Equivalents which are not subject to any liens or
security interests.


 


“Unit Collateral
Value” means, on any day, with respect to each Eligible Mortgage
Loan included in the Borrowing Base, the Applicable Advance Rate Percentage of
the least of the following:


 


(i)            the outstanding principal balance of
the Mortgage Note constituting such Mortgage Loan;


 


(ii)           the actual out-of-pocket cost to
Borrower of such Mortgage Loan minus the amount of principal paid under such
Mortgage Loan and delivered to Lender for application to the prepayment of the
Loans;


 


(iii)          if applicable, the amount at which an
Investor has committed to purchase the Mortgage Loan pursuant to a Take-Out
Commitment; or


 


(iv)          the Market Value of the Mortgage Note
constituting such Mortgage Loan.


 


provided that if any such Eligible Mortgage Loan included in
the Borrowing Base becomes an Aged Loan, the Unit Collateral Value of such
Mortgage Loan as determined by the above calculation shall be reduced by five
percent (5%), and Borrower shall immediately, on such Eligible Mortgage Loan’s
sixty-first (61st) day in the Borrowing Base, make repayment required by Section 2.5;
and


 


15













 


provided further that if any such Aged Loan is included in the
Borrowing Base for more than ninety (90) days, the Unit Collateral Value of
such Mortgage Loan shall be reduced by an additional ten percent (10%), and
Borrower shall immediately, on such Eligible Mortgage Loan’s ninety-first
(91st) day in the Borrowing Base, make repayment required by Section 2.5;
and


 


provided further that no Eligible Mortgage Loan may be included in the
Borrowing Base for more than one hundred twenty (120) days, such that on the
one hundred twenty-first (121st) day after such Eligible Mortgage Loan is first
included in the Borrowing Base, the Unit Collateral Value of such Mortgage Loan
shall be reduced to zero, and Borrower shall immediately make repayment
required by Section 2.5.


 


“VA”
means the Veterans Administration and any successor thereto.


 


“VA Loan”
means a Mortgage Loan guaranteed by the VA.


 


“Wet Loan”
means an Eligible Mortgage Loan which is included in the Borrowing Base, but
for which the Required Mortgage Documents have not been delivered to Lender.


 


Other
Definitional Provisions.


 


(a)           Unless
otherwise specified therein, all terms defined in this Agreement shall have the
above-defined meanings when used in the Note or any other Loan Document,
certificate, report or other document made or delivered pursuant hereto.


 


(b)           Each
term defined in the singular form in Section 1.1 shall mean the
plural thereof when the plural form of such term is used in this Agreement, the
Note or any other Loan Document, certificate, report or other document made or
delivered pursuant hereto, and each term defined in the plural form in Section 1.1
shall mean the singular thereof when the singular form of such term is used
herein or therein.


 


(c)           The
words “hereof,” “herein,” “hereunder” and similar terms when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and section, subsection, schedule and exhibit
references herein are references to sections, subsections, schedules and
exhibits to this Agreement unless otherwise specified.  The word “or” is not exclusive, and the word “including”
(in its various forms) means “including without limitation.”


 


(d)           Unless
the context otherwise requires or unless otherwise provided herein the terms
defined in this Agreement which refer to a particular agreement, instrument or
document also refer to and include all renewals, extensions, modifications,
amendments and restatements of such agreement, instrument or document, provided
that nothing contained in this section shall be construed to authorize any such
renewal, extension, modification, amendment or restatement.


 


(e)           As
used herein, in the Note or in any other Loan Document, certificate, report or
other document made or delivered pursuant hereto, accounting terms relating to
any Person and not specifically defined in this Agreement or therein shall have
the respective meanings given to them under GAAP.


 


16













 


Section 1.2             Exhibits
and Schedules.  All Exhibits and
Schedules attached to this Agreement are incorporated by reference herein and
made a part hereof for all purposes.


 


Section 1.3             Calculations
and Determinations.  All calculations
under the Loan Documents of interest and of fees shall be made on the basis of
actual days elapsed (including the first day but excluding the last) and a year
of three hundred sixty (360) days.  Each
determination by Lender of amounts to be paid hereunder shall, in the absence
of manifest error, be conclusive and binding. 
Unless otherwise expressly provided herein or unless Lender otherwise
consents all financial statements and reports furnished to Lender hereunder
shall be prepared and all financial computations and determinations pursuant
hereto shall be made in accordance with GAAP. 
Lender shall deliver to Borrower an interest billing statement for each
month on or before the fifth (5th) day of the next succeeding month, which
interest billing statement shall set forth the interest accrued on the Loans
for such month; provided that any failure or delay in delivering such interest
billing or any inaccuracy therein shall not affect the Obligations.


 


ARTICLE II


 


AMOUNT AND TERMS OF LOANS


 


Section 2.1             Commitment
and Loans.  Subject to the terms and
conditions contained in this Agreement, Lender agrees to make loans (“Loans”) to Borrower
on a revolving credit basis from time to time on any Business Day from the date
of this Agreement through the Drawdown Termination Date.  The aggregate amount of all Loans requested
in any Borrowing Request must be equal to the lesser of (i) an amount
greater than or equal to $25,000 or (ii) an amount equal to the Commitment
less the Loan Balance.  Notwithstanding
anything to the contrary, after giving effect to the transactions contemplated
by the Borrowing Request pursuant to which a Loan is requested, and at all
other times, the aggregate unpaid principal amount of all Loans outstanding
shall not exceed the lesser of (a) the Collateral Value of the Borrowing
Base, and (b) the Commitment.


 


Section 2.2             Promissory
Note; Interest on the Note.  The
obligation of Borrower to repay the Loans made by Lender, together with
interest accruing in connection therewith, shall be evidenced by a Note payable
to the order of Lender.  Interest on the
Note shall be due and payable as provided herein and therein.  The entire Loan Balance and all accrued and
unpaid interest thereon shall be finally due and payable on the Drawdown
Termination Date.


 


Section 2.3             Notice
and Manner of Obtaining Loans.  Borrower
must give written notice (which may be sent by electronic mail), or telephonic
notice promptly confirmed in writing, of each request for Loans.  Each such written request or confirmation
must be made in the form and substance of the “Borrowing Request” attached
hereto as Exhibit B, duly completed.  Each such Borrowing Request must:


 


(a)           specify
the aggregate amount of any such Borrowing of new Loans and the date on which
such Loans are to be advanced; and


 


17













 


(b)           be
received by Lender not later than 2:00 p.m., Central time, on the day on
which any such Loans are to be made.


 


With
each delivery of a Borrowing Request to Lender, Borrower represents and
warrants to Lender the following:


 


(i)            Borrower is entitled to receive the
requested Loan under the terms and conditions of this Agreement;


 


(ii)           all items which Borrower is required
to furnish to Lender pursuant to this Agreement accompany the Borrowing Request
(or, if Wet Loans, shall be delivered to Lender in accordance with the
Agreement);


 


(iii)          all Mortgage Loans offered thereby
conform in all respects with the applicable requirements set forth in this
Agreement;


 


(iv)          no Event of Default exists under this
Agreement or would result from the Borrowing or the application of the proceeds
therefrom;


 


(v)           no change or event has occurred which
with notice and/or the passage of time would constitute an Event of Default;


 


(vi)          after giving effect to the Loan
requested thereby the Loan Balance shall not exceed the lesser of (1) the
Collateral Value of the Borrowing Base and (2) the Commitment; and


 


(vii)         after giving effect to the Loans
requested thereby, no Applicable Sublimit will be exceeded.


 


Additionally,
with each Borrowing Request, Borrower represents and warrants that, except as
permitted under this Agreement, Borrower holds with respect to each of the
Mortgage Notes offered the following:


 


(i)            unless delivered therewith, the
original filed copy of the Mortgage relating to such Mortgage Note;


 


(ii)           mortgagee policies of title insurance
conforming to the requirements of the Lender or binding commitments for the
issuance of same;


 


(iii)          evidence of insurance policies
insuring the mortgaged premises as required by the Lender; and


 


(iv)          unless delivered therewith, an
original of any executed Take-Out Commitment or document evidencing any Hedging
Arrangement acceptable to Lender in its sole discretion relating to such
Mortgage Note.


 


With
the delivery of each Borrowing Request, Borrower agrees that it holds the above
referenced items in trust for Lender, and will at any time deliver the same to
Lender upon request or, upon 


 


18













 


written
instructions from Lender, to any Person designated by Lender, promptly, and in
any event within two (2) Business Days after such request or
instructions.  Borrower further agrees
that it will not deliver any of the above items, nor give, transfer, or assign
any interest in same, to any Person other than Lender (or the Person or Persons
designated by Lender) without the prior written consent of Lender.


 


Each
such telephonic request shall be deemed a representation, warranty,
acknowledgment and agreement by Borrower as to the matters which are required
to be set out in such written confirmation. 
If all conditions precedent to such Loan have been met Lender will on
the date requested promptly remit to Borrower the amount of such Loan in
immediately available dollars, by crediting the Funding Account with
immediately available funds in the amount of such Loan.


 


Section 2.4             Fees.


 


(a)           In
consideration of Lender’s commitment to make the Loans, Borrower will pay to
Lender a non-refundable commitment fee determined on a daily basis by applying
a rate of 12.5 basis points (0.125%) per annum to the Commitment on each day
during the term of the Loans.  This
commitment fee shall be due and payable in advance for each Fiscal Quarter on
the fifteenth day of such Fiscal Quarter.


 


(b)           Borrower
shall pay to Lender, a collateral handling fee in the amount of $10.00 for each
Mortgage Loan file.


 


Section 2.5             Mandatory
Repayments.  If at any time the Loan
Balance exceeds the lesser of (i) the Collateral Value of the Borrowing
Base (as a result of an Applicable Sublimit being exceeded or otherwise) or (ii) the
Commitment, then Borrower (x) shall repay the amount of such excess or (y) so
long as the Loan Balance does not exceed the Commitment, pledge to Lender
additional Eligible Mortgage Loans which have an aggregate Unit Collateral
Value equal to or greater than such excess, in each case, within one (1) Business
Day after written notice thereof is given by Lender to Borrower; provided
that, after giving effect to any pledge of additional Eligible Mortgage Loans,
the Unit Collateral Value of such Mortgage Loans when added to the Unit
Collateral Value of all other Mortgage Loans in the same Mortgage Loan
classification does not exceed the Applicable Sublimit for such Mortgage Loan
classification.


 


Section 2.6             Payments
to Lender.  All payments of interest
on the Note, all payments of principal, including any principal payment made
with proceeds of Mortgage Collateral, and fees hereunder shall be made directly
to Lender in federal or other immediately available funds before 1:00 pm
(Central time) on the respective dates when due via wire transfer of
immediately available funds to the Settlement Account.  Borrower shall send notice to Lender before
1:00 p.m. (Central time) on the day any payment of principal or interest
is received by Lender which sets forth the Loans against which such payment is
to be applied.  Any payment (or any
payment received without a notice regarding application of such payment)
received by Lender after such time will be deemed to have been made on the next
following Business Day.  Should any such
payment become due and payable on a day other than a Business Day, the maturity
of such payment shall be extended to the next succeeding Business Day, and, in
the case of a payment of principal or past due interest, interest shall accrue
and be payable thereon for the period of such extension as provided in the Loan
Document under which such payment is due.


 


19


 












 


Each payment under a Loan Document shall be payable at the place
provided therein and, if no specific place of payment is provided, shall be
payable at the place of payment of the Note. 
When Lender collects or receives money on account of the Obligations,
Lender shall apply all such money so distributed, as follows:


 


(a)           first, for the payment of all Obligations which are
then due, and if such money is insufficient to pay all such Obligations, (i) first
to any reimbursements due Lender under Section 5.5, (ii) second,
to the payment of the Loans then due, and (iii) then to the partial
payment of all other Obligations then due in proportion to the amounts thereof,
or as Lender shall otherwise agree;


 


(b)           then for the prepayment of amounts owing under the
Loan Documents if so specified by Borrower;


 


(c)           then for the prepayment of principal on the Note,
together with accrued and unpaid interest on the principal so prepaid; and


 


(d)           last, for the payment or prepayment of any other
Obligations.


 


All
payments applied to principal or interest on any Note shall be applied first to
any interest then due and payable, then to principal then due and payable, and
last to any prepayment of principal and interest.


 


Section 2.7             Increased Cost and Reduced Return.


 


(a)           If, after the date hereof, Lender shall have
determined that the adoption of any applicable Law, rule, or regulation
regarding capital adequacy or any change therein or in the interpretation or
administration thereof by any Governmental Authority, central bank, or
comparable agency charged with the interpretation or administration thereof, or
any request or directive regarding capital adequacy (whether or not having the
force of Law) of any such Governmental Authority, central bank, or comparable
agency, has or would have the effect of reducing the rate of return on the
capital of Lender or any corporation controlling Lender, due to the obligations
of Lender hereunder, to a level below that which Lender or such corporation
could have achieved but for such adoption, change, request, or directive
(taking into consideration its policies with respect to capital adequacy),
then, within fifteen (15) days after demand by Lender, Borrower shall pay to
Lender such additional amount or amounts as will compensate Lender for such
reduction, but only to the extent that Lender has not been compensated therefor
by any increase in the LIBOR.


 


(b)           Lender shall promptly notify Borrower of any event
of which it has knowledge, occurring after the date hereof, which will entitle
Lender to compensation pursuant to this Section.  In the event that Lender claims compensation
under this Section, Lender shall furnish to Borrower a statement setting forth
the additional amount or amounts to be paid to it hereunder which shall be
conclusive in the absence of manifest error. 
The statement shall describe the change that took place (e.g. citing the
Law, rule, regulation or directive), an explanation as to how Lender determined
that the reduction in the rate of return was due to its obligations under this
Agreement and demonstrate the calculations utilized in arriving at the amount
owed from 


 


20













 


Borrower.  In
determining such amount, Lender shall act in good faith and may use any
reasonable averaging and attribution methods.


 


ARTICLE III



CONDITIONS PRECEDENT


 


The obligation of Lender to make Loans hereunder is
subject to fulfillment of the conditions precedent stated in this Article III.


 


Section 3.1             Initial Loan.  The obligation of Lender to fund any Loan
hereunder shall be subject to, in addition to the conditions precedent
specified in Section 3.2, the following terms and conditions:


 


(a)           Borrower shall have delivered to Lender the
following (each of the following documents being duly executed and delivered
and in form and substance satisfactory to Lender, and, with the exception of
the Note, each in a sufficient number of originals that Lender and its counsel
may have an executed original of each document):


 


(i)            an executed counterpart of
this Agreement and of all instruments, certificates and opinions referred to in
this Article III not theretofore delivered (except the Borrowing
Request which is to be delivered at the time provided in Subsection 3.2(a) hereof);


 


(ii)           the Note;


 


(iii)          the Security Agreement dated
of even date herewith;


 


(iv)          a certificate of the
Secretary or Assistant Secretary of Borrower setting forth (i) resolutions
of its board of directors authorizing the execution, delivery, and performance
of the Loan Documents to which it is a party and identifying the officers
authorized to sign such instruments, (ii) specimen signatures of the
officers so authorized, and (iii) articles of incorporation of Borrower
certified by the appropriate Secretary of State as of a recent date, and (iv) bylaws
of Borrower, certified as being accurate and complete;


 


(v)           a certificate of the
existence and good standing for Borrower in its state of incorporation or
organization dated no earlier than fifteen days prior to the date hereof;


 


(vi)          an opinion of counsel for
Borrower in form and substance satisfactory to Lender;


 


(vii)         a Borrowing Request and a
Borrowing Base Certificate dated as of the date of the first Loan, certified by
the Controller or Senior Vice President of Borrower;


 


(viii)        a duly executed original of
the MERS Agreement; and


 


21













 


(ix)           such other documents,
instruments, certificates and agreements (including, without limitation, UCC
tax and lien search results) as Lender or its legal counsel may reasonably
request at any time at or prior to the date of the initial Loan hereunder.


 


(b)           No Person, other than Lender, holds any mortgage,
pledge, lien, security interest or other charge or encumbrance in, against or
to any of the Mortgage Loans identified by the Borrower as Mortgage Collateral
or included in any computation of the Collateral Value of the Borrowing Base.


 


(c)           Lender shall have received evidence satisfactory to
it that all filings and other actions necessary or desirable to perfect and
protect the Liens created by the Security Instruments shall have been completed
(including, without limitation, the filing of financing statements on form
UCC-1 and filing of UCC-3 amendments or termination statements).


 


(d)           Borrower shall have paid all fees and reimbursements
to be paid to Lender pursuant to any Loan Document, or otherwise due Lender and
including reasonable fees (not to exceed $20,000) and reasonable expenses of
Lender’s attorneys.


 


Section 3.2             All Loans.  The obligation of Lender to fund any Loan
pursuant to this Agreement is subject to the following further conditions
precedent:


 


(a)           Borrower shall have delivered to Lender a Borrowing
Request dated as of the date of such Loan, certified by the Controller, a Vice
President or Senior Vice President of Borrower, and the Required Mortgage
Documents for all Eligible Mortgage Loans other than Wet Loans;


 


(b)           all other Property in which Borrower has granted a
Lien to Lender shall have been physically delivered to the possession of
Lender, to the extent required to be so delivered under the Loan Documents;


 


(c)           the representations and warranties of each Related
Person contained in this Agreement or any Security Instrument (other than those
representations and warranties which are by their terms expressly limited to
the date of this Agreement) shall be true and correct in all material respects
on and as of the date of such Loan, as though made on and as of such date, both
before and after giving effect to the Borrowing and the application of the proceeds
thereof;


 


(d)           no Default or Event of Default shall have occurred
and be continuing or would result from such Borrowing or the application of the
proceeds therefrom;


 


(e)           no change or event which constitutes a Material
Adverse Effect shall have occurred and be continuing as of the date of such
Loan;


 


(f)            the Funding Account, the Settlement Account and the
Operating Account shall be established and in existence;


 


(g)           the making of such Loan shall not be prohibited by
any Governmental Requirement or contravene or conflict with any Requirement of
Law;


 


22













 


(h)           the delivery to Lender of such other documents,
instruments, certificates, agreements and opinions of counsel, including such
documents, agreements, certificates and instruments as may be necessary or
desirable to perfect, preserve or protect the priority of any Lien granted or
intended to be granted hereunder or otherwise and including favorable written
opinions of counsel with respect thereto, as Lender may reasonably request; and


 


(i)            No Person, other than Lender, shall be listed in the
field designated “interim funder” on the MERS® System with respect to any
Mortgage Loans identified by the Borrower as Mortgage Collateral or included in
any computation of the Collateral Value of the Borrowing Base.


 


Delivery
to Lender of a Borrowing Request shall be deemed to constitute a representation
and warranty by Borrower on the date thereof and on the date on which the Loan
is made of the facts specified in subsections (c) and (d) of
this Section.


 


ARTICLE IV



BORROWER REPRESENTATIONS AND WARRANTIES


 


Borrower represents and warrants as follows:


 


Section 4.1             Organization and Good Standing.  Each Related Person (a) is a
corporation, limited liability company or limited partnership duly incorporated
or organized and existing in good standing under the Laws of the jurisdiction
of its incorporation or organization, (b) is duly qualified as a foreign
entity and in good standing in all jurisdictions in which its failure to be so
qualified could have a Material Adverse Effect, (c) has the corporate or
organizational power and authority to own its properties and assets and to
transact the business in which it is engaged and is or will be qualified in
those states wherein it proposes to transact business in the future, and (d) is
in compliance with all Requirements of Law except to the extent that the
failure to comply therewith could not, in the aggregate, have a Material
Adverse Effect.


 


Section 4.2             Authorization and Power.  Each Related Person has the corporate or
organizational power and requisite authority to execute, deliver and perform
the Loan Documents to which it is a party; each Related Person is duly
authorized to and has taken all action necessary to authorize it to, execute,
deliver and perform the Loan Documents to which it is a party and is and will
continue to be duly authorized to perform such Loan Documents.


 


Section 4.3             No Conflicts or Consents.  Neither the execution and delivery by any
Related Person of the Loan Documents to which it is a party, nor the
consummation of any of the transactions herein or therein contemplated, nor
compliance with the terms and provisions hereof or with the terms and
provisions thereof, will (a) materially contravene or conflict with any
Requirement of Law to which any Related Person is subject, or any indenture,
mortgage, deed of trust, or other agreement or instrument to which any Related
Person is a party or by which any Related Person may be bound, or to which the
Property of any Related Person may be subject, or (b) result in the
creation or imposition of any Lien, other than the Lien of the Security
Agreement, on the Property of any Related Person.  Except as expressly set forth in Section 4.19,
all actions, approvals, consents, waivers, exemptions, variances, franchises,
orders, permits, 


 


23













 


authorizations, rights and licenses required to be taken, given or
obtained, as the case may be, from any Governmental Authority that are
necessary in connection with the transactions contemplated by the Loan
Documents have been obtained.


 


Section 4.4             Enforceable Obligations.  This Agreement, the Note, and the other Loan
Documents to which any Related Person is a party are the legal, valid and
binding obligations of such Related Person, enforceable in accordance with
their respective terms, except as limited by Debtor Laws.


 


Section 4.5             Priority of Liens.  Upon delivery to Lender of each Borrowing
Request, Lender shall have valid, enforceable, perfected, first priority Liens
and security interests in each Mortgage Note identified therein.


 


Section 4.6             No Liens.  Borrower has good and indefeasible title to
the Mortgage Collateral free and clear of all Liens and other adverse claims of
any nature, except for Permitted Liens.


 


Section 4.7             Financial Condition of Borrower.  Borrower has delivered to Lender copies of
its annual audited balance sheet as of December 31, 2006, and the related
statements of income, stockholders’ equity and cash flows for the period ended
such date; such financial statements fairly present the financial condition of
Borrower as of such date and the results of operations of Borrower for the
period ended on such date and have been prepared in accordance with GAAP,
subject to normal year-end adjustments; as of the date thereof, there were no
obligations, liabilities or Indebtedness (including material contingent and
indirect liabilities and obligations or unusual forward or long-term
commitments) of Borrower which are not reflected in such financial statements
and no change which constitutes a Material Adverse Effect has occurred in the
financial condition or business of Borrower since December 31, 2006.  Borrower has also delivered to Lender its
unaudited quarterly balance sheet for the period ending September 30, 2007
and management reports for September 30, 2007; such reports fairly and
accurately present Borrower’s commitment position, pipeline position, servicing
and production as of the end of such months and for the fiscal year to date for
the periods ending on such dates.


 


Section 4.8             Full Disclosure.  There is no material fact that Borrower has
not disclosed to Lender which could have a Material Adverse Effect.  None of (i) the financial statements
referred to in Section 4.7 hereof, (ii) any Borrowing Request
or officer’s certificate, or (iii) any statement delivered by any Related
Person to Lender in connection with this Agreement, contains any untrue
statement of material fact.


 


Section 4.9             No Default.  No Related Person is in default under any
material loan agreement, mortgage, security agreement or other material
agreement or obligation to which it is a party or by which any of its Property
is bound.


 


Section 4.10           No Litigation.  There are no material actions, suits or
legal, equitable, arbitration or administrative proceedings pending, or to the
knowledge of Borrower threatened, against any Related Person the adverse
determination of which could constitute a Material Adverse Effect.


 


24













 


Section 4.11           Taxes.  All tax
returns required to be filed by each Related Person in any jurisdiction have
been filed and all taxes, assessments, fees and other governmental charges upon
each Related Person or upon any of its properties, income or franchises have
been paid prior to the time that such taxes could give rise to a Lien thereon,
unless protested in good faith by appropriate proceedings and with respect to
which reserves in conformity with GAAP have been established on the books of
such Related Person.  No Related Person
has any knowledge of any proposed tax assessment against any Related Person.


 


Section 4.12           Principal Office, etc.  The principal office, chief executive office
and principal place of business of Borrower is at the address set forth in Section 9.1.


 


Section 4.13           Compliance with ERISA.  No Related Person currently maintains,
contributes to, is required to contribute to or has any liability, whether
absolute or contingent, with respect to an ERISA Plan.  With respect to all other employee benefit
plans maintained or contributed to by each Related Person, each Related Person
is in material compliance with ERISA.


 


Section 4.14           Subsidiaries.  No Related Person presently has any
Subsidiary or owns any stock in any other corporation or association except
those listed in Schedule 4.14.  As
of the date hereof, each Related Person owns, directly or indirectly, the
equity interest in each of its Subsidiaries which is indicated in such exhibit.


 


Section 4.15           Indebtedness.  No Related Person has any indebtedness
outstanding other than the Indebtedness permitted by Section 6.2.


 


Section 4.16           Permits, Patents, Trademarks, etc.


 


(a)           Each Related Person has all permits and licenses
necessary for the operation of its business.


 


(b)           Each Related Person owns or possesses (or is
licensed or otherwise has the necessary right to use) all patents, trademarks,
service marks, trade names and copyrights, technology, know-how and processes,
and all rights with respect to the foregoing, which are necessary for the
operation of its business, without any known material conflict with the rights
of others.  The consummation of the
transactions contemplated hereby will not alter or impair in any material
respect any of such rights of each Related Person.


 


Section 4.17           Status Under Certain Federal Statutes.  No Related Person is (a) a “public
utility,” as such term is defined in the Federal Power Act, as amended, (b) an
“investment company,” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1949, as amended or (c) a
“rail carrier,” or a “person controlled by or affiliated with a rail carrier,”
within the meaning of Title 49, U.S.C., and no Related Person is a “carrier”
to which 49 U.S.C. §l1301(b)(1) is applicable.


 


Section 4.18           Securities Act.  No Related Person has issued any unregistered
securities in violation of the registration requirements of the Securities Act
of 1933, as amended, or of any other Requirement of Law, and is not violating
any rule, regulation, or requirement under the Securities Act of 1933, as
amended, or the Securities and Exchange Act of 1934, as amended.  


 


25













 


No Related Person is required to qualify an indenture under the Trust Indenture
Act of 1939, as amended, in connection with its execution and delivery of the
Note.


 


Section 4.19           No Approvals Required.  Other than consents and approvals previously
obtained and actions previously taken, neither the execution and delivery of
this Agreement, the Note and the other Loan Documents to which any Related
Person is a party, nor the consummation of any of the transactions contemplated
hereby or thereby requires the consent or approval of, the giving of notice to,
or the registration, recording or filing by any Related Person of any document
with, or the taking of any other action in respect of, any Governmental
Authority which has jurisdiction over each Related Person or any of its
Property, except for (a) the filing of the Uniform Commercial Code
financing statements and other similar filings to perfect the interest of
Lender in the Collateral, and (b) such other consents, approvals, notices,
registrations, filings or action as may be required in the ordinary course of
business of the Related Persons in connection with the performance of the
obligations of the Related Persons hereunder.


 


Section 4.20           Survival of Representations.  All representations and warranties by
Borrower herein shall survive the execution and delivery of this Agreement, the
Note, the other Loan Documents and the funding of the Loans, and any
investigation at any time made by or on behalf of Lender shall not diminish the
right of Lender to rely thereon.


 


Section 4.21           Compliance with Laws.  Borrower is in compliance in all material
respects with the requirements of all Laws and all orders, writs, injunctions
and decrees applicable to it or to its business or property, including ERISA
and FIRREA, except in such instances in which (a) such requirement of Law
or order, writ, injunction or decree is being contested in good faith by
appropriate proceedings diligently conducted; or (b) the failure to comply
therewith would not likely be expected to have a Material Adverse Effect.


 


Section 4.22           Payment of Obligations.  Borrower is not in default in the payment and
discharge of its material obligations and liabilities, including all tax
liabilities, assessments and governmental charges or levies upon it or its
properties or assets, unless the same are being contested in good faith by
appropriate proceedings diligently conducted and adequate reserves in
accordance with GAAP are being maintained by the Borrower.


 


Section 4.23           Individual Mortgage Loans.  Borrower hereby represents with respect to
each Mortgage Note and Mortgage Loan that is part of the Collateral:


 


(a)           Borrower has good and marketable title to each
Mortgage Note and Mortgage, was the sole owner thereof and had full right to
pledge the Mortgage Loan to Lender free and clear of any Lien other than
Permitted Liens;


 


(b)           To the knowledge of Borrower, there is no default,
breach, violation or event of acceleration existing under any Mortgage or the
related Mortgage Note and there is no event which, with the passage of time or
with notice and/or the expiration of any grace or cure period, would constitute
a default, breach, violation or event of acceleration and no such default,
breach, violation or event of acceleration has been waived;


 


26













 


(c)           To the knowledge of Borrower, the physical condition
of the Property subject to the Mortgage has not deteriorated since the date of
origination of the related secured Mortgage Loan (normal wear and tear
excepted) and there is no proceeding pending for the total or partial
condemnation of any Mortgaged Property;


 


(d)           Each Mortgage contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for the realization against the related Property subject to the
Mortgage 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;


 


(e)           Each Mortgage Loan is a first lien or second lien
Single Family loan, and has been underwritten by the originator thereof in
accordance with such originator’s then current underwriting guidelines, which
guidelines have been previously submitted to and approved by Lender; provided that (i) the aggregate
amount of Second Lien Loans does not exceed the Applicable Sublimit for Second
Lien Loans and (ii) the aggregate amount of all Wet Loans does not exceed
the Applicable Sublimit for Wet Loans;


 


(f)            Each Mortgage Note is either (i) payable in
monthly installments of principal and interest, with interest payable in
arrears, and requires a monthly payment which is sufficient to amortize the
original principal balance over the original term, not to exceed forty (40)
years, and to pay interest at the related interest rate, or (ii) payable
in monthly installments of interest only, with interest payable in arrears,
with principal payments to begin no later than ten (10) years from closing
with payments which are sufficient to fully amortize the original principal
balance over a period not to exceed forty (40) years; and no Mortgage Note
provides for any extension of the original term;


 


(g)           No Mortgage Loan is a loan in respect of either the
purchase of a manufactured home or mobile home or the purchase of the land on
which a manufactured home or mobile home will be placed;


 


(h)           The origination practices used by the originator of
the Mortgage Loans and the collection practices used by the Borrower with
respect to each Mortgage Loan have been in all material respects legal, proper,
prudent and customary in the loan origination and servicing business;


 


(i)            Each Mortgage Loan was originated in material
compliance with all applicable Laws and no fraud or misrepresentation was
committed by any Person in connection therewith; and


 


(j)            For each Mortgage Loan, Borrower has obtained
closing protection letters from the underwriter for the respective title
insurance policy.


 


Section 4.24           Environmental Matters.  In the ordinary course of each Related Person’s
business, the officers and managers of each Related Person consider the effect
of Environmental Laws on the business of such Related Person, in the course of
which they identify and evaluate potential risks and liabilities accruing to
such Related Person due to Environmental Laws. 
On the basis of this consideration, each Related Person has reasonably
concluded that neither 


 


27













 


violation of nor compliance with Environmental Laws can reasonably be
expected to have a Material Adverse Effect on the business or financial condition
of such Related Person or on the ability of Borrower to perform the
Obligations.  No Related Person has
received any notice to the effect that its operations are not in material
compliance with any of the requirements of applicable Environmental Laws or are
the subject of any federal or state investigation evaluating whether any
remedial action is needed to respond to a release of any toxic or hazardous
waste or substance into the environment, which non-compliance or remedial
action could reasonably be expected to have a Material Adverse Effect on the
business or financial condition of the Related Persons, taken as a whole, or on
the ability of Borrower to perform the Obligations.


 


Section 4.25           Status as Approved Seller/Servicer.  Borrower is an approved Seller/Servicer for
FNMA and FHLMC in good standing and is an approved lender with FHA, VA and HUD.


 


Section 4.26           Regulation U.  Borrower has not, directly or indirectly,
used any of the proceeds of the Loans for the purpose, whether immediate,
incidental or ultimate, of buying any “margin stock” or of maintaining,
reducing or retiring any Indebtedness originally incurred to purchase a stock
that is currently any “margin stock,” or for any other purpose which might
constitute this transaction a “purpose credit,” in each case within the meaning
of Regulation U, or otherwise taken or permitted to be taken any action
which would involve a violation of Regulation U or of Regulation T
(12 C.F.R. 220, as amended) or Regulation X (12 C.F.R. 224,
as amended) or any other regulation of such board.


 


ARTICLE V



AFFIRMATIVE COVENANTS


 


Each Related Person shall at all times comply with (or
cause compliances with) the covenants contained in this Article V,
from the date hereof and for so long as any part of the Obligations or the
Commitment is outstanding unless Lender has agreed otherwise.


 


Section 5.1             Financial Statements and Reports.


 


(a)           Borrower shall furnish to Lender the following, all
in form and detail reasonably satisfactory to Lender:


 


(i)            Promptly after becoming
available, and in any event within ninety (90) days after the close of each
Fiscal Year, Borrower’s audited Consolidated balance sheet as of the end of
such Fiscal Year, and the related audited Consolidated statements of income,
stockholders’ equity and cash flows of Borrower for such Fiscal Year, setting
forth in each case in comparative form the corresponding figures for the
preceding Fiscal Year.  Such financial
statements shall be unqualified and shall be accompanied by the related audit
report of independent certified public accountants acceptable to Lender which
report shall be to the effect that such statements have been prepared in
accordance with GAAP applied on a basis consistent with prior periods except
for such changes in such principles with which the independent public
accountants shall have concurred;


 


28













 


(ii)           Promptly after becoming
available, and in any event within ninety (90) days after the close of each
Fiscal Year, Parent’s audited Consolidated and consolidating balance sheet as
of the end of such Fiscal Year, and the related audited Consolidated and
consolidating statements of income, stockholders’ equity and cash flows of
Parent for such Fiscal Year, setting forth in each case in comparative form the
corresponding figures for the preceding Fiscal Year, such financial statements
shall be unqualified and shall be accompanied by the related audit report of
independent certified public accountants acceptable to Lender which report
shall be to the effect that such statements have been prepared in accordance
with GAAP applied on a basis consistent with prior periods except for such
changes in such principles with which the independent public accountants shall
have concurred;


 


(iii)          Promptly after becoming
available, and in any event within forty-five (45) days after the end of each
Fiscal Quarter, including the fourth Fiscal Quarter in each Fiscal Year, a
Consolidated balance sheet of Borrower as of the end of such Fiscal Quarter and
the related Consolidated statements of income, stockholders’ equity and cash
flows of Borrower for such Fiscal Quarter and the period from the first day of
the then current Fiscal Year through the end of such Fiscal Quarter, certified
by the Controller or other executive officer of Borrower to have been prepared
in accordance with GAAP applied on a basis consistent with prior periods;


 


(iv)          Promptly after being
requested by Lender but not more than twice during any calendar year (unless a
Default or Event of Default shall exist), and in any event within thirty (30)
days after receiving such request in writing, a Consolidated balance sheet of
Borrower as of the end of the calendar month immediately preceding such request
and the related Consolidated statements of income, stockholders’ equity and
cash flows of Borrower for such month and the period from the first day of the
then current Fiscal Year through the end of such month, certified by the
Controller or other executive officer of Borrower to have been prepared in accordance
with GAAP applied on a basis consistent with prior periods.


 


(v)           Promptly after becoming
available, and in any event within forty-five (45) days after the end of each
Fiscal Quarter, a Consolidated and consolidating balance sheet of Parent as of
the end of such Fiscal Quarter and the related Consolidated and consolidating
statements of income, stockholders’ equity and cash flows of Parent for such
Fiscal Quarter and the period from the first day of the then current Fiscal
Year through the end of such Fiscal Quarter, certified by the chief financial
officer or other executive officer of Parent to have been prepared in
accordance with GAAP applied on a basis consistent with prior periods;


 


(vi)          Promptly and in any event
within (x) forty-five (45) days after the end of each Fiscal Quarter of
Borrower and (y) within ninety (90) days after the end of each Fiscal Year
of Borrower, a completed Officer’s Certificate in the form of Exhibit C  attached hereto, executed by the President,
Controller or executive officer of Borrower;


 


29


 












 


(vii)         Promptly and in any event
within ninety (90) days of the beginning of each Fiscal Year, an annual
operating budget of Borrower for such Fiscal Year, in form and substance
satisfactory to Lender;


 


(viii)        Promptly and in any event
within thirty (30) days after the end of each calendar month, a monthly
pipeline report in form and substance satisfactory to Lender;


 


(ix)           Promptly and in any event
within forty-five (45) days after the end of each Fiscal Quarter, a mortgage
loan production report as of the end of such Fiscal Quarter, reflecting
Borrower’s Mortgage Loan production and acquisition volumes during such Fiscal
Quarter, and such other similar information as reasonably requested by Lender
to be in such report;


 


(x)            Promptly and in any event
within seven (7) days after the end of each week, a hedging coverage
report showing, in detail and form satisfactory to Lender, Borrower’s hedging
coverage of all Eligible Mortgage Loans subject to a Hedging Arrangement;


 


(xi)           Promptly upon request by
Lender, but not more than once per Fiscal Quarter (unless a Default or Event of
Default shall exist), a management report in form and substance acceptable to
Lender including, without limitation detail on Borrower’s commitment position,
repurchase requests by investors, and any other report reasonably requested by
Lender;


 


(xii)          Promptly upon receipt
thereof, a copy of each other report submitted to Borrower by independent
accountants in connection with any annual, interim or special audit of the
books of Borrower; and


 


(xiii)         such other information
concerning the business, properties or financial condition of any Related
Person as Lender may reasonably request.


 


Section 5.2             Taxes and Other Liens.  Each Related Person shall pay and discharge
promptly all taxes, assessments and governmental charges or levies imposed upon
it or upon its income or upon any of its Property as well as all claims of any
kind (including claims for labor, materials, supplies and rent) which, if
unpaid, might become a Lien upon any or all of its Property; provided, however,
each Related Person shall not be required to pay any such tax, assessment,
charge, levy or claim if the amount, applicability or validity thereof shall
currently be contested in good faith by appropriate proceedings diligently
conducted by or on behalf of such Related Person and if such Related Person
shall have set up reserves therefor adequate under GAAP.


 


Section 5.3             Maintenance.  Each Related Person shall (a) maintain
its corporate or partnership existence, rights and franchises (provided that
Borrower may discontinue the existence of any of its Subsidiaries that the
Borrower in good faith determines are no longer operating or necessary for the
business and operations of Borrower and its other Subsidiaries); (b) observe
and comply in all material respects with all Governmental Requirements, and (c) maintain
its Properties (and any Properties leased by or consigned to it or held under
title retention or conditional sales contracts) in good and workable condition
at all times and make all 


 


30













 


repairs, replacements, additions, betterments and improvements to its
Properties as are needed and proper so that the business carried on in
connection therewith may be conducted properly and efficiently at all
times.  Borrower shall maintain good
standing as an approved seller and servicer for FNMA and FHLMC and as an
approved lender with FHA, VA and HUD.


 


Section 5.4             Further Assurances.  Borrower shall, within three (3) Business
Days after the request of Lender, cure any defects in the execution and
delivery of the Note, this Agreement or any other Loan Document and each
Related Person shall, at its expense, promptly execute and deliver to Lender
upon request all such other and further documents, agreements and instruments
in compliance with or accomplishment of the covenants and agreements of each
Related Person in this Agreement and in the other Loan Documents or to further
evidence and more fully describe the collateral intended as security for the
Note, or to correct any omissions in this Agreement or the other Loan
Documents, or more fully to state the security for the obligations set out
herein or in any of the other Loan Documents, or to make any recordings, to
file any notices, or obtain any consents.


 


Section 5.5             Reimbursement of Expenses.  Borrower shall pay (a) all reasonable
legal fees incurred by Lender in connection with the preparation, negotiation,
syndication, execution and delivery of this Agreement, the Note and the other Loan
Documents (provided such legal fees for the preparation, negotiation,
syndication, execution and delivery of the initial Loan Documents shall not
exceed $20,000) and any amendments, consents or waivers executed in connection
therewith, (b) all fees, charges or taxes for the recording or filing of
the Security Instruments, (c) all reasonable out-of-pocket expenses of
Lender in connection with the administration of this Agreement, the Note and
the other Loan Documents, including courier expenses actually incurred and
billed to Borrower in connection with the Mortgage Collateral, (d) all
reasonable amounts expended, advanced or incurred by Lender to satisfy any
obligation of Borrower under this Agreement or any of the other Loan Documents
or to collect the Note, or to protect, preserve, exercise or enforce the rights
of Lender under this Agreement or any of the other Loan Documents, (e) all
reasonable out-of-pocket costs and expenses (including reasonable fees and
expenses of attorneys and other experts employed or retained by such Person)
incurred in connection with, arising out of, or in any way related to (i) consulting
during a Default with respect to (A) the protection, preservation,
exercise or enforcement of any of its rights in, under or related to the
Collateral or the Loan Documents or (B) the performance of any of its
obligations under or related to the Loan Documents, or (ii) protecting,
preserving, exercising or enforcing during a Default any of its rights in,
under or related to the Collateral or the Loan Documents, each of (a) through
(e) shall include all underwriting expenses, collateral liquidation costs,
court costs, attorneys’ fees (including, without limitation, for trial, appeal
or other proceedings), fees of auditors and accountants, and investigation
expenses reasonably incurred by Lender in connection with any such matters,
together with interest at the post-maturity rate specified in the Note on each
item specified in clause (a) through (e) from thirty (30) days after
the date of written demand or request for reimbursement until the date of
reimbursement. Provided, however, Lender shall not be entitled to any
reimbursement under clauses (d) and (e) above if there is a
determination in a final, non-appealable judgment by a court of competent
jurisdiction that Lender was not entitled to exercise such remedies under the
Loan Documents.


 


Section 5.6             Insurance.  Borrower shall maintain with financially
sound and reputable insurers, insurance with respect to its Properties and
business against such liabilities, casualties, 


 


31













 


risks and contingencies and in such types and amounts as is customary
in the case of Persons engaged in the same or similar businesses and similarly
situated, including, without limitation, a fidelity bond or bonds with
financially sound and reputable insurers with such coverage and in such amounts
as is customary in the case of Persons engaged in the same or similar
businesses and similarly situated.  The
improvements on the land covered by each Mortgage shall be kept continuously
insured at all times by responsible insurance companies against fire and
extended coverage hazards under policies, binders, letters, or certificates of
insurance, with a standard mortgagee clause in favor of Borrower and its
assigns.  Each such policy must be in an
amount not less than the highest of the following:  (a) the amount of the Mortgage Loan, (b) 90%
of the insurable value of the improvements, and (c) an amount sufficient
to prevent co-insurance, without reduction by reason of any co-insurance,
reduced rate contribution, or similar clause of the policies or binders.  Upon request of Lender, Borrower shall
furnish or cause to be furnished to Lender from time to time a summary of the
insurance coverage of Borrower in form and substance satisfactory to Lender and
if requested shall furnish Lender copies of the applicable policies.


 


Section 5.7             Accounts and Records: Servicing Records.  Each Related Person shall keep books of
record and account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and activities, in
accordance with GAAP.  Each Related
Person shall maintain and implement administrative and operating procedures
(including, without limitation, an ability to recreate all records pertaining
to the performance of such Related Person’s obligations under the Servicing
Agreements in the event of the destruction of the originals of such records)
and keep and maintain all documents, books, records, computer tapes and other
information reasonably necessary or advisable for the performance by each
Related Person of its obligations under the Servicing Agreements.


 


Section 5.8             Right of Inspection.  Each Related Person shall permit authorized
representatives of Lender to do the following as it relates to this
Agreement:  to discuss the business,
operations, assets and financial condition of such Related Person with their
officers and employees, to examine their Servicing Records and books of records
and account and make copies or extracts thereof and to visit and inspect any of
the Properties of each Related Person, all at such reasonable times and as
often as Lender may request.  Each
Related Person will provide its accountants with a copy of this Agreement
promptly after the execution hereof and will instruct its accountants to answer
candidly any and all questions that the officers of Lender or any authorized
representatives of Lender may address to them in reference to the financial
condition or affairs of any Related Person as those conditions or affairs
relate to this Agreement.  Each Related
Person may have its representatives in attendance at any meetings between the
officers or other representatives of Lender and such Related Person’s accountants
held in accordance with this authorization.


 


Section 5.9             Notice of Certain Events.  Borrower shall promptly notify Lender upon (a) the
receipt of any notice from, or the taking of any other action by, the holder of
any promissory note, debenture or other evidence of Indebtedness of any Related
Person with respect to a claimed default that could, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect, together
with a detailed statement by a responsible officer of Borrower specifying the
notice given or other action taken by such holder and the nature of the claimed
default and what action Borrower is taking or proposes to take with respect
thereto; (b) the 


 


32













 


commencement of, or any determination in, any legal, judicial or
regulatory proceedings between any Related Person and any Governmental
Authority or any other Person which, if adversely determined, could have a
Material Adverse Effect; (c) any change in senior management of Borrower, (d) any
material adverse change in the business, operations, prospects or financial
condition of any Related Person, including, without limitation, the insolvency
of any Related Person, (e) any event or condition which, if adversely
determined, could have a Material Adverse Effect, or (f) the occurrence of
any Termination Event.


 


Section 5.10           Performance of Certain Obligations and Information
Regarding Investors.  Borrower
shall perform and observe in all material respects each of the provisions of
each Take-Out Commitment and each of the Servicing Agreements on its part to be
performed or observed and will cause all things to be done which are necessary
to have each item of Mortgage Collateral covered by a Take-Out Commitment comply
with the requirements of such Take-Out Commitment.  Upon request by Lender, Borrower will deliver
to Lender financial information concerning any Person Lender is reviewing to
determine whether to approve such Person as an Investor; all such financial information
must be delivered to Lender prior to any request by Borrower for Mortgage
Collateral to be delivered to such Person.


 


Section 5.11           Use of Proceeds: Margin Stock.  The proceeds of all Loans shall be used by
Borrower solely for the origination and purchase of Eligible Mortgage
Loans.  None of such proceeds shall be
used for the purpose of purchasing or carrying any “margin stock” as defined in
Regulation U, or for the purpose of reducing or retiring any Indebtedness which
was originally incurred to purchase or carry margin stock or for any other
purpose which might constitute this transaction a “purpose credit” within the
meaning of such Regulation U.  Neither
Borrower nor any Person acting on behalf of Borrower shall take any action in
violation of Regulation U or Regulation X or shall violate Section 7 of
the Securities Exchange Act of 1934 or any rule or regulation thereunder,
in each case as now in effect or as the same may hereafter be in effect.


 


Section 5.12           Notice of Default.  Borrower shall furnish to Lender immediately
upon becoming aware of the existence of any Default or Event of Default, a
written notice specifying the nature and period of existence thereof and the
action which Borrower is taking or proposes to take with respect thereto.


 


Section 5.13           Compliance with Loan Documents.  Each Related Person shall promptly comply
with any and all covenants and provisions of this Agreement, the Note and the
other Loan Documents to be complied with by such Related Person.


 


Section 5.14           Operations and Properties.  Each Related Person shall comply with all
rules, regulations and guidelines applicable to it.  Each Related Person shall act prudently and
in accordance with customary industry standards in managing and operating its
Property.


 


Section 5.15           Environmental Matters.


 


(a)           Each Related Person will comply in all material
respects with all Environmental Laws now or hereafter applicable to such
Related Person and shall obtain, at or prior to the time required by applicable
Environmental Laws, all environmental, health and safety permits, 


 


33













 


licenses and other authorizations necessary for its operations and will
maintain such authorizations in full force and effect.


 


(b)           Borrower will promptly furnish to Lender all written
notices of violation, orders, claims, citations, complaints, penalty
assessments, suits or other proceedings received by Borrower, or of which it
has notice, pending or threatened against Borrower, by any Governmental
Authority with respect to any alleged violation of or non-compliance with any
Environmental Laws or any permits, licenses or authorizations in connection
with its ownership or use of its properties or the operation of its business
that could, individually or in the aggregate, be reasonably expected to have a
Material Adverse Effect.


 


Section 5.16           MERS Status.


 


(a)           Borrower will (a) at all times, maintain its
status as a MERS member in good standing, (b) at all times remain in full
compliance with all terms and conditions of membership in MERS, including the
MERSCORP, Inc. “Rules of Membership” most recently promulgated by
MERSCORP, Inc., the “MERS Procedures Manual” most recently promulgated by
MERS, and any and all other guidelines or requirements set forth by MERS or
MERSCORP, Inc., as each of the foregoing may be modified from time to
time, including, but in no way limited to, compliance with guidelines and
procedures set forth with respect to technological capabilities, drafting and
recordation of Mortgages, registration of Mortgages on the MERS System, and
registration of the interest of the Lender in such mortgages and membership
requirements, (c) promptly, upon the request of the Lender, execute and
deliver to the Lender an assignment of mortgage, in blank, with respect to any
MERS Mortgage that the Lender determines shall be removed from the MERS System
and (d) at all times maintain the Electronic Tracking Agreement executed
of even date herewith in full force and effect.


 


(b)           Borrower shall not de-register or attempt to
de-register any Mortgage from the MERS System unless Borrower has complied with
the requirements set forth in the Electronic Tracking Agreement and the
requirements hereof and of the Security Agreement relating to release of
Collateral.


 


Section 5.17           Hedging Arrangements.  Borrower shall maintain Hedging Arrangements
with respect to all Eligible Mortgage Loans not subject to a Take-Out
Commitment with Persons reasonably satisfactory to Lender in order to mitigate
the risk that the market value of any such Eligible Mortgage Loan will change
as a result of a change in interest rates or the market for mortgage loan
assets before the Eligible Mortgage Loan is purchased by an Investor or
repurchased by Borrower.  Borrower will
use its best efforts to cause a Person providing such a Hedging Arrangement to
acknowledge Lender’s security interest in the Hedging Arrangement and related
collateral granted pursuant to the Security Agreement, by agreement reasonably
satisfactory to Lender.


 


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ARTICLE VI



NEGATIVE COVENANTS


 


Each Related Person shall at all times comply with (or
cause compliance with) the covenants contained in this Article VI,
from the date hereof and for so long as any part of the Obligations or the Commitment
is outstanding unless Lender has agreed otherwise in writing:


 


Section 6.1             No Merger; Limitation on Issuance of
Securities.  No Related
Person shall merge or consolidate with or into any Person; provided that
Borrower may merge or consolidate with any wholly owned subsidiary of Borrower
if Borrower is the surviving corporation; and provided further that after
giving effect thereto, no Default or Event of Default would exist
hereunder.  No Related Person shall acquire
by purchase, or otherwise, all or substantially all of the assets or capital
stock of any Person.  Borrower will not
issue any securities other than shares of its common stock and any options or
warrants giving the holders thereof only the right to acquire such shares.  No Related Person other than Borrower will
issue any additional shares of its capital stock or other securities or any
options, warrants or other rights to acquire such additional shares or other
securities except to Borrower and only to the extent not otherwise forbidden under
the terms hereof.  No Subsidiary of
Borrower which is a partnership will allow any diminution of Borrower’s
interest (direct or indirect) therein. 
There shall be no Change of Control.


 


Section 6.2             Limitation on Indebtedness.  No Related Person shall incur, create,
contract, assume, have outstanding, guarantee or otherwise be or become,
directly or indirectly, liable in respect of any Indebtedness or Guaranty
Obligations unless at the time of the incurrence of such Indebtedness or
Guaranty Obligations (x) no Default or Event of Default shall have
occurred and be continuing or would result therefrom and (y) after giving
effect to such Indebtedness or Guaranty Obligations, the Borrower is in
compliance on a pro forma basis with the covenants set forth in Sections 6.13
through 6.16 as a result thereof; and provided further, to the extent
such Indebtedness is in respect of another mortgage warehouse credit facility,
Lender is collateral manager and custodian of the collateral thereunder.


 


Section 6.3             Fiscal Year, Method of Accounting.  No Related Person shall change its Fiscal
Year or make any material change in its method of accounting without prior
notice to Lender.  Upon such notice and
if such change is consistent with GAAP, the reports and financial statement of
Borrower and its Consolidated subsidiaries required hereunder may be prepared
in accordance with such change but, if such changes are material, all
calculations and determinations to be made hereunder may be made in accordance
with such change only after notice of such change is given to Lender and Lender
agrees to such change insofar as it affects the accounting of Borrower or of
Borrower and its Consolidated subsidiaries.


 


Section 6.4             Business.  No Related Person shall, directly or
indirectly, engage in any business which differs materially from that currently
engaged in by such Related Person.


 


Section 6.5             Liquidations, Consolidations and Dispositions
of Substantial Assets.  No
Related Person shall dissolve or liquidate or sell, transfer, lease or
otherwise dispose of any material portion of their property or assets or
business; provided, however, nothing in this 


 


35













 


Section 6.5 shall be construed to prohibit any Related
Person from selling rights to service mortgage loans and pools of mortgage
loans or Mortgage Notes in the ordinary course of their business.


 


Section 6.6             Loans, Advances, and Investments.  No Related Person shall make any loan (other
than Mortgage Loans), advance, extension of credit, or capital contribution to,
or investment in (including any investment in any Subsidiary, joint venture or
partnership), or purchase or otherwise acquire any of the capital stock,
securities, or evidences of indebtedness of, any Person (including, without
limitation, any employee or officer of any Related Person) (collectively, “Investment”), or
otherwise acquire any interest in, or control of, another Person, except for
the following:


 


(a)           Cash Equivalents;


 


(b)           Any acquisition of securities or evidences of
indebtedness of others when acquired by a Related Person in settlement of
accounts receivable or other debts arising in the ordinary course of its
business, so long as the aggregate amount of any such securities or evidences
of indebtedness is not material to the business or condition (financial or
otherwise) of such Related Person;


 


(c)           Mortgage Notes acquired by Borrower in the ordinary
course of Borrower’s business; and


 


(d)           Investments by any Related Person other than those
described in the preceding clauses (a) through (c) in a business
or venture substantially similar to those engaged in by such Related Person,
provided that the aggregate amount of all such other Investments for all
Related Persons shall at no time exceed $500,000.


 


Section 6.7             Use of Proceeds.  Borrower shall not permit the proceeds of the
Loans to be used for any purpose other than those permitted by Section 5.11
hereof.  Borrower shall not, directly or
indirectly, use any of the proceeds of the Loans for the purpose, whether immediate,
incidental or ultimate, of buying any “margin stock” or of maintaining,
reducing or retiring any Indebtedness originally incurred to purchase a stock
that is currently any “margin stock,” or for any other purpose which might
constitute this transaction a “purpose credit,” in each case within the meaning
of Regulation G of the Board of Governors of the Federal Reserve System (12
C.F.R. 207, as amended), or Regulation U, or otherwise take or permit to be
taken any action which would involve a violation of such Regulation G or
Regulation U or of Regulation T (12 C.F.R. 220, as amended) or Regulation X (12
C.F.R. 224, as amended) or any other regulation of such board.


 


Section 6.8             Actions with Respect to Mortgage Collateral.  Borrower shall not:


 


(a)           Compromise, extend, release, or adjust payments on
any Mortgage Collateral, accept a conveyance of mortgaged property in full or
partial satisfaction of any Mortgage Collateral, or release any Mortgage
securing or underlying any Mortgage Collateral;


 


(b)           Agree to the amendment or termination of any
Take-Out Commitment in which Lender has a security interest or to substitution
of a Take-Out Commitment for a Take-Out 


 


36













 


Commitment in which Lender has a security interest hereunder, if such
amendment, termination or substitution may reasonably be expected (as
determined by Lender in its sole discretion) to have a Material Adverse Effect;


 


(c)           Transfer, sell, assign, or deliver any Mortgage
Collateral pledged to Lender to any Person other than Lender, except pursuant
to a Take-Out Commitment; or


 


(d)           Grant, create, incur, permit or suffer to exist any
Lien upon any Mortgage Collateral except for Permitted Liens and such
non-consensual Liens as may be deemed to arise as a matter of law pursuant to
any Take-Out Commitment.


 


Section 6.9             Transactions with Affiliates.  Borrower shall not enter into any
transactions including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transactions are otherwise permitted under this Agreement, are in the
ordinary course of Borrower’s business and are upon fair and reasonable terms
no less favorable to Borrower than it would obtain in a comparable arm’s length
transaction with a Person not an Affiliate.


 


Section 6.10           Liens.  No Related
Person shall grant, create, incur, assume, permit or suffer to exist any Lien,
upon any of its Property, including without limitation any and all of Borrower’s
Mortgage Notes, and Servicing Rights and the proceeds from any thereof, other
than (a) Liens which secure payment of the Obligations, (b) first
Liens on Property which also secures Second Lien Loans, so long as the Unit
Collateral Value of such Mortgage Notes secured thereby does not exceed the
Applicable Sublimit for Second Lien Loans, and (c) Liens on Property other
than Collateral which secure payment of the Indebtedness permitted to be
incurred hereunder.


 


Section 6.11           ERISA Plans.  No Related Person shall adopt or agree to
maintain or contribute to any ERISA Plan. 
Borrower shall promptly notify Lender in writing in the event an ERISA
Affiliate adopts an ERISA Plan.


 


Section 6.12           Change of Principal Office.  The Borrower shall not move its principal
office, executive office or principal place of business from the address set
forth in Section 9.1 without prior written notice to Lender.


 


Section 6.13           Tangible Net Worth.  As of the end of each Fiscal Quarter, the
Tangible Net Worth of Borrower shall not be less than $13,000,000.


 


Section 6.14           Total Indebtedness to Adjusted Tangible Net Worth.  The ratio of Total Indebtedness of Borrower
to Adjusted Tangible Net Worth of Borrower shall never be more than 12.0 to
1.0.


 


Section 6.15           Profitability.  As of the end of each Fiscal Quarter,
Borrower’s Consolidated Net Income for the period of four preceding Fiscal
Quarters ended as of the end of such Fiscal Quarter shall be a positive number
equal to or greater than $1.00.


 


Section 6.16           Adjusted Tangible Net Worth.  At the end of each Fiscal Quarter, the
Adjusted Tangible Net Worth of Borrower shall not be less than $5,000,000.


 


37













 


Section 6.17           Dividends.  The Borrower shall not, nor shall it permit
any Subsidiary to, declare or pay any Dividends, unless at the time of each
Dividend by Borrower, (x) no Default or Event of Default shall have
occurred and be continuing or would result therefrom and (y) after giving
effect to such Dividend, the Borrower is in compliance on a pro forma basis
with the covenants set forth in Sections 6.13 through 6.16.


 


ARTICLE VII



EVENTS OF DEFAULT


 


Section 7.1             Nature of Event.  An Event of Default shall exist if any one or
more of the following occurs:


 


(a)           Borrower fails to make any payment of (i) principal
of the Note on or before the date such payment is due, (ii) interest on
the Note and such failure continues for two (2) Business Days after the
date such payment is due, or (iii) any fee, expense or other amount due
hereunder, under the Note, or under any other Loan Document, and such failure
continues for a period of five (5) Business Days after Lender gives
Borrower notice thereof;


 


(b)           Default is made in the due observance or performance
by any Related Person of any covenant set forth in Article VI or Section 5.9
of this Agreement;


 


(c)           Default is made in the due observance or performance
by any Related Person of any of the covenants or agreements contained in this
Agreement other than those described in subsections (a) or (b) immediately
above and such Default continues for a period of fifteen (15) days after Lender
gives Borrower notice thereof;


 


(d)           Any Related Person defaults in the due observance or
performance or any of the covenants or agreements contained in any other Loan
Document to which it is a party, and (unless such default otherwise constitutes
a Default pursuant to other provisions of this Section 7.1) such
default continues unremedied beyond the expiration of any applicable grace
period which may be expressly allowed under such other Loan Document, but
which, in any case, shall not be shorter than fifteen (15) days;


 


(e)           Any material statement, warranty or representation
by or on behalf of any Related Person contained in this Agreement, the Note or
any other Loan Document to which it is a party, or in any Borrowing Request,
officer’s certificate or other writing furnished in connection with this
Agreement, proves to have been incorrect or misleading in any material respect
as of the date made or deemed made;


 


(f)            Any Related Person:


 


(i)            suffers the entry against it
of a judgment, decree or order for relief by a court of competent jurisdiction
in an involuntary proceeding commenced under any applicable bankruptcy,
insolvency or other similar law of any jurisdiction now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended, or has any
such proceeding commenced against it which remains undismissed for a period of
sixty (60) days; or


 


38












 


(ii)           commences a voluntary case
under any applicable bankruptcy, insolvency or similar law now or hereafter in
effect, including the federal Bankruptcy Code, as from time to time amended, or
applies for or consents to the entry of an order for relief in an involuntary
case under any such law; or makes a general assignment for the benefit of
creditors; or fails generally to pay (or admits in writing its inability to
pay) its debts as such debts become due; or takes corporate or other action to
authorize any of the foregoing; or


 


(iii)          suffers the appointment of
or taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of all or a substantial part of its assets or
of any part of the Mortgage Collateral in a proceeding brought against or
initiated by it, and such appointment or taking possession is neither made
ineffective nor discharged within sixty (60) days after the making thereof, or
such appointment or taking possession is at any time consented to, requested
by, or acquiesced to by it; or


 


(iv)          suffers the entry against it
of a final judgment for the payment of money in excess of $500,000.00 (not
covered by insurance satisfactory to Lender in its discretion), unless the same
is discharged within thirty (30) days after the date of entry thereof or an
appeal or appropriate proceeding for review thereof is taken within such period
and a stay of execution pending such appeal is obtained; or


 


(v)           suffers a writ or warrant of
attachment or any similar process to be issued by any court against all or any
substantial part of its assets or any part of the Mortgage Collateral.


 


(g)           Any Related Person fails to make when due or within
any applicable grace period any payment on any Indebtedness (other than the
Obligations) with an unpaid principal balance of over $1,000,000.00; or any
event or condition occurs under any provision contained in any agreement under
which such obligation is governed, evidenced or secured (or any other material
breach or default under such obligation or agreement occurs) if the effect
thereof is to cause or permit the holder or trustee of such obligation to cause
such obligation to become due or repurchased, prepaid, redeemed or defeased
prior to its stated maturity; or any such obligation becomes due (other than by
regularly scheduled payments) prior to its stated maturity; or any of the
foregoing occurs with respect to any one or more items of Indebtedness of any
Related Person with unpaid principal balances exceeding, in the aggregate, $250,000.00;


 


(h)           Any event or condition occurs under any provision
contained in the Parent Debt Agreement (or any other material breach or default
under the Parent Debt Agreement occurs) if the effect thereof is to cause or
permit the holder or trustee of such obligation to cause such obligation to
become due or repurchased, prepaid, redeemed or defeased prior to its stated
maturity; or any default or event of default occurs under any provision
contained in any line of credit maintained by Borrower and such default is not
cured within any applicable given period;


 


(i)            This Agreement, the Note or any other Loan Document
shall for any reason cease to be in full force and effect, or be declared null
and void or unenforceable in whole or in part as the result of any action
initiated by any Person other than Lender or the validity or enforceability 


 


39













 


of any such document shall be challenged or denied by any Person other
than Lender other than by reason of illegality;


 


(j)            Either (i) any “accumulated funding deficiency”
(as defined in Section 412(a)) of the Code in excess of $25,000.00 exists
with respect to any ERISA Plan, whether or not waived by the Secretary of the
Treasury or his delegate, or (ii) any Termination Event occurs with
respect to any ERISA Plan and the then current value of such ERISA Plan’s
benefits guaranteed under Title IV of ERISA exceeds the then current value
of such ERISA Plan’s assets available for the payment of such benefits by more
than $10,000.00 (or in the case of a Termination Event involving the withdrawal
of a substantial employer, the withdrawing employer’s proportionate share of
such excess exceeds such amount) or (iii) any Related Person or any ERISA
Affiliate withdraws from a multiemployer plan resulting in liability under
Title IV of ERISA of an amount in excess of $10,000.00 in the case of any
Related Person or $10,000.00 in the case of any other ERISA Affiliate; or


 


(k)           A Change of Control occurs.


 


Section 7.2             Default Remedies.  Upon the occurrence and during the continuance
of an Event of Default, Lender may declare the Commitment to be terminated
and/or declare the entire principal and all interest accrued on the Note to be,
and the Note, together with all Obligations, shall thereupon become, forthwith
due and payable, without any presentment, demand, protest, notice of protest
and nonpayment, notice of acceleration or of intent to accelerate or other
notice of any kind, all of which hereby are expressly waived.  Notwithstanding the foregoing, if an Event of
Default specified in Subsections 7.1(f)(i), (ii) or (iii) above
occurs with respect to Borrower, the Commitment shall automatically and
immediately terminate and the Note and all other Obligations shall become
automatically and immediately due and payable, both as to principal and
interest, without any action by Lender and without presentment, demand,
protest, notice of protest and nonpayment, notice of acceleration or of intent
to accelerate, or any other notice of any kind, all of which are hereby
expressly waived, anything contained herein, in the Note to the contrary
notwithstanding.


 


ARTICLE VIII



INDEMNIFICATION


 


Section 8.1             Indemnification.  Borrower agrees to indemnify Lender and each
director, officer, agent, attorney, employee, representative and Affiliate of
Lender (each an “Indemnified
Party”), upon demand, from and against any and all liabilities,
obligations, claims, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements (including reasonable fees of attorneys,
accountants, experts and advisors) of any kind or nature whatsoever (in this Section 8.1
collectively called “liabilities and costs”) which to any extent (in whole or
in part) may be imposed on, incurred by, or asserted against any Indemnified
Party growing out of, resulting from or in any other way associated with any of
the Mortgage Collateral, the Loan Documents, and the transactions and events
(including the enforcement or defense thereof) at any time associated therewith
or contemplated therein (including any violation or noncompliance with any
Environmental Laws by any Related Person).


 


40













 


THE
FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS
ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR
THEORY OF STRICT LIABILITY, OR ARE CAUSED IN WHOLE OR PART, BY ANY NEGLIGENT
ACT OR OMISSION OF ANY KIND BY SUCH INDEMNIFIED PARTY,


 


provided
only that such indemnified party shall not be entitled under this section to
receive indemnification for that portion, if any, of any liabilities and costs
which is proximately caused by its own individual gross negligence or willful
misconduct as determined by a court of competent jurisdiction in a final
non-appealable judgment.  All amounts
payable by Borrower shall be immediately due upon Lender’s request for the
payment thereof.


 


Section 8.2             Limitation of Liability.  None of Lender, its directors, officers,
agents, attorneys, employees, representatives or affiliates shall be liable for
any action taken or omitted to be taken by it or them under or in connection
with this Agreement.  THE FOREGOING EXCULPATION SHALL APPLY TO ANY NEGLIGENT
ACT OR OMISSION OF ANY KIND BY ANY SUCH PERSON, OR ANY ACT OR OMISSION WHICH
CAUSES SUCH PERSON TO BE SUBJECT TO STRICT LIABILITY, PROVIDED THAT SUCH PERSON
SHALL BE LIABLE FOR ITS OWN INDIVIDUAL GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.


 


ARTICLE IX



MISCELLANEOUS


 


Section 9.1             Notices.  Any notice or request required or permitted
to be given under or in connection with this Agreement, the Note or the other
Loan Documents (except as may otherwise be expressly allowed herein or therein)
shall be in writing and shall be mailed by first class or express mail, postage
prepaid, or sent by telex, telegram, telecopy or other similar form of rapid
transmission, confirmed by mailing (by first class or express mail, postage
prepaid) written confirmation at substantially the same time as such rapid
transmission, or personally delivered to an officer of the receiving
party.  All such communications shall be
mailed, sent or delivered to the parties hereto at their respective addresses
as follows:


 


	
  Borrower:

  	
   

  	
  Ryland Mortgage Company

  
	
   

  	
   

  	
  6300 Canoga Avenue,
  14th Floor

  
	
   

  	
   

  	
  Woodland Hills, CA
  91367

  
	
   

  	
   

  	
  Attention: David A.
  Brown, Senior Vice President

  
	
   

  	
   

  	
  FAX: (818) 251-4192

  
	
   

  	
   

  	
  TEL: (818) 251-4116

  



 


41













 


	
  Copy to:

  	
   

  	
  Ryland Mortgage Company

  
	
   

  	
   

  	
  6300 Canoga Avenue,
  14th Floor

  
	
   

  	
   

  	
  Woodland Hills, CA 91367

  
	
   

  	
   

  	
  Attention: Eric Menyuk,
  Vice President, Counsel

  
	
   

  	
   

  	
  FAX: (818) 251-4206

  
	
   

  	
   

  	
  TEL: (818) 251-4114

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Lender:

  	
   

  	
  Guaranty Bank

  
	
   

  	
   

  	
  8333 Douglas Avenue

  
	
   

  	
   

  	
  Dallas, Texas 75225

  
	
   

  	
   

  	
  Attention: Ross Evans

  
	
   

  	
   

  	
  FAX: 214-360-4892

  
	
   

  	
   

  	
  TEL:
  214-360-2672

  



 


or at
such other addresses or to such individual’s or department’s attention as any
party may have furnished the other party in writing. Any communication so
addressed and mailed shall be deemed to be given when so mailed, except that
Borrowing Requests, and communications related thereto shall not be effective
until actually received by Lender or Borrower, as the case may be; and any
notice so sent by rapid transmission shall be deemed to be given when receipt
of such transmission is acknowledged, and any communication so delivered in
person shall be deemed to be given when receipted for by, or actually received
by, an authorized officer of Borrower or Lender, as the case may be.


 


Section 9.2                             Amendments, Etc.  No amendment or waiver of any provision of
this Agreement, the Security Instruments, the Note, or any other Loan Document,
nor consent to any departure by any Related Person from the terms thereof,
shall in any event be effective unless the same shall be in writing and signed
by Borrower and Lender.


 


Section 9.3             CHOICE OF LAW; VENUE.  THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF TEXAS.  SECTION 346
OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING LOAN ACCOUNTS AND
REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS.  BORROWER HEREBY AGREES
THAT THE OBLIGATIONS CONTAINED HEREIN ARE PERFORMABLE IN DALLAS COUNTY,
TEXAS.  ALL PARTIES HERETO AGREE THAT (I) ANY
ACTION ARISING OUT OF THIS TRANSACTION SHALL BE FILED IN DALLAS COUNTY, TEXAS, (II) VENUE
FOR ENFORCEMENT OF ANY OF THE OBLIGATIONS CONTAINED IN THIS AGREEMENT SHALL BE
IN DALLAS COUNTY, (III) PERSONAL JURISDICTION SHALL BE IN DALLAS COUNTY,
TEXAS, (IV) ANY ACTION OR PROCEEDING UNDER THIS AGREEMENT SHALL BE
COMMENCED AGAINST BORROWER IN DALLAS COUNTY, (V) SUCH ACTION SHALL BE
INSTITUTED IN THE COURTS OF THE STATE OF TEXAS LOCATED IN DALLAS COUNTY, TEXAS
OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS
LOCATED IN DALLAS COUNTY, TEXAS, AND (VI) BORROWER HEREBY WAIVES ANY OBJECTION
TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING AND ADDITIONALLY WAIVES ANY
RIGHT IT MAY HAVE TO BE SUED ELSEWHERE. 
NOTHING HEREIN 


 


42

















 


SHALL AFFECT THE RIGHT OF LENDER TO ACCOMPLISH SERVICE OF PROCESS IN
ANY MANNER PERMITTED BY LAW.


 


Section 9.4             Invalidity.  In the event that any one or more of the
provisions contained in the Note, this Agreement or any other Loan Document
shall, for any reason, be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of such document.


 


Section 9.5             Survival of Agreements.  All covenants and agreements herein and in
any other Loan Document not fully performed before the date hereof or the date
thereof, and all representations and warranties herein or therein, shall
survive until payment in full of the Obligations and termination of the
Commitment.


 


Section 9.6             Renewal, Extension or Rearrangement.  All provisions of this Agreement and of the
other Loan Documents shall apply with equal force and effect to each promissory
note hereafter executed which in whole or in part represents a renewal,
extension for any period, increase or rearrangement of any part of the
Obligations originally represented by the Note or of any part of such other
Obligations.


 


Section 9.7             Waivers.  No course of dealing on the part of Lender,
or any of its officers, employees, consultants or agents, nor any failure or
delay by Lender with respect to exercising any right, power or privilege of
Lender under the Note, this Agreement or any other Loan Document shall operate
as a waiver thereof, except as otherwise provided in Section 9.2
hereof.


 


Section 9.8             Cumulative Rights.  The rights and remedies of Lender under the
Note, this Agreement, and any other Loan Document shall be cumulative, and the
exercise or partial exercise of any such right or remedy shall not preclude the
exercise of any other right or remedy.


 


Section 9.9             Limitation on Interest.  Lender, each Related Person and any other
parties to the Loan Documents intend to contract in strict compliance with
applicable usury Law from time to time in effect.  In furtherance thereof such Persons stipulate
and agree that none of the terms and provisions contained in the Loan Documents
shall ever be construed to create a contract to pay, for the use, forbearance
or detention of money, interest in excess of the maximum amount of interest
permitted to be charged by applicable Law from time to time in effect.  Neither each Related Person nor any present
or future guarantors, endorsers, or other Persons hereafter becoming liable for
payment of any Obligation shall ever be liable for unearned interest thereon or
shall ever be required to pay interest thereon in excess of the maximum amount
that may be lawfully charged under applicable Law from time to time in effect,
and the provisions of this section shall control over all other provisions of
the Loan Documents which may be in conflict or apparent conflict herewith.  Lender expressly disavows any intention to
charge or collect excessive unearned interest or finance charges in the event
the maturity of any Obligation is accelerated. 
If (a) the maturity of any Obligation is accelerated for any
reason, (b) any Obligation is prepaid and as a result any amounts held to
constitute interest are determined to be in excess of the legal maximum, or (c) Lender
or any other holder of any or all of the Obligations shall otherwise collect
moneys which are determined to constitute interest which would otherwise
increase the interest on any or all of the Obligations to an amount in excess
of that permitted to be charged by applicable Law then in effect, then all such
sums 


 


43













 


determined to constitute interest in excess of such legal limit shall,
without penalty, be promptly applied to reduce the then outstanding principal
of the related Obligations or, at Lender’s or such holder’s option, promptly
returned to each Related Person or the other payor thereof upon such
determination.  In determining whether or
not the interest paid or payable, under any specific circumstance, exceeds the
maximum amount permitted under applicable Law, Lender and each Related Persons
(and any other payors thereof) shall to the greatest extent permitted under
applicable Law, (i) characterize any non-principal payment as an expense,
fee or premium rather than as interest, (ii) exclude voluntary prepayments
and the effects thereof, and (iii) amortize, prorate, allocate, and spread
the total amount of interest throughout the entire contemplated term of the
instruments evidencing the Obligations in accordance with the amounts
outstanding from time to time thereunder and the maximum legal rate of interest
from time to time in effect under applicable Law in order to lawfully charge
the maximum amount of interest permitted under applicable Law.  In the event applicable Law provides for an
interest ceiling under Section 303 of the Texas Finance Code, that ceiling
shall be the weekly ceiling.


 


Section 9.10           Bank Accounts; Offset.  To secure the repayment of the Obligations
each Related Person hereby grants to Lender and to each financial institution
which hereafter acquires a participation or other interest in the Loans or Note
(in this section called a “Participant”)
a security interest, a lien, and a right of offset, each of which shall be in
addition to all other interests, liens, and rights of Lender or any Participant
at common law, under the Loan Documents, or otherwise, and each of which shall
be upon and against (a) any and all moneys, securities or other property
(and the proceeds therefrom) of any Related Person now or hereafter held or
received by or in transit to Lender, any Lender or Participant from or for the
account any Related Person, whether for safekeeping, custody pledge,
transmission, collection or otherwise, (b) any and all deposits (general
or special, time or demand, provisional or final) of any Related Person with
Lender or any Participant, and (c) any other credits and claims of any
Related Person at any time existing against Lender, any Lender or Participant,
including claims under certificates of deposit. 
Upon the occurrence of any Default, each of Lender and Participants is
hereby authorized to foreclose upon, offset, appropriate, and apply, at any
time and from time to time, without notice to Borrower, any and all items
hereinabove referred to against the Obligations then due and payable.


 


Section 9.11           Assignments, Participations.


 


(a)           Assignments.  Lender shall have the right to sell, assign
or transfer all or any part of Note, Loans and rights and the associated rights
and obligations under all Loan Documents to one or more financial institutions,
with minimum assets of $100,000,000, and the assignee, transferee or recipient
shall have, to the extent of such sale, assignment, or transfer, the same
rights, benefits and obligations of Lender. 
No individual assignment shall be in an amount less than $5,000,000.  Within five (5) Business Days after any
such assignment, the assignee shall notify Borrower of the outstanding
principal balance of the Note payable to assignee and Borrower shall execute
and deliver to assignee a new Note evidencing such assignee’s assigned Loans
and, if the assignor Lender has retained a portion of its Loans, replacement
Note in the principal amount of the Loans retained by the assignor Lender (such
Note to be in exchange for, but not in payment of, the Note held by such
Lender).


 


44













 


(b)           Participations.  Lender shall
have the right to grant participations in all or any part of the Note, Loans
and the associated rights and obligations under all Loan Documents to one or
more financial institutions with minimum assets of $100,000,000.


 


(c)           Distribution of Information.  It is understood and agreed that Lender may
provide to assignees and participants and prospective assignees and
participants financial information and reports and data concerning Borrower’s
properties and operations which was provided to Lender pursuant to this
Agreement.


 


Section 9.12           Exhibits and Schedules.  The exhibits and schedules attached to this
Agreement are incorporated herein and shall be considered a part of this
Agreement for the purposes stated herein, except that in the event of any
conflict between any of the provisions of such exhibits and schedules and the
provisions of this Agreement, the provisions of this Agreement shall prevail.


 


Section 9.13           Titles of Articles, Sections and Subsections.  All titles or headings to articles, sections,
subsections or other divisions of this Agreement or the exhibits hereto are
only for the convenience of the parties and shall not be construed to have any
effect or meaning with respect to the other content of such articles, sections,
subsections or other divisions, such other content being controlling as to the
agreement between the parties hereto.


 


Section 9.14           Counterparts; Fax.  This Agreement may be executed in
counterparts, and it shall not be necessary that the signatures of both of the
parties hereto be contained on any one counterpart hereof, each counterpart
shall be deemed an original, but all counterparts together shall constitute one
and the same instrument.  This Agreement
may be duly executed by facsimile or other electronic transmission.


 


Section 9.15           Termination: Limited Survival.  In its sole and absolute discretion Borrower
may at any time that no Obligations are owing elect in a notice delivered to
Lender to terminate this Agreement.  Upon
receipt by Lender of such a notice, if no Obligations are then owing, this
Agreement and all other Loan Documents shall thereupon be terminated and the
parties thereto released from all prospective obligations thereunder.  Notwithstanding the foregoing or anything
herein to the contrary, any waivers or admissions made by any Person in any
Loan Documents, any Obligations, and any obligations which any Person may have
to indemnify or compensate Lender shall survive any termination of this
Agreement or any other Loan Document.  At
the request and expense of Borrower, Lender shall prepare and execute all
necessary instruments to reflect and effect such termination of the Loan
Documents.


 


Section 9.16           Disclosures.  Lender may disclose to, and exchange and
discuss with, any other Person any information concerning the Collateral or
Related Person (whether received by Lender or any other Person) for the purpose
of (a) complying with Governmental Requirements or any legal proceedings, (b) protecting
or preserving the Collateral, (c) protecting, preserving, exercising or
enforcing any of their rights in, under or related to the Collateral or the
Loan Documents, (d) performing any of their obligations under or related
to the Loan Documents or any intercreditor agreement relating to a Permitted
Warehouse Facility, or (e) consulting with respect to any of the foregoing
matters.


 


45













 


Section 9.17           Time is of the Essence.  Time is of the essence with respect to the
performance of the obligations contained in this Agreement.


 


Section 9.18           USA Patriot Act Notice.  Lender hereby notifies Borrower that pursuant
to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56
(signed into law October 26, 2003)) (the “Act”), it is required to obtain, verify
and record information that identifies Borrower, which information includes the
name and address of Borrower and other information that will allow Lender to
identify Borrower in accordance with the Act.


 


Section 9.19           Electronic Transactions.  Borrower hereby affirmatively consents and
agrees to permit Lender and its successors and assigns to enter into
transactions with Borrower involving “electronic records” and “electronic
means,” as those terms are defined in UETA and the E-Sign Act.


 


Section 9.20           No Reliance.  In executing this Agreement, Borrower
warrants and represents that Borrower is not relying on any statement or
representation other than those in this Agreement and is relying upon its own
judgment and advice of its attorneys.


 


Section 9.21           Confidential Information.


 


(a)           Restrictions on Use of Confidential Information.  Borrower and Lender agree not to use
Confidential Information of the other for any purpose other than the
fulfillment of its obligations under the Agreement.  Except as set forth in clauses (c) and
(d) of this Section 9.21, Borrower and Lender shall not
disclose, publish, release, transfer or otherwise make available Confidential
Information of the other in any form to, or for the use or benefit of, any
Person without the other’s consent. 
Borrower and Lender shall, however, be permitted to disclose relevant
aspects of the other’s Confidential Information to its officers, agents,
subcontractors, and employees to the extent that such disclosure is reasonably
necessary for the performance of its duties and obligations under the Agreement
and such disclosure is not prohibited by the GLB Act, the regulations
promulgated thereunder or other applicable Law; provided, however, that
Borrower and Lender shall take all reasonable measures to ensure that
Confidential Information of the other is not disclosed or duplicated in
contravention of these provisions by such officers, agents, subcontractors and
employees.  Borrower and Lender further
agree promptly to advise the other in writing of any misappropriation, or
unauthorized disclosure or use by any person of Confidential Information which
may come to its attention and to take all steps reasonably requested by the
other to limit, stop or otherwise remedy such misappropriation, or unauthorized
disclosure or use.  If the GLB Act, the
regulations promulgated hereunder or other applicable Law now or hereafter in
effect imposes a higher standard of confidentiality to the Confidential
Information, such standard shall prevail over the provisions of this Section.


 


(b)           Controls on Confidential Information.  Borrower and Lender shall establish
commercially reasonable controls to ensure that the confidentiality of the
Confidential Information and to ensure that the Confidential Information is not
disclosed contrary to the provisions of this Section, the GLB Act or any other
applicable privacy Laws and regulations. 
Without limiting the foregoing, Borrower and Lender shall implement such
physical and other security measures as are necessary to (i) ensure the
security and confidentiality of the Confidential Information, (ii) protect
against any threats or hazards to the security and integrity 


 


46













 


of the Confidential Information and (iii) protect against any unauthorized
access to or use of the Confidential Information.  Borrower and Lender shall, at a minimum
establish and maintain such data security program as is necessary to meet the
objectives of the Interagency Guidelines Establishing Standards for Safeguarding
Customer Information as set forth in the Code of Federal Regulations at
12 C.F.R. Parts 30, 208, 211, 225, 263, 308 364, 568 and 570.  To the extent that any duties and
responsibilities under the Agreement are delegated to an agent or other
subcontractor, reasonable steps shall be taken to ensure that such agents and
subcontractor adhere to the same requirements. 
Borrower and Lender will not make any more copies of the other’s written
or graphic materials containing Confidential Information than is necessary for
its use under the terms of the Agreement, and each such copy shall be marked
with the same proprietary notices as appear on the originals.


 


(c)           Confidential Information Not Subject to Restrictions.  Notwithstanding anything to the contrary contained
herein, neither Borrower nor Lender shall have any obligation with respect to
any Confidential Information of the other party, or any portion thereof, which
the receiving party can establish by competent proof:


 


(i)            is or becomes generally
known to companies engaged in the same or similar businesses as the parties
hereto on a non-confidential basis, through no wrongful act of the receiving
party;


 


(ii)           is lawfully obtained by the
receiving party from a third party which has no obligation to maintain the
information as confidential and which provides it to the receiving party
without any obligation to maintain the information as proprietary or
confidential;


 


(iii)          was known prior to its
disclosure to the receiving party without any obligation to keep it
confidential as evidenced by the tangible records kept by the receiving party
in the ordinary course of its business;


 


(iv)          is independently developed
by the receiving party without reference to the disclosing party’s Confidential
Information; or


 


(v)           is the subject of a written
agreement whereby the disclosing party consents to the use or disclosure of
such Confidential Information.


 


(d)           Required Disclosures.  If a receiving party or any of its
representatives shall be under a legal obligation in any administrative or
judicial circumstance to disclose any Confidential Information, the receiving
party shall, to the extent not prohibited, give the disclosing party prompt
notice so that the disclosing party may seek a protective order and/or waive
the duty of nondisclosure; provided that in the absence of such order or
waiver, if the receiving party or any such representative shall, in the opinion
of its counsel, stand liable for contempt or suffer other censure or penalty
for failure to disclose, disclosure pursuant to the order of such tribunal may
be made by the receiving party or its representative without liability
hereunder.


 


(e)           Continued Restrictions.  For as long as Borrower or Lender continues
to possess or control Confidential Information furnished by the other, and for
so long as the Confidential 


 


47













 


Information remains unpublished, confidential and legally protectable
as the property of the disclosing party, except as otherwise specified herein,
the receiving party shall make no use of such Confidential Information
whatsoever, notwithstanding the termination or expiration of the
Agreement.  Borrower and Lender
acknowledge their understanding that the termination or expiration of the
Agreement shall not be deemed to give either a right or license to use or
disclose the Confidential Information of the other.  Any materials or documents, including copies
that contain Confidential Information, shall be promptly returned or destroyed
when necessary to prevent disclosure of the Confidential Information to third
parties.  If any materials are destroyed,
rather than returned, as permitted by the previous sentence, the party that
destroyed such materials shall provide a certificate to the other party that
specifically identifies the materials destroyed and confirms that the materials
were in fact destroyed.


 


(f)            Injunctive Relief Permitted.  It is agreed that the unauthorized disclosure
or use of any Confidential Information may cause immediate or irreparable injury
to the party providing the Confidential Information, and that such party may
not be adequately compensated for such injury in monetary damages.  Borrower and Lender therefore acknowledge and
agree that, in such event, the other shall be entitled to seek any temporary or
permanent injunctive relief necessary to prevent such unauthorized disclosure
or use, or threat of disclosure or use, and each consents to the jurisdiction
of any federal or state court of competent jurisdiction sitting in Dallas, Texas
for purpose of any suit hereunder and to service of process therein by
certified or registered mail, return receipt requested.


 


Section 9.22           WAIVER OF JURY TRIAL.  EACH OF THE PARTIES HERETO WAIVES, TO THE
MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, ITS RESPECTIVE RIGHTS TO A TRIAL BY
JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO
THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE
BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. 
EACH OF THE PARTIES HERETO AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION
SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. 
WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS
TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN
PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR ANY PROVISION HEREOF OR THEREOF.  THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND ANY
OTHER LOAN DOCUMENTS.


 


Section 9.23           CONSEQUENTIAL DAMAGES.  NEITHER BORROWER, NOR LENDER SHALL HAVE ANY
LIABILITY WITH RESPECT TO, AND EACH SUCH PERSON HEREBY WAIVES, RELEASES AND
AGREES NOT TO SUE EACH OTHER SUCH PERSON FOR, ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES SUFFERED BY SUCH OTHER PERSON IN CONNECTION WITH ANY
CLAIM RELATED TO THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREIN.


 


48












 


Section 9.24           ENTIRE
AGREEMENT.  THE NOTE, THIS AGREEMENT,
AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
HERETO AND THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG
THE PARTIES.


 


[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]


 


49













 


IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the date first above written.


 


	
  BORROWER:

  	
  RYLAND MORTGAGE COMPANY,

  
	
   

  	
  an Ohio corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  LENDER:

  	
  GUARANTY BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Ross
  Evans

  
	
   

  	
  Vice
  President

  
				



 


50













 


	
   

  	
   

  	
   

  
	
  STATE OF CALIFORNIA

  	
   

  	
  §

  
	
   

  	
   

  	
   

  
	
  COUNTY OF LOS ANGELES

  	
   

  	
  §

  



 


On
_____________________, 2008, before me, ______________________________________,
Notary Public, personally appeared ____________________________ who proved to
me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.


 


I certify under the PENALTY OF PERJURY under the laws
of the State of California that the foregoing paragraph is true and correct.


 


	
   

  	
  WITNESS my hand and
  official seal

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature
  of Notary Public

  



 


	
  STATE
  OF TEXAS

  	
   

  	
  §

  
	
   

  	
   

  	
  §

  
	
  COUNTY
  OF DALLAS

  	
   

  	
  §

  



 


This instrument was ACKNOWLEDGED before me the _____ day of January,
2008, by Ross Evans, Vice President of Guaranty Bank, on behalf of said bank.


 


	
   

  	
   

  
	
   

  	
  Notary Public, State of
  Texas

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (printed name)

  
	
   

  	
   

  
	
  My Commission Expires:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
			



 


51













 


SCHEDULE 1.1


 


APPROVED INVESTORS


 


California Housing Finance Agency (CalHFA)


 


CitiMortgage Inc.


 


Countrywide Home Loans


 


Federal Home Loan Mortgage Corporation


 


Federal National Mortgage Association


 


Government National Mortgage Association


 


Guaranty Bank


 


J.P. Morgan Chase


 


North Carolina Housing Finance Agency


 


South Carolina Housing Finance Agency


 


Texas Dept. of Housing & Community Affairs


 


US Bank Home Mortgage


 


Virginia Housing Development Authority


 


Wells Fargo


 


Schedule 1.1, Page 1













 


SCHEDULE
4.14


 


SUBSIDIARIES
AND INVESTMENTS


 


Associates Funding, Inc.,
a Delaware corporation


 


Associates Mortgage
Funding Corporation, a Delaware corporation


 


Cornerstone Title
Company, a Maryland corporation


Ryland Title Company of
Maryland, a Maryland corporation


Cornerstone Title
Insurance Company


 


Ryland Insurance
Services, a California corporation


 


Schedule 4.14, Page 1













 


EXHIBIT
A


 


FORM OF NOTE


 


	
  $40,000,000.00

  	
   

  	
  Dallas, Texas

  	
   

  	
  January 24,
  2008

  



 


FOR VALUE RECEIVED, the undersigned, RYLAND
MORTGAGE COMPANY, an Ohio corporation (“Borrower”), promises to pay to the
order of GUARANTY BANK, a federal
savings bank  (“Lender”), the principal sum of FORTY
MILLION AND NO/100 DOLLARS ($40,000,000.00) or, if less, the aggregate unpaid
principal amount of the Loans made under this Note by Lender to Borrower pursuant
to the terms of the Credit Agreement (as hereinafter defined), together with
interest on the unpaid principal balance thereof as hereinafter set forth, both
principal and interest payable as herein provided in lawful money of the United
States of America, at the offices of the Lender, 8333 Douglas Avenue, Dallas,
Texas or at such other place within Dallas County, Texas as from time to time
may be designated by the holder of this Note.


 


This Note (a) is executed and delivered pursuant to that certain
Credit Agreement of even date herewith between Borrower and Lender (herein, as
from time to time supplemented, amended or restated, called the “Credit Agreement”), and is the Note as
defined therein, (b) is subject to the terms and provisions of the Credit
Agreement, which contains provisions for payments and prepayments hereunder and
acceleration of the maturity hereof upon the happening of certain stated
events, and (c) is secured by and entitled to the benefits of certain Loan
Documents (as identified and defined in the Credit Agreement).  Payments on this Note shall be made and
applied as provided herein and in the Credit Agreement.  Reference is hereby made to the Credit
Agreement for a description of certain rights, limitations of rights,
obligations and duties of the parties hereto and for the meanings assigned to
terms used and not defined herein and to the Loan Documents for a description
of the nature and extent of the security thereby provided and the rights of the
parties thereto.  All capitalized terms
used herein and not otherwise defined herein shall have the meanings given
thereto in the Credit Agreement.  The
holder of this Note shall be entitled to the benefits provided for in the
Credit Agreement.


 


The principal amount of this Note, together with all interest accrued
hereon, shall be due and payable in full on the Drawdown Termination Date.  Other principal payments shall be made as
required by the Credit Agreement.  All
payments of principal of and interest upon this Note shall be made by Borrower
to Lender in federal or other immediately available funds.


 


So long as no Event of Default has occurred and is continuing, all
Loans (exclusive of any past due principal or interest) from time to time
outstanding shall bear interest on each day outstanding at the Adjusted
Floating LIBOR in effect on such day.  If
an Event of Default has occurred and is continuing, all Loans (exclusive of any
past due principal or interest) from time to time outstanding shall bear interest
on each day outstanding at the applicable Default Rate in effect on such
day.  On the fifteenth (15th) day of each
calendar month, beginning on the fifteenth (15th) day of the calendar month
immediately following the calendar month in which this Note is executed,
Borrower shall pay to he holder hereof all unpaid interest which has accrued on
all Loans through and including the last day of the immediately preceding
calendar month.


 


Exhibit A, Page 1













 


At the option of Lender, all past due principal of and past due
interest on the Loan Balance shall bear interest on each day outstanding at the
applicable Default Rate in effect on such day, and such interest shall be due
and payable daily as it accrues. 
Notwithstanding the provisions of this Note and the Credit Agreement: (i) this
Note shall never bear interest in excess of the Maximum Rate, and (ii) if
at any time the rate at which interest is payable on this Note is limited by
the Maximum Rate, this Note shall bear interest at the Maximum Rate and shall
continue to bear interest at the Maximum Rate until such time as the total
amount of interest accrued hereon equals (but does not exceed) the total amount
of interest which would have accrued hereon had there been no Maximum Rate
applicable hereto.


 


Notwithstanding all other provisions of this Note or the Credit
Agreement, in no event shall the interest payable hereon, whether before or
after maturity, exceed the maximum amount of interest (“Maximum Rate”) which, under applicable
law, may be charged on this Note, and this Note is expressly made subject to
the provisions of the Credit Agreement which more fully set out the limitations
on how interest accrues hereon.  In the
event applicable law provides for a ceiling under Section 303 of the Texas
Finance Code, that ceiling shall be the weekly rate ceiling and shall be used
in this Note for calculating the Maximum Rate and for all other purposes.  The term “applicable law” as used in this
Note shall mean the laws of the State of Texas or the laws of the United
States, whichever laws allow the greater interest, as such laws now exist or
may be changed or amended or come into effect in the future.


 


If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is
proved, established or collected in any court or in any bankruptcy,
receivership, debtor relief, probate or other court proceedings, Borrower and
all endorsers, sureties and guarantors of this Note jointly and severally agree
to pay reasonable attorneys’ fees and collection costs to the holder hereof in
addition to the principal and interest payable hereunder.


 


Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment, notice of demand and of dishonor and
nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration of
the maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in
any of its terms, provisions and covenants, or any releases or substitutions of
any security, or any delay, indulgence or other act of any trustee or any
holder hereof, whether before or after maturity.


 


No waiver by Lender of any of its rights or remedies hereunder or under
any other document evidencing or securing this Note or otherwise shall be
considered a waiver of any other subsequent right or remedy of Lender; no delay
or omission in the exercise or enforcement by Lender of any rights or remedies
shall ever be construed as a waiver of any right or remedy of Lender; and no
exercise or enforcement of any such rights or remedies shall ever be held to
exhaust any right or remedy of Lender.


 


Borrower reserves the right to prepay the outstanding principal balance
of this Note, in whole or in part at any time and from time to time without premium
or penalty, in accordance with the terms of the Credit Agreement.


 


Exhibit A, Page 2













 


Time is of the essence in the payment and performance
of this Note.


 


THIS NOTE AND THE RIGHTS AND DUTIES
OF THE PARTIES HERETO ARE TO BE PERFORMED IN THE STATE OF TEXAS AND SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THE SAME ARE
GOVERNED BY APPLICABLE FEDERAL LAW.


 


ALL PARTIES HERETO HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS NOTE, THE CREDIT AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY PARTY, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS, OR OTHERWISE.  ALL
PARTIES HERETO AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY.  WITHOUT
LIMITING THE FOREGOING, ALL PARTIES HERETO FURTHER AGREE THAT THEIR RESPECTIVE
RIGHTS TO A TRIAL BY JURY ARE WAIVED BY OPERATION OF THIS PARAGRAPH AS TO ANY
ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO
CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS NOTE OR ANY PROVISION HEREOF.  THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE.


 


BORROWER HEREBY AGREES THAT THE
OBLIGATIONS CONTAINED HEREIN ARE PERFORMABLE IN DALLAS COUNTY, TEXAS.  BORROWER AGREES THAT (I) ANY ACTION
ARISING OUT OF THIS TRANSACTION MAY BE FILED IN DALLAS COUNTY, TEXAS,
(II) VENUE FOR ENFORCEMENT OF ANY OF THE OBLIGATIONS CONTAINED HEREIN
SHALL BE IN DALLAS COUNTY, TEXAS, (III) PERSONAL JURISDICTION SHALL
BE IN DALLAS COUNTY, TEXAS, (IV) SUCH ACTION MAY BE INSTITUTED
IN THE COURTS OF THE STATE OF TEXAS LOCATED IN DALLAS COUNTY, TEXAS
OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS
LOCATED IN DALLAS COUNTY, TEXAS, AND (V) BORROWER HEREBY WAIVES ANY
OBJECTION TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING AND ADDITIONALLY
WAIVES ANY RIGHT IT MAY HAVE TO BE SUED ELSEWHERE.  NOTHING HEREIN SHALL AFFECT THE RIGHT OF
LENDER TO ACCOMPLISH SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.


 


THIS NOTE AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.  THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.


 


 


Exhibit A, Page 3













 


This Note is executed as of the day first written
above.


 


	
   

  	
  RYLAND MORTGAGE
  COMPANY,

  
	
   

  	
  an Ohio corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 


	
  STATE OF CALIFORNIA

  	
   

  	
  §

  
	
   

  	
   

  	
   

  
	
  COUNTY OF LOS ANGELES

  	
   

  	
  §

  



 


On__________________________,
2008, before me, __________________________________, Notary Public, personally
appeared _________________________ who proved to me on the basis of
satisfactory evidence to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.


 


I
certify under the PENALTY OF PERJURY under the laws of the State of California
that the foregoing paragraph is true and correct.


 


	
   

  	
  WITNESS my hand and
  official seal

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature
  of Notary Public

  



 


Exhibit A, Page 4


 












 


EXHIBIT B


 


BORROWING
REQUEST


 


FROM:                                 Ryland
Mortgage Company (“Borrower”)


 


TO:                                                    Guaranty Bank (“Lender”)


 


I.                                         Borrower
hereby requests Loans in the amount and on the date specified below, pursuant
to the Amended and Restated Credit Agreement among Borrower and Lender dated as
of January 24, 2008 (as amended, modified or restated from time to time,
the “Agreement”).  Capitalized
terms used herein and defined in the Agreement shall be used herein as so
defined.


 


II.                                     Loans
requested:


 


(a)                                  Borrower
hereby requests Loans in the aggregate principal amount of $__.


 


(b)                                 Requested
advance date: ________________, 200__.


 


III.                                 The
undersigned officer of Borrower represents and warrants to Lender:


 


(a)           Borrower
is entitled to receive the requested Loan under the terms and conditions of the
Agreement;


 


(b)           all
items which Borrower is required to furnish to Lender pursuant to the Agreement
accompany this Borrowing Request (or, if Wet Loans, shall be delivered to
Lender in accordance with the Agreement);


 


(c)           all
Mortgage Loans offered hereby conform in all respects with the applicable
requirements set forth in the Agreement;


 


(d)           no
Event of Default has occurred and is continuing under the Agreement;


 


(e)           no
change or event which with notice and/or the passage of time would constitute
an Event of Default;


 


(f)            after
giving effect to the Loan requested hereby the aggregate amount of the
outstanding principal balance of the Loan will not exceed the lesser of (1) the
Collateral Value of the Borrowing Base and (2) the Commitment; and


 


(g)           after
giving effect to the Loans requested hereby the Unit Collateral Value of all
Second Lien Loans will not exceed the Applicable Sublimit for Second Lien Loans
and the Unit Collateral of all Wet Loans does not exceed the Applicable
Sublimit for Wet Loans.


 


Borrower
has attached and submits herewith Submission Lists describing all Eligible
Mortgage Loans included in the Collateral Value of the Borrowing Base, other
than Wet Loans (the “Dry  Submission Lists”) and Submission Lists
describing all Wet Loans included in the Collateral 


 


Exhibit B, Page 1













 


Value
of the Borrowing Base (the “Wet Submission Lists”).  Borrower has submitted-or is submitting to
Lender concurrently herewith—the Required Mortgage Documents with respect to
each Mortgage Note described or referred to in the Dry Submission Lists.  Borrower hereby grants to Lender a security
interest in all such new Mortgage Collateral described in the Dry Submission
Lists and the Wet Submission Lists and all related Required Mortgage Documents,
and all of the foregoing are hereby made subject to the security interest of
Lender created by the Security Agreement. 
Borrower hereby agrees to deliver the Required Mortgage Documents with
respect to each Mortgage Note described or referred to in the Wet Submission
Lists within seven (7) Business Days following the date hereof.


 


Borrower
represents and warrants that, except as permitted under the Agreement, Borrower
holds with respect to each of the Mortgage Notes hereby offered the following:


 


(a)                                  unless
delivered herewith, the original filed copy of the Mortgage relating to such
Mortgage.


 


(b)                                 mortgagee
policies of title insurance conforming to the requirements of the Lender or
binding commitments for the issuance of same;


 


(c)                                  insurance
policies insuring the mortgaged premises as required by the Lender; and


 


(d)                                 unless
delivered herewith, an original of any executed Take-Cut Commitment relating to
such Mortgage Note.


 


Borrower
agrees that it holds the above referenced items in trust for Lender, and will
at any time deliver the same to Lender upon request or, upon written
instructions from Lender, to any Person designated by Lender.  Borrower further agrees that it will not
deliver any of the above items, nor give, transfer, or assign any interest in
same, to any Person other than Lender (or the Person or Persons designated by
Lender) without the prior written consent of Lender.


 


The
representations and warranties of Borrower contained in the Agreement and those
contained in each other Loan Document to which Borrower is a party are true and
correct in all respects on and as of the date hereof.


 


Exhibit B, Page 2













 


	
   

  	
  RYLAND
  MORTGAGE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date:
  ___________, 200__

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:
  

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  



 


 


Exhibit B, Page 3













 


EXHIBIT C


 


CERTIFICATE
ACCOMPANYING

FINANCIAL STATEMENTS


 


Reference is made to that certain Credit Agreement dated as of January 24,
2008 (as from time to time amended, restated, supplemented or otherwise
modified from time to time, the “Agreement”), by and among RYLAND
MORTGAGE COMPANY (“Borrower”) and GUARANTY BANK, as Lender (“Lender”),
which Agreement is in full force and effect on the date hereof.  Terms which are defined in the Agreement are
used herein with the meanings given them in the Agreement.


 


This Certificate is furnished pursuant to Section 5.l(a) of
the Agreement.  Together herewith
Borrower is furnishing to Lender Borrower’s audited annual financial statements
or monthly financial statements (the “Financial Statements”) dated _________,
200__ (the “Reporting Date”). 
Borrower hereby represents, warrants, and acknowledges to Lender that:


 


(a)                               the
officer of Borrower signing this instrument is the duly elected, qualified and
acting ______________ of Borrower;


 


(b)                              the
Financial Statements are prepared in accordance with GAAP;


 


(c)                               attached
hereto is Schedule C-1 showing Borrower’s compliance as of the Reporting
Date with the requirements of Sections 6.13 through 6.16 of the
Agreement *[and Borrower’s non-compliance as of such date with the requirements
of Section(s)____________ of the Agreement];


 


(d)                              on
the Reporting Date Borrower was, and on the date hereof Borrower is, in full
compliance with the disclosure requirements of Article V of the
Agreement, and no Default otherwise existed on the Reporting Date or otherwise
exists on the date of this instrument [except for Default(s) under Section(s)__________________
of the Agreement, which (is/are) more fully described on a schedule attached
hereto].


 


The officer of Borrower signing this instrument hereby certifies that
such officer has reviewed the Loan Documents and the Financial Statements and
has otherwise undertaken such inquiry as is in such officer’s opinion necessary
to express an informed opinion with respect to the above representations,
warranties and acknowledgments of Borrower and, to the best of such officer’s
knowledge, such representations, warranties, and acknowledgments are true, correct
and complete.


 


Exhibit C, Page 1













 


IN WITNESS WHEREOF, this instrument is executed as of ___________, 200__.


 


	
   

  	
  RYLAND MORTGAGE COMPANY

  
	
   

  	
  an Ohio corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 


	
  STATE OF CALIFORNIA

  	
  §

  
	
   

  	
   

  
	
  COUNTY OF LOS ANGELES

  	
  §

  



 


On ________________________,
2008, before me, ________________________, Notary Public, personally appeared ________________________
who proved to me on the basis of satisfactory evidence to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or
the entity upon behalf of which the person(s) acted, executed the
instrument.


 


I
certify under the PENALTY OF PERJURY under the laws of the State of California
that the foregoing paragraph is true and correct.


 


	
   

  	
  WITNESS my hand and
  official seal

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature of Notary Public

  



 


Exhibit C, Page 2













 


SCHEDULE C-1


 


	
  Financial Covenants

  	
   

  	
  Required

  	
   

  	
  Actual [or in
  compliance]

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.             Tangible Net Worth
  (6.13)

  	
   

  	
  Not less than
  $13,000,000

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.             Total Indebtedness
  to

  	
   

  	
   

  	
   

  	
   

  
	
  Adjusted Tangible Net

  	
   

  	
  Not more than
  12.0 to 1.0

  	
   

  	
   

  
	
  Worth
  (6.14)

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.             Profitability
  (6.15)

  	
   

  	
  Not less than
  $1.00 (as of the

  	
   

  	
   

  
	
   

  	
   

  	
  end of each
  period of four

  	
   

  	
   

  
	
   

  	
   

  	
  consecutive
  Fiscal Quarters)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.             Adjusted Tangible
  Net

  Worth

  	
   

  	
  Not less than
  $5,000,000

  	
   

  	
   

  



 


	
   

  	
  RYLAND MORTGAGE COMPANY

  an Ohio corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
  (Date)

  	
   

  



 


Schedule C-1













 


EXHIBIT D


 


BORROWING BASE CERTIFICATE


 


January_______, 2008


 


Reference is made to that certain Credit Agreement dated as of January 24,
2008 (as from time to time amended, the “Agreement”) by and between RYLAND MORTGAGE COMPANY (“Borrower”)
and GUARANTY BANK (“Lender”).  Terms which are defined in the Agreement are
used herein with the meanings given them in the Agreement.


 


This Certificate is being furnished pursuant to Section 3.1(a)(vii) of
the Agreement.  Borrower hereby certifies
to Lender as follows:


 


I.                                      The
officer of Borrower signing this instrument is the duly elected, qualified and
acting ______________ of Borrower and as such is authorized to submit this
Certificate on behalf of Borrower;


 


II.                                  As
of the close of business on ____________, the Collateral Value of the Borrowing
Base was computed as follows:


 


COLLATERAL VALUE OF THE BORROWING
BASE:


 


	
   A.

  	
  Unit
  Collateral Value of Eligible Mortgage Loans:

  	
  $

  	
   

  
	
   

  	
  With
  respect to Second Lien Loans, ninety percent (90%) of the least of (i), (ii),
  (iii) and (iv), and with respect to each other Eligible Mortgage Loan,
  ninety-eight percent (98%) of the least of (i), (ii), (iii) and
  (iv) below:

  	
  $

  	
   

  
	
   

  	
  (i)  the
  outstanding principal balance of the Mortgage Note constituting such Mortgage
  Loan;

  	
  $

  	
   

  
	
   

  	
  (ii)  the
  actual out-of-pocket cost to Borrower of such Mortgage Loan minus the amount
  of principal paid under such Mortgage Loan and delivered to Lender for
  application to the prepayment of the Loans;

  	
  $

  	
   

  
	
   

  	
  (iii)  the
  amount at which an Investor has committed to purchase the Mortgage Loan
  pursuant to a Take-Out Commitment not to exceed 100% of the original
  principal balance of the Mortgage Note;

  	
  $

  	
   

  
	
   

  	
  (iv)  the
  Market Value of the Mortgage Note constituting such Mortgage Loan.

  	
  $

  	
   

  
	
   

  	
  Total
  of A:

  	
  $

  	
   

  
	
   B.

  	
  COLLATERAL
  VALUE OF THE BORROWING BASE 

  	
  $

  	
   

  



 


Exhibit D – Page 1













 


	
   

  	
  TOTAL OF A

  	
   

  	
   

  
	
   C.

  	
  LOAN BALANCE

  	
  $

  	
   

  
	
   D.

  	
  MAXIMUM AVAILABILITY UNDER
  THE BORROWING BASE (B-C)

  	
  $

  	
   

  



 


The officer of Borrower signing
this Borrowing Base Certificate certifies that, to the best of his/her knowledge after due
inquiry, the above certifications of Borrower are true, correct and complete.


 


	
   

  	
  RYLAND MORTGAGE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  



 


Exhibit D – Page 2


 












 


EXHIBIT
E


 


SECURITY AGREEMENT


 


THIS SECURITY AGREEMENT (this “Security  Agreement”) is
made and dated as of January 24, 2008, by RYLAND MORTGAGE COMPANY,
an Ohio corporation (the “Debtor”), and GUARANTY BANK (“Secured Party”).


 


RECITALS


 


A.            Pursuant to that certain Credit Agreement
of even date herewith between Debtor and Secured Party (as from time to time
amended, supplemented or restated, the “Credit Agreement”), Secured
Party agreed to extend credit to Debtor on the terms and subject to the
conditions set forth therein. 
Capitalized terms not otherwise defined herein are used with the same
meanings as in the Credit Agreement.


 


B.            As a condition precedent to the
effectiveness of the Credit Agreement, Secured Party has required the execution
and delivery of this Security Agreement in order to, among other things, create
a first priority perfected security interest in the Collateral in favor of
Secured Party to secure payment of the Obligations.


 


NOW, THEREFORE, in consideration of the above Recitals
and for other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, Debtor agrees with Secured Party as follows:


 


AGREEMENTS


 


1.             Delivery of Collateral. 
Debtor shall deliver Submission Lists to Secured Party from time to time
identifying Mortgage Loans that Debtor intends to include in Collateral by
delivering to Secured Party the mortgage documents described on Schedule A
attached hereto for each such Mortgage Loan (the “Required Mortgage
Documents”).  Debtor must obtain and
hold for the benefit of Secured Party the documents described in Schedule B
attached hereto for each such Mortgage Loan (the “Additional Required
Mortgage Documents”).


 


2.             Grant of Security Interest. 
Debtor hereby pledges, assigns and grants to Secured Party a first
priority security interest in the property described in Paragraph 3
below (collectively and severally, the “Collateral”), to secure payment
of (i) the Obligations, (ii) all costs reasonably incurred by Secured
Party (a) to obtain, preserve, perfect and enforce the security interest
granted hereby and all other liens and security interests securing payment of
the Obligations, (b) to collect the Obligations, and (c) to maintain,
preserve and collect the Collateral, including, but not limited to, taxes,
assessments, insurance premiums, repairs, reasonable attorneys’ fees and legal
expenses (including, without limitation, allocated costs for in-house legal
services), rent, storage charges, advertising costs, brokerage fees and
expenses of sale; and (iii) all renewals, extensions and modifications of
the indebtedness referred to in the foregoing clauses, or any part
thereof.  The loans, advances,
indebtedness, obligations, liabilities and costs described in this section are
collectively referred to herein as the “Secured Indebtedness”.  All proceeds hereof shall be applied by
Secured Party to the Secured Indebtedness in accordance with the Credit
Agreement.


 


Exhibit E – Page 1













 


3.             Collateral.  The Collateral
shall consist of all right, title and interest of Debtor, of every kind and
nature, in and to all of the following property, assets and rights of Debtor,
wherever located, whether now existing or hereafter arising, and whether now or
hereafter owned or acquired by or accruing or owing to Debtor, and all proceeds
and products thereof (including all proceeds in the Settlement Account from
time to time).


 


(a)           Any and all Instruments, Certificated
Securities, Uncertificated Securities, and Investment Property of Debtor in the
actual or constructive possession of Secured Party, any Person designated as a
bailee (“Bailee”) of Mortgage Notes by Secured Party until payment is
made for such Notes or they are returned to Secured Party, or of Debtor in
trust for Secured Party, or in transit to or from Secured Party or Bailee as
collateral for the Secured Indebtedness or designated by Debtor as collateral
for the Secured Indebtedness (whether or not delivered to Secured Party or
Bailee), and any and all agreements and documents related to any thereof
including, without limitation, all Mortgage Notes and Mortgages delivered, or
to be delivered, to Secured Party or Bailee or to be held by Debtor in trust
for Secured Party or Bailee, including without limitation:


 


(i)            any and all rights, titles and interests Debtor may
now or hereafter have in and to any and all promissory notes, Mortgages,
guaranties, bonds, insurance policies, commitments, and other Instruments,
documents, or agreements ever executed and delivered to Debtor in connection
with its mortgage lending business relating to such Mortgage Notes and
Mortgages;


 


(ii)           any and all present and future Accounts, Chattel
Paper, documents, Instruments, General Intangibles, Payment Intangibles and
other personal property now owned or hereafter acquired by Debtor arising from
or by virtue of any transactions related to its mortgage lending business and
related to such Mortgage Notes and Mortgages;


 


(iii)          any and all proceeds from the sale, financing or other
disposition of the items described in (i) and (ii) above; and


 


(iv)          all Software, files, surveys, certificates,
correspondence, appraisals, computer programs, tapes, discs, cards, accounting
records, and other records, information, and data of Debtor relating to the
Mortgage Loans (including without limitation all information, data, programs,
tapes, discs and cards necessary to administer and service such Mortgage
Loans).


 


(b)           All Take-Out Commitments relating to the Mortgage
Notes, the residential real property and improvements securing the Mortgage
Notes described in paragraph (a) above.


 


(c)           All Hedging Arrangements related to the
Collateral (“Pledged Hedging Arrangements”) and Borrower’s accounts in
which those Hedging Arrangements are held (“Pledged Hedging Accounts”),
including all rights to payments arising under the Pledged Hedging Arrangements
and the Pledged Hedging Accounts, except that Lender’s security interest in the
Pledged Hedging Arrangements and Pledged Hedging Accounts applies only to
benefits, including rights to payment, related to the Collateral.


 


Exhibit E – Page 2













 


(d)           All right, title and interest of Debtor
under all agreements between Debtor and Persons other than Debtor pursuant to
which Debtor undertakes to service Mortgage Loans, including without
limitation, the rights of Debtor to income and reimbursement thereunder.


 


(e)           All purchase agreements, credit
agreements or other agreements pursuant to which Debtor acquired such Mortgage
Loans and all promissory notes, security agreements and other instruments and
documents executed by Debtor pursuant thereto or in connection therewith,
insofar as such agreements, instruments and documents relate to the Mortgage
Notes and Mortgages described in paragraph (a) above.


 


(f)            All other money or property of Debtor in
the possession of Secured Party including, without limitation, (i) the
Funding Account, the Settlement Account, the Operating Account, all Deposit
Accounts established with Secured Party and any other accounts established by
Debtor with Secured Party, (ii) all amounts on deposit in the Funding
Account, the Settlement Account, the Operating Account, such Deposit Accounts
or any other accounts established by Debtor with Secured Party and (iii) the
obligations of Secured Party to Debtor arising out of such deposits.


 


(g)           All right, title and interest of Debtor
in and to any other asset of Debtor which has been or hereafter at any time is
delivered to Secured Party or Bailee hereunder.


 


(h)           All proceeds of whatever kind or nature
from any of such collateral described in paragraphs (a), (b), (c), (d),
(e), (f) and (g) above.


 


As used in this Security Agreement, the terms “Accounts,” “Certificated
Securities,” “Chattel Paper,” “Deposit Accounts,” “General Intangibles”, “Instruments”,
“Investment Property”, “Payment Intangibles”, “Software,” and “Uncertificated
Securities” and shall have the respective meanings assigned to them in the
Texas Uniform Commercial Code, as amended by Revised Article 9 which
became effective on July 1, 2001, and as the same may hereafter be
amended.


 


4.             Handling of Collateral; Settlement Account; Redemption
of Collateral.


 


(a)           So long as no Default or Event of Default
exists, Secured Party may from time to time release documentation relating to
Mortgage Loans to Debtor against a trust receipt executed by Debtor in the form
of Exhibit 1 hereto.  Debtor
hereby represents and warrants that any request by Debtor for release of
Collateral under this subparagraph (a) shall be solely for the purposes of
correcting clerical or other non-substantial documentation problems in
preparation of returning such Collateral to Secured Party for ultimate sale or
exchange and that Debtor has requested such release in compliance with all
terms and conditions of such release set forth herein and in the Credit
Agreement.


 


(b)           So long as no Default or Event of Default
exists, upon delivery by Debtor to Secured Party of a shipping request
substantially in the form of that attached hereto as Exhibit 2,
together with an air bill or other form of shipping label properly completed
with the name and address of the respective Investor, Secured Party will
transmit, or cause to be transmitted, Mortgage Loans held by it as directed by
Debtor under cover of a transmittal letter substantially 


 


Exhibit E – Page 3













 


in the form of that attached hereto as Exhibit 3
(or such other form as may be approved by Secured Party).


 


(c)           All amounts payable on account of the
sale or repayment of Collateral will be instructed to be paid directly or
indirectly by the purchaser of the Collateral or the purchaser of real property
securing the Collateral to the Settlement Account.  Debtor will not be credited for any amounts
due from any purchaser until Secured Party has actually received immediately
available funds.  Pursuant to Paragraph 3
above Debtor has granted to Secured Party a security interest in and lien upon
the Settlement Account and in any and all amounts at any time held
therein.  This Paragraph 4(c) shall
further constitute irrevocable notice to Secured Party that the accounts
referred to in Paragraph 3(e) above are “no access” accounts
to Debtor.


 


(d)           So long as no Default or Event of Default
exists, Secured Party shall take such steps as it may be reasonably directed
from time to time by Debtor in writing which are not inconsistent with the
provisions of this Security Agreement and the other Loan Documents and which
Debtor deems necessary to enable Debtor to perform and comply with Take-Out
Commitments and with other agreements for the sale or other disposition in
whole or in part of Mortgage Loans. 
Mortgage Collateral may be sold pursuant to a Take-Out Commitment so
long as no Default or Event of Default exists. 
Residential real property and improvements securing Bridge Loans may be
sold pursuant to a Take-Out Commitment so long as no Default or Event of
Default exists.


 


(e)           So long as no Default or Event of Default
exists, upon receipt of a Collateral Release Request in the form attached
hereto as Exhibit 4, Secured Party is hereby authorized, and does
hereby agree, to release free and clear of the security interest granted to
Secured Party by this Security Agreement any Mortgage Loan, together with all
other documentation relating thereto, to Debtor or as directed by Debtor;
provided that after giving effect to such release, the Collateral Value of the
Borrowing Base is equal or greater than the Loan Balance.  In the event any Collateral Release Request
is received by Secured Party prior to 2:15 p.m. (Dallas time) on any
Business Day, said Collateral shall be released on the following Business Day.
Secured Party agrees to transmit all Collateral released pursuant to this
section as directed by Debtor at the expense of Debtor, and, upon request by
Debtor, to complete the endorsements of the related instruments and the
assignments of the related instruments, to execute the appropriate form of UCC
financing statement release, if necessary, and to execute such other
appropriate instruments of transfer or release as Debtor shall reasonably
request.  Secured Party shall be fully
protected in relying on any delivery instructions from Debtor in which Debtor
purports to be entitled to direct delivery of the items identified therein, and
Debtor shall reimburse Secured Party for all expenses incurred in connection
with the delivery of any item held by it under this section.


 


(f)            So long as no Default or Event of Default
exists, Debtor may obtain the release of the security interest in favor of Secured
Party in all or any part of the Mortgage Collateral at any time, and from time
to time, by paying to Secured Party, as a prepayment under the Credit
Agreement, the Unit Collateral Value of the Mortgage Collateral to be so
released (such Unit Collateral Value being determined as of the date of such
release).  In the event that the Unit
Collateral Value of the Mortgage Collateral designated by Secured Party, as
determined on the date in question, is less than the Unit Collateral Value of
such Mortgage Collateral as determined on the date that such Mortgage
Collateral was first delivered to Secured Party, and Secured Party 


 


Exhibit E – Page 4













 


reasonably shall deem impaired its ability to satisfy the Secured Indebtedness
by recourse to such Mortgage Collateral, Debtor shall, within two (2) Business
Days after the reasonable written request of Secured Party at any time during
the term hereof either:


 


(i)            pay to Secured Party in immediately available funds an
amount equal to the aggregate Unit Collateral Value of any Mortgage Collateral
designated by Secured Party (such Unit Collateral Value being determined as of
the date of such redemption), or


 


(ii)           deliver to Secured Party other Mortgage Collateral in
substitution for such designated Mortgage Collateral, the aggregate Unit
Collateral Value of which substituted Mortgage Collateral (determined at the
time of substitution) is equal to or greater than the aggregate Unit Collateral
Value of the Mortgage Collateral being replaced (determined as of the date such
Mortgage Collateral was first delivered to Secured Party hereunder).


 


(g)           A Mortgage Loan which has been delivered
to Secured Party under this Security Agreement shall be and remain Collateral
until released pursuant to Section 4(f) or until this Security
Agreement is terminated, notwithstanding (i) any defect in any document
delivered to Secured Party pursuant to the Credit Agreement or this Security
Agreement, (ii) the failure of such Mortgage Loan to have or retain Unit
Collateral Value, (iii) the failure of Debtor to make timely delivery of
any document required to be delivered to Secured Party under this Security
Agreement or the Credit Agreement, or (iv) any other fact, circumstance,
condition or event whatsoever.  For
purposes of the preceding sentence, the funding of the origination or purchase
of a Mortgage Loan from the proceeds of a Loan and/or the assignment of Unit
Collateral Value to such Mortgage Loan by Secured Party shall be deemed to be
conclusive evidence of the delivery of such Mortgage Loan under the Credit
Agreement, notwithstanding any subsequent determination by Secured Party that
the documentation delivered for such Mortgage Loan was incomplete or defective
in any respect or that such Mortgage Loan should not have been assigned Unit
Collateral Value.


 


5.             Costs and Expenses. 
Debtor shall pay all costs and expenses of Secured Party directly
relating to Secured Party’s performance of this Security Agreement and the
enforcement of the rights and remedies of Secured Party hereunder and such
costs and expenses, including, without limitation, reasonable fees and expenses
of legal counsel to Secured Party as provided in the Credit Agreement.


 


6.             Representations and Warranties. 
Debtor warrants that: (a) Debtor is the sole owner of the
Collateral (or, in the case of after-acquired Collateral, at the time Debtor
acquires rights in the Collateral, will be the sole owner thereof), subject
only to the rights of Investors under the Take-Out Commitments; (b) 
except for security interests in favor of Secured Party any other security
interests permitted under the Credit Agreement, no Person has (or, in the case
of after-acquired Collateral, at the time Debtor acquires rights therein, will
have) any right, title, claim or interest in, against or to the Collateral and,
in any event, so long as Secured Party complies with the procedures relating to
possession of Collateral set forth in this Security Agreement, Secured Party
shall have a perfected, first priority security interest therein; (c) no
consent of any Person is required that has not been obtained for the granting
of the security interests provided for herein, nor will any consent be required
for Secured Party to exercise its rights under this Security Agreement in
accordance with the terms of this Security Agreement; 


 


Exhibit E – Page 5













 


(d) to the best of Debtor’s knowledge, all
information heretofore, herein or hereafter supplied to Secured Party by or on
behalf of Debtor with respect to the Collateral is or will be accurate and
complete in all material respects; (e) the Take-Out Commitments covering
such Collateral may be collaterally assigned to Secured Party as described
herein; (f) each Mortgage Loan is, at all dates included in the
computation of the Collateral Value of the Borrowing Base an Eligible Mortgage
Loan; (g) to the best of Debtor’s knowledge, no material dispute, right of
setoff, counterclaim or defense exists with respect to all or any part of the
Collateral; (h) this Security Agreement constitutes the legal, valid and
binding obligation of Debtor enforceable against Debtor and the Collateral in
accordance with its terms (subject to limitations as to enforceability which
might result from bankruptcy, reorganization, insolvency or other similar laws
affecting creditors’ rights generally and general principles of equity); (i) in
making and closing each Mortgage Loan originated by a third party, Debtor has
or will have fully complied with, and all collateral documents delivered with
respect to such Mortgage Loan comply or will comply with, all applicable
federal, state and local laws, regulations and rules, including, but not
limited to, (1) usury laws, (2) the Real Estate Settlement Procedures
Act of 1974, (3) the Equal Credit Opportunity Act, (4) the Federal
Truth in Lending Act (Regulation Z of the Board of Governors of the Federal
Reserve System) and (5) all other consumer protection and truth-in-lending
laws which may apply, and in each case with the regulations promulgated in
connection therewith, as the same may be amended from time to time; and Debtor
shall maintain sufficient documentary evidence in its files with respect to
such Mortgage Loans to substantiate such compliance; (j) upon the delivery
of the Mortgage Note evidencing a Mortgage Loan to Secured Party, Secured Party
shall have a valid and perfected first priority security interest in such
Mortgage Loan; and (k) immediately upon (1) the execution and
delivery of the Credit Agreement, the Note and the other Loan Documents, (2) the
acquisition by Debtor of rights in such Collateral and (3) the filing with
the Secretary of State of Texas of a financing statement showing Debtor, as
debtor, and Secured Party, as secured party, and describing the Collateral,
Secured Party shall have a valid and perfected first priority security interest
in the Collateral which is other than as described in clause (j) above, to
the extent that a security interest in such other Collateral can be perfected
by filing a financing statement.


 


7.             Covenants of Debtor. 
Debtor hereby agrees: (a) to procure, execute and deliver from time
to time any endorsements, assignments, financing statements and other writings
deemed necessary or appropriate by Secured Party to perfect, maintain and
protect Secured Party’s security interest hereunder and the priority thereof
and to deliver promptly to Secured Party all originals of any Collateral or
proceeds thereof consisting of chattel paper or instruments; (b) not to
surrender or lose possession of (other than to Secured Party), sell, encumber,
or otherwise dispose of or transfers, any Collateral or right or interest
therein other than shipment of Mortgage Loans under Take-Out Commitments and as
otherwise permitted under Paragraph 6 above or the Credit
Agreement; (c) not to grant to any Investor any other security interest in
any Collateral, or otherwise acknowledge the creation of any ownership rights
of any Investor with respect to any Collateral unless and until Secured Party has
received the proceeds of such Collateral as described herein; (d) at all
times to account fully for and promptly to deliver to Secured Party, in the
form received, all Collateral or proceeds thereof received, endorsed to Secured
Party or in blank as appropriate and accompanied by such assignments and
powers, duly executed, as Secured Party shall request, and until so delivered
all Collateral and proceeds thereof shall be held in trust for Secured Party,
separate from all other property of Debtor and identified as the property of
Secured Party; (e) to keep accurate and complete records 


 


Exhibit E – Page 6













 


of the Collateral and at any reasonable time and at Secured Party’s
expense (provided that during the continuation of any Event of Default, the
following shall be at Debtor’s expense), upon demand by Secured Party, to
exhibit to and allow inspection of the Collateral and the records, reports and
information concerning the Collateral by Secured Party (or Persons designated
by Secured Party); (f) to keep the records concerning the Collateral at
the location(s) set forth in Paragraph 15 below and not to remove
the records from such location(s) without the prior written consent of
Secured Party; (g) not to materially modify, compromise, extend, rescind
or cancel any deed of trust, mortgage, note or other document, instrument or
agreement connected with any Mortgage Loan pledged under this Security
Agreement or any document relating thereto or connected therewith or consent to
a postponement of strict compliance on the part of any party thereto with any
term or provision thereof in any material respect; (h) to keep the
Collateral insured against loss, damage, theft, and other risks customarily
covered by insurance, and such other risks as Secured Party may reasonably
request; (i) to do all acts that a prudent investor would deem necessary
or desirable to maintain, preserve and protect the Collateral; (j) not
knowingly to use or permit any Collateral to be used unlawfully or in violation
of any provision of this Security Agreement, the Credit Agreement or any
applicable statute, regulation or ordinance or any policy of insurance covering
the Collateral; (k) to pay (or require to be paid) prior to their becoming
delinquent all taxes, assessments, insurance premiums, charges, encumbrances
and liens now or hereafter imposed upon or affecting any Collateral except as
otherwise permitted in the Credit Agreement; (1) to notify Secured Party
before any such change shall occur of any change in Debtor’s name, identity,
structure or jurisdiction through merger, consolidation or otherwise; (m) to
appear in and defend, at Debtor’s cost and expense, any action or proceeding
which may affect its title to or Secured Party’s interest in the Collateral;
and (n) to comply in all material respects with all laws, regulations and
ordinances relating to the possession, operation, maintenance and control of
the Collateral.


 


8.             Collection of Collateral Payments.


 


(a)           Until Secured Party gives notice to
Debtor pursuant to Paragraph 8(b) below or exercises the
Secured Party’s rights under Paragraph 10 hereof, Debtor shall be
entitled to receive all collections on any and all of the Mortgage Notes,
Mortgages and any documents related to the foregoing (hereinafter collectively
called “Collections”) and use the same in the normal course of
business.  Upon notice from Secured Party
to Debtor given after the occurrence and during the continuation of an Event of
Default, Debtor shall furnish to Secured Party not later than the tenth
Business Day after the end of each month a report on all Collections received
during the preceding month and provide the same accounting therefor as Debtor
customarily furnishes the Investors therein, including with respect to
Collections on each Mortgage Loan: (1) the name of the Obligor, (2) Debtor’s
loan number for the Mortgage Loan, (3) current principal balance of the
Mortgage Loan, (4) current escrow balance with respect to the Mortgage
Loan, (5) number and amount of past due payments on the Mortgage Loan and (6) the
amount of the Collections received during such month with respect to the
Mortgage Loan, itemized to show (A) principal portion, (B) interest
portion and (C) portion thereof representing amounts paid in escrow for
real estate taxes and insurance.


 


(b)           Upon notice from Secured Party to Debtor
given after the occurrence and during the continuation of an Event of Default,
Debtor shall hold all Collections representing principal payments and
prepayments and escrows for real estate taxes and insurance in trust for
Secured 


 


Exhibit E – Page 7













 


Party and shall promptly remit the same to Secured Party.  All amounts representing the principal
payments and prepayments on Mortgage Loans which are delivered to Secured Party
pursuant to the all liabilities and expenses on account of any adverse claim
asserted against Secured Party preceding sentence shall be deposited in the
Settlement Account and all amounts representing real estate tax and insurance
escrows for Mortgage Loans which are delivered to Secured Party pursuant to the
preceding sentence shall be deposited in an escrow account with any bank
satisfactory to Debtor and Secured Party, to be held for the payment of the applicable
real estate taxes and insurance premiums.


 


(c)           Debtor hereby agrees to indemnify, defend
and save harmless Secured Party and its officers, employees and representatives
(collectively, the “Indemnified Persons”) from and against all
liabilities and expenses on account of any adverse claim asserted against
Secured Party relating to any moneys received by Secured Party on account of
any Collections WHETHER OR NOT SUCH LIABILITIES AND EXPENSES
ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR
THEORY OF STRICT LIABILITY, OR ARE CAUSED IN WHOLE OR IN PART, BY ANY NEGLIGENT
ACT OR OMISSION OF ANY KIND BY ANY INDEMNIFIED PERSON (except for
any such liabilities or expenses arising as a direct result of the gross
negligence or willful misconduct of such Indemnified Person) and such
obligation of Debtor shall continue in effect after and notwithstanding the
discharge of the Secured Indebtedness and/or the release of the security
interest granted in Paragraph 3 above.


 


9.             Authorized Action by Secured Party. 
Debtor hereby irrevocably appoints Secured Party its attorney in fact,
with full power of substitution, for and on behalf and in the name of Debtor,
which power of attorney shall become effective upon the occurrence and remain
effective during the continuance of an Event of Default, to (i) endorse
and deliver to any Person any check, instrument or other paper coming into
Secured Party’s possession and representing payment made in respect of any
Mortgage Note delivered to and held by Secured Party hereunder as Mortgage
Collateral or in respect of any other Collateral or Take-Out Commitment; (ii) prepare,
complete, execute, deliver and record any assignment to Secured Party or to any
other Person of any Mortgage relating to any Mortgage Note delivered to and
held by Secured Party hereunder as Mortgage Collateral; (iii) endorse and
deliver any Mortgage Note delivered to and held by Secured Party hereunder as
Mortgage Collateral and do every other thing necessary or desirable to effect
transfer of all or any part of the Mortgage Collateral to Secured Party or to
any other Person; (iv) take all necessary and appropriate action with
respect to all Secured Indebtedness and the Mortgage Collateral to be delivered
to Secured Party or held by Debtor in trust for Secured Party; (v) commence,
prosecute, settle, discontinue, defend, or otherwise dispose of any claim
relating to any Take-Out Commitment or any part of the Mortgage Collateral; and
(vi) sign Debtor’s name wherever appropriate to effect the enforcement of
Secured Party’s rights and remedies set forth in this Agreement relating to the
Secured Indebtedness and/or the Mortgage Collateral.  This Paragraph 9 shall be
liberally, not restrictively, construed so as to give the greatest latitude to Secured
Party’s power, as Debtor’s attorney-in-fact, to collect, sell, and deliver any
of the Mortgage Collateral and all other documents relating thereto.  The powers and authorities herein conferred
on Secured Party may be exercised by Secured Party through any Person who, at
the time of the execution of a particular instrument, is an authorized officer
of Secured Party.  The power of attorney
conferred by this Paragraph 9 is granted for a valuable
consideration and is coupled with an interest and 


 


Exhibit E – Page 8













 


irrevocable so long as the Secured Indebtedness, or any part thereof,
shall remain unpaid or the Commitment is outstanding.  All Persons dealing with Secured Party, or
any officer thereof acting pursuant hereto shall be fully protected in treating
the powers and authorities conferred by this Paragraph 9 as
existing and continuing in full force and effect until advised by Secured Party
that the Secured Indebtedness have been fully and finally paid and satisfied
and the Commitment has been terminated. 
Debtor hereby authorizes Secured Party to file, without the signature of
Debtor where permitted by law, one or more financing statements, continuation
statements or initial financing statements and amendments thereto indicating
the Collateral.  Debtor further agrees
that a carbon, photographic or other reproduction of this Agreement or any
financing statement describing any Collateral is sufficient as a financing
statement and may be filed in any jurisdiction by Secured Party.


 


10.           Default and Remedies.


 


(a)           While an Event of Default exists under
any Loan Document, Secured Party may, without notice to or demand upon Debtor: (a) foreclose
or otherwise enforce Secured Party’s security interest in the Collateral in any
manner permitted by law or provided for hereunder; (b) sell or otherwise
dispose of in a commercially reasonable manner the Collateral or any part
thereof at one or more public or private sales or at any broker’s board or on
any securities exchange, whether or not such Collateral is present at the place
of sale, for cash or credit or future delivery and without assumption of any
credit risk, on such terms and in such manner as Secured Party may determine; (c) require
Debtor to assemble the Collateral and/or books and records relating thereto and
make such available to Secured Party at a place to be designated by Secured
Party; (d) enter into property where any Collateral or books and records
relating thereto are located and take possession thereof with or without
judicial process; and (e) prior to the disposition of the Collateral,
prepare it for disposition in any manner and to the extent Secured Party deems
appropriate.  Whether or not Secured
Party exercises any right given pursuant to this section upon the occurrence of
any Event of Default, Secured Party shall have as to any Collateral all other
rights and remedies provided for herein and all rights and remedies of a
secured party under the Texas Uniform Commercial Code and, in addition thereto
and not in lieu thereof; all other rights or remedies at law or in equity
existing or conferred upon Secured Party by other jurisdictions or other
applicable law or given to Secured Party pursuant to any security agreement,
other instrument or agreement heretofore, now, or hereafter given as security
for Debtor’s obligations hereunder.


 


(b)           Secured Party is authorized, at any such
sale, if it deems it advisable so to do, to restrict the prospective bidders or
purchasers to Persons who will represent and agree that they are purchasing for
their own account, for investment, and not with a view to the distribution or
sale of any of the Collateral.  Upon any
sale or other disposition pursuant to this Security Agreement, Secured Party
shall have the right to deliver, assign and transfer to the purchaser thereof
the Collateral or portion thereof so sold or disposed of and all proceeds
thereof shall be promptly distributed in accordance with the terms of the
Credit Agreement. Each purchaser at any such sale or other disposition shall
hold the Collateral free from any claim or right of whatever kind, including
any equity or right of redemption of Debtor, and Debtor specifically waives (to
the extent permitted by law) all rights of redemption, stay or appraisal which
it has or may under any rule of law or statute now existing or hereafter
adopted.  Secured Party shall give Debtor
only such notice and shall publish such notice as may be required by the Texas
Uniform 


 


Exhibit E – Page 9













 


Commercial Code or by other applicable law of the intention to make any
such public or private sale or sale at broker’s board or on a securities
exchange.  Debtor acknowledges and agrees
that a private sale of any Collateral pursuant to any Take-Out Commitment shall
be deemed to be a sale of such Collateral in a commercially reasonable manner,
provided that such sale is substantially on the terms and conditions of such
Take-Out Commitment.  Any such public
sale shall be held at such time or times within the ordinary business hours and
at such place or places permitted by the Texas Uniform Commercial Code.  At any such sale the Collateral may be sold
in one lot as an entirety or in separate parcels, as Secured Party may
determine.  Secured Party may adjourn any
public or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for the sale, and such sale may be
made at any time or place to which the same may be so adjourned. In case of any
sale of all or any part of the Collateral on credit or for future delivery, (i) the
Collateral so sold may be retained by Secured Party until the selling price is
paid by the purchaser thereof, (ii) Secured Party shall not incur any
liability in case of the failure of such purchaser to take up and pay for the
Collateral so sold, and (iii) in case of any such failure, such Collateral
may again be sold as provided herein. 
Nothing contained in this Security Agreement shall prohibit Lender from
purchasing the Collateral at such sale.


 


11.           Waiver.  Secured Party
shall not incur any liability as a result of the sale of the Collateral in a
commercially reasonable manner, or any part thereof; at any public or private sale.  Debtor each hereby waives any claims it may
have against Secured Party arising by reason of the fact that the price at
which the Collateral may have been sold at such private sale was less than the
price which might have been obtained at a public sale or was less than the
aggregate amount of the Secured Indebtedness then outstanding.


 


12.           Binding Upon Successors. 
All rights of Secured Party under this Security Agreement shall inure to
the benefit of Secured Party and its successors and assigns, and all
obligations of Debtor shall bind its successors and assigns; provided that
Debtor shall not have the right to assign its rights or obligations under this
Security Agreement without the consent of Secured Party.


 


13.           Entire Agreement; Severability. 
This Security Agreement and the Credit Agreement contains the entire
security agreement and collateral agency agreement with respect to the
Collateral between Secured Party and Debtor and supersedes all prior written or
oral agreements and understandings relating thereto.  All waivers by Debtor provided for in this
Security Agreement have been specifically negotiated by the parties with full
cognizance and understanding of their rights. 
If any of the provisions of this Security Agreement shall be held
invalid or unenforceable, this Security Agreement shall be construed as if not
containing such provisions, and the rights and obligations of the parties
hereto shall be construed and enforced accordingly.


 


14.           Choice of Law. 
This Security Agreement shall be construed in accordance with and
governed by the laws of the State of Texas, except to the extent that the
perfection and the effect of perfection or non-perfection of the security
interest created hereunder, in respect of any of the Collateral, are governed
by the laws of a jurisdiction other than the State of Texas.  Where applicable and except as otherwise
defined herein or in the Credit Agreement, terms used herein have the meanings
given them in the Texas Uniform Commercial Code.


 


Exhibit E – Page 10


 












 


15.           Place of Business: Records. 
Debtor represents and warrants that its principal place of business and
chief executive office is at the address set forth beneath its signature below,
and that its books and records concerning the Collateral are kept at its
principal place of business and chief executive office.  Debtor shall not change its principal place
of business and chief executive office without 30 days’ prior written notice to
Secured Party.


 


16.           Notice.  Except where
instructions or notices are expressly authorized elsewhere in this Security
Agreement to be given by telephone or by other means of transmission, all
instructions, notices and other communications to be given to any party hereto
shall be given as provided in the Credit Agreement.


 


17.           Modification of Agreement. 
No provisions of this Agreement may be amended or waived (except for
waivers expressly provided for hereunder) unless such amendment or waiver is in
writing and is signed by Debtor and Secured Party.


 


18.           Counterparts. 
This Agreement may be executed in counterparts, and it shall not be
necessary that the signatures of both of the parties hereto be contained on any
one counterpart hereof; each counterpart shall be deemed an original, but all
counterparts together shall constitute one and the same instrument.


 


[THE BALANCE OF THIS PAGE
INTENTIONALLY LEFT BLANK]


 


Exhibit E – Page 11













 


EXECUTED as of the day and year first above written.


 


	
   

  	
  RYLAND MORTGAGE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
  6300 Canoga Avenue,
  14th Floor

  
	
   

  	
  Woodland Hills, CA
  91367

  
	
   

  	
  Attention:

  	
  David A. Brown, Senior
  Vice 

  President

  
	
   

  	
  Fax:

  	
  (818) 251-4192

  
	
   

  	
  Tel:

  	
  (818) 251-4116

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GUARANTY BANK

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Ross Evans

  	
   

  
	
   

  	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
  8333 Douglas Avenue

  
	
   

  	
  Dallas, Texas 75225

  
	
   

  	
  Attention:

  	
  Ross Evans

  
	
   

  	
  Fax:

  	
  (214) 360-4892

  
	
   

  	
  Tel:

  	
  (214)
  360-2672

  
						



 


Exhibit E – Page 12













 


	
  STATE OF CALIFORNIA

  	
   

  	
  §

  
	
   

  	
   

  	
   

  
	
  COUNTY OF LOS ANGELES

  	
   

  	
  §

  



 


On                                           ,
2008, before me,                                         ,
Notary Public, personally appeared                                               
who proved to me on the basis of satisfactory evidence to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or
the entity upon behalf of which the person(s) acted, executed the
instrument.


 


I
certify under the PENALTY OF PERJURY under the laws of the State of California
that the foregoing paragraph is true and correct.


 


	
   

  	
  WITNESS my hand and official seal

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature of Notary
  Public

  
	
   

  	
   

  
	
   

  	
   

  
	
  THE STATE OF TEXAS

  	
  )

  
	
   

  	
   

  
	
   

  	
  )

  
	
   

  	
   

  
	
  COUNTY OF DALLAS

  	
  )

  
			



 


This instrument was acknowledged before me on January________,
2008, by Ross Evans, Vice President of GUARANTY BANK,
on behalf of said bank.


 


	
   

  	
   

  
	
   

  	
  Notary Public, State of Texas

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (printed name)

  
	
   

  	
   

  
	
   

  	
   

  
	
  My Commission Expires:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  



 


Exhibit E – Page 13













 


EXHIBITS AND SCHEDULES

TO

SECURITY AGREEMENT


 


	
  SCHEDULE

  	
   

  	
  DOCUMENT

  
	
   

  	
   

  	
   

  
	
  A

  	
   

  	
  Required Mortgage Documents

  
	
   

  	
   

  	
   

  
	
  B

  	
   

  	
  Additional Required Mortgage Documents

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBIT

  	
   

  	
  DOCUMENT

  
	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  Form of Debtor Trust Receipt

  
	
   

  	
   

  	
   

  
	
  2

  	
   

  	
  Form of Shipping Request

  
	
   

  	
   

  	
   

  
	
  3

  	
   

  	
  Form of Bailee Letter to Investors

  
	
   

  	
   

  	
   

  
	
  4

  	
   

  	
  Form of Collateral Release Request

  



 


EXHIBITS AND SCHEDULES TO
SECURITY AGREEMENT


 













 


SCHEDULE A



REQUIRED MORTGAGE DOCUMENTS


 


The
following documents shall be delivered to Secured Party:


 


1.             Original Mortgage Note executed in favor
of Debtor or the originator who sold such Mortgage Note to Debtor (with a
complete series of endorsements without recourse from the original payee
thereof through any subsequent holders to Debtor if purchased by Debtor) and
endorsed by an authorized signatory of Debtor in blank;


 


2.             Either:


 


(a)           If the Mortgage is registered on the MERS® System, the
MIN for such Mortgage, or


 


(b)           If the Mortgage is not registered on the MERS®
System, then:


 


(i)            an assignment in blank of the Mortgage executed by
Debtor in recordable form, such assignment may be in the form of one or more
blanket assignments covering Mortgage Loans located in the same county, if
Secured Party so agrees; and


 


(ii)           the original or a certified copy of the Mortgage,
including all available Mortgage riders relating to the Mortgage Loan, noting
the presence of the MIN of the Mortgage Loan and language indicating that the
Mortgage Loan is a MOM Loan if the Mortgage Loan is a MOM Loan, with the
recording information indicated thereon.


 


3.             Originals or copies of assignments from
each holder of the Mortgage Loan to each subsequent assignee, if any, to
complete the chain of record ownership of such Mortgage Loan to Debtor;


 


4.             A copy, certified by the title insurance
company or the closing Secured Party, of all applicable and necessary
powers-of-attorney and assumed name certificates; and


 


Schedule A - 1













 


SCHEDULE B



ADDITIONAL REQUIRED MORTGAGE DOCUMENTS


 


1.             The original recorded Mortgage securing
the Mortgage Note if not delivered to Secured Party.


 


2.             Evidence of fire and extended coverage
insurance in an amount not less than the highest of the following: (a) the
amount of the Mortgage Loan, (b) 90% of the insurable value of the
improvements, and (c) an amount sufficient to prevent co-insurance.  Secured Party reserves the right to obtain a
loss payable endorsement in its favor if it so desires.


 


3.             Evidence of Notice to Customer required
by the federal Truth-in-Lending Law and Federal Reserve Regulation Z.


 


4.             In the case of an FHA Mortgage Note, an
FHA insurance certificate or a commitment to deliver such; in the case of a VA
mortgage note; a VA guaranty certificate or a commitment to deliver such and in
the case of a conventional mortgage note, an appraisal.


 


5.             A certified copy of the preliminary
policy of or commitment for title insurance insuring the Mortgage as a first
lien, or in the case of Second Lien Loans, a second lien on the property
subject thereto written by a title company and in amount and containing
exceptions satisfactory to Secured Party.


 


6.             Evidence of certificate of completion, as
appropriate under the circumstances.


 


7.             A copy of the executed Take-Out
Commitment relating to such Mortgage Note or the residential real property and
improvements securing such Mortgage Note if not delivered to Secured Party.


 


8.             Other documentation as Secured Party may
reasonably deem appropriate, as well as documentation necessary to fulfill
requirements of the Take-Out Commitments.


 


9.             Such additional documents as may be
necessary in the opinion of Secured Party to transfer to Secured Party the
title to any Collateral pledged and/or hypothecated pursuant to the Security
Agreement.


 


Schedule B - 1












 


EXHIBIT
1


 


TRUST RECEIPT


 


DATE:_____, 200___





GUARANTY BANK

8333 Douglas Avenue

11th Floor

Dallas, Texas 75225



Attn:       Ross Evans


 


Pursuant
to Paragraph 4 of the Security Agreement by and among Guaranty Bank
and Ryland Mortgage Company, as “Debtor” (as amended, supplemented or
restated from time to time, the “Security Agreement”), Debtor requests
the temporary transfer of the original Mortgage Note(s) as listed below to
allow Debtor to make corrections to such Mortgage Notes. We acknowledge that
these Mortgage Notes are being used as Mortgage Collateral for the warehouse
line of credit established by the Credit Agreement dated as of January 24,
2008 by and among Secured Party and Debtor (as amended, supplemented or
restated from time to time, the “Credit Agreement”).


 


	
   

  	
   

  	
   

  	
   

  	
  Loan Amount

  	
   

  	
  Collateral Value

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


Debtor
agrees to hold the Mortgage Notes in trust for Secured Party, as a custodian,
bailee and agent for the benefit of Secured Party. Debtor agrees to do the
following within ten (10) days of this date:


 


(a)           Return the Mortgage Notes to Secured
Party, or


 


(b)           Pay to Secured Party the aggregate
Unit Collateral Value of the Mortgage Notes.


 


In the event Debtor is unable for any reason to comply with the terms
of this Trust Receipt, Debtor shall immediately return the Mortgage Notes to
Secured Party.


 


By accepting the Mortgage Notes, Debtor shall be bound by the terms of
this Trust Receipt. Secured Party requests that Debtor acknowledge the receipt
of the Mortgage Notes and this Trust Receipt by signing below. Capitalized
terms not defined herein are used as defined in the Credit Agreement.


 


EXHIBIT 1 – Page 1













 


	
   

  	
  REQUESTED BY:

  
	
   

  	
   

  
	
   

  	
  RYLAND MORTGAGE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  



 


	
  STATE OF CALIFORNIA

  	
   

  	
  §

  
	
   

  	
   

  	
   

  
	
  COUNTY OF LOS ANGELES

  	
   

  	
  §

  



 


 


On____________________,
2008, before me, ____________________________________, Notary Public,
personally appeared _________________________________ who proved to me on the
basis of satisfactory evidence to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.


 


I
certify under the PENALTY OF PERJURY under the laws of the State of California
that the foregoing paragraph is true and correct.


 


	
   

  	
  WITNESS my hand and
  official seal

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature of Notary Public

  



 


EXHIBIT 1 – Page 2













 


Please have the courier bill us by using our acct. #________________.  If you should have any questions, or should
feel the need for additional documentation, please do not hesitate to call_____________________.


 


	
   

  	
  RYLAND MORTGAGE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


EXHIBIT 1 – Page 3













 


EXHIBIT
3


 


BAILEE LETTER FOR INVESTORS


 


	
   

  	
  GUARANTY
  BANK 

  
	
   

  	
  8333 Douglas Avenue 

  
	
   

  	
  Dallas, Texas 75225 

  
	
   

  	
  Attention:___________________ 

  
	
   

  	
  Mortgage Finance Department 

  
	
   

  	
  FAX: (214) 360-1660 

  
	
   

  	
  Telephone: (214) 360-______

  



 


The
enclosed mortgage notes and other documents (the “Mortgage Documents”) as more
particularly described on the attached schedule, have been assigned and pledged
to GUARANTY BANK (“Guaranty”) as
collateral under the Credit Agreement (as renewed, extended, amended, or
restated, the “Credit Agreement”) dated as of January 24, 2008 between RYLAND MORTGAGE COMPANY (the “Company”) and Guaranty.  The Mortgage Documents themselves are being
delivered to you for purchase under an existing commitment (the “Takeout
Commitment”).


 


Either
payment in full for the Mortgage Documents or the Mortgage Documents themselves
must be received by Guaranty within forty-five (45) days after the date of this
letter.  Until that time, you are deemed
to be holding the Mortgage Documents in trust as bailee for Guaranty, subject
to the security interest granted Guaranty in accordance with the applicable
provisions of the Uniform Commercial Code. 
No property
interest in the Mortgage Documents is transferred to you until Guaranty
receives the greater of (i) the agreed purchase price of the Mortgage
Documents or (ii) $______________________. 
Upon Guaranty’s receipt of such amount, Guaranty’s security interest in
the Mortgage Documents shall be released automatically, and the Mortgage
Documents shall be free of any lien or security interest created by, through or
under Guaranty.


 


If you
receive conflicting instructions regarding the Mortgage Documents from the
Company and Guaranty, you agree to act in accordance with Guaranty’s
instructions.  GUARANTY
RESERVES THE RIGHT, AT ANY TIME BEFORE IT RECEIVES FULL PAYMENT, TO NOTIFY YOU
AND REQUIRE THAT YOU RETURN THE MORTGAGE DOCUMENTS TO GUARANTY.


 


Payment for the Mortgage Documents must be made by
wire transfer of immediately available funds to:


 


	
  GUARANTY BANK

  	
  Account Number

  	
   

  
	
  ABA Number:

  	
  Attn:

  
	
  Further Credit:

  	
   

  	
   

  	
  TEL:

  
	
   

  	
  FAX:

  
					



 


BY
ACCEPTING THE MORTGAGE DOCUMENTS DELIVERED TO YOU WITH THIS LETTER, YOU CONSENT
TO HOLD THE MORTGAGE DOCUMENTS FOR THE BENEFIT OF GUARANTY AND TO BE GUARANTY’S
BAILEE ON THE TERMS DESCRIBED IN THIS LETTER. GUARANTY REQUESTS THAT YOU 


 


EXHIBIT 3 – Page 1













 


ACKNOWLEDGE
RECEIPT OF THE ENCLOSED MORTGAGE DOCUMENTS AND THIS LETTER BY SIGNING AND
RETURNING TO GUARANTY THE ENCLOSED COPY OF THIS LETTER, BUT YOUR FAILURE TO DO
SO DOES NOT NULLIFY YOUR CONSENT OR OTHERWISE AFFECT OR IMPAIR ANY TERM OR
CONDITION OF THIS LETTER OR THEIR BINDING EFFECTS ON YOU. 
If you fail to make full payment to Guaranty for it within forty-five
(45) days after the date of this letter, you are instructed to return all of
the Mortgage Documents to Guaranty. The preceding provision in no way affects
or impairs any claim or cause of action against you in respect of the Takeout
Commitment.


 


This
letter binds you and your successors, assigns, trustees, conservators, and
receivers and inures to Guaranty and its respective successors and assigns.


 


	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  GUARANTY BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


	
  Acknowledged and Agreed
  as of

  	
   

  
	
   

  	
  , 2008

  	
   

  
	
   

  	
   

  
	
  [NAME OF BAILEE]

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  
					



 


EXHIBIT 3 – Page 2













 


EXHIBIT
4


 


COLLATERAL RELEASE REQUEST


 


	
  TO:

  	
   

  	
  GUARANTY BANK as Secured Party

  	
  Date:

  	
   

  



 


1.                                       Ryland Mortgage
Company, hereby requests the release of the Mortgage Collateral herein
specified, pursuant to Paragraph 4(f) of the Security
Agreement (as amended, supplemented or restated from time to time, the “Agreement”)
between Debtor and Guaranty Bank (“Secured Party”), and hereby directs
Secured Party, in accordance with the provisions of the Agreement and that
certain Credit Agreement dated as of January 24, 2008, between Debtor and
Secured Party and the Lenders named therein (as from time to time amended,
supplemented or restated, the “Credit Agreement”) to hold or deliver the
Mortgage Collateral described on the attached schedule as directed herein.
Capitalized terms used herein and defined in the Credit Agreement shall be used
herein as so defined.


 


2.                                       Release
Requested:


 


Debtor hereby requests that
Secured Party release any security interest it may have in each Mortgage Note
(the “Identified Notes”) described on Schedule I attached hereto.


 


3.                                       Delivery
Instructions:


 


Debtor hereby directs
Secured Party to (check applicable blank):


 


________To hold the
Identified Notes pending written delivery instructions from Debtor.


 


________To deliver the
Identified Notes to the Person described in the attached instructions in
accordance with the attached instructions.


 


4.                                       The undersigned
officer of Debtor represents and warrants to Secured Party:


 


(a)                                  Debtor is entitled to
receive the requested release under the terms and conditions of the Agreement
and the Credit Agreement;


 


(b)                                 no Default or Event of
Default has occurred and is continuing under the Credit Agreement;


 


(c)                                  no change or event which
constitutes a Material Adverse Effect has occurred; and


 


(d)                                 (i)            the Collateral Value of the Borrowing Base (after giving
effect to the release requested pursuant to Paragraph 2 of this
Collateral Release Request) is $____________.


 


(ii)           the Loan Balance is
$____________.


 


(iii)                               Debtor is entitled to such
release.  (Requirement of Agreement: item
(i) not less than item (ii)).


 


EXHIBIT 4 – Page 1













 


5.                                       The
representations and warranties of Debtor contained in the Credit Agreement and
those contained in each other Loan Document to which Debtor is a party (other
than those representations and warranties which are by their terms limited to
the date of the agreement in which they were initially made) are true and
correct in all material respects on and as of the date hereof.


 


	
   

  	
  RYLAND  MORTGAGE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
					



 


EXHIBIT 4 – Page 2













 


SCHEDULE I



MORTGAGE NOTES TO BE RELEASED


 


	
  Loan  

  Number

  	
   

  	
  

  Date

  	
   

  	
  Original

  Principal

  Amount

  	
   

  	
  Collateral

  Value

  	
   

  	
  Maker

  	
   

  	
  Payee

  	
   

  	
  Interest

  Rate

  	
   

  	
  Maturity

  Date

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


 


 


COLLATERAL DELIVERY INSTRUCTIONS


 


Schedule I – Page 1