<PAGE>   1
                                                                   EXHIBIT 10.86


                            MEGO MORTGAGE CORPORATION

                                       AND

                             SOVEREIGN BANCORP, INC.

                                 PREFERRED STOCK
                               PURCHASE AGREEMENT

                                  JUNE 9, 1998


<PAGE>   2
                                Table of Contents

<TABLE>
<CAPTION>
                                                                     Page
                                                                     ----
<S>           <C>      <C>                                           <C>
Section 1.             Definitions...................................  2

Section 2.             Agreement to Sell and Purchase the
                       Securities....................................  3

Section 3.             Option Shares.................................  3

Section 4.             Issuance of the Certificates Representing the
                       Securities....................................  4

Section 5.             Representations, Warranties and Covenants of
                       the Company...................................  5
     5.1.     Organization and Qualification.........................  5
     5.2.     Authorized Capital Stock...............................  6
     5.3.     Due Execution, Delivery and Performance................  7
     5.4.     Offering Memorandum and Additional Information.........  9
     5.5.     Legal Proceedings......................................  9
     5.6.     No Material Adverse Change............................. 10
     5.7.     Law and Regulation..................................... 11
     5.8.     Accounting Matters..................................... 11
     5.9.     Compliance with Securities Laws........................ 13
     5.10.             Intangibles................................... 13
     5.11.             Title......................................... 14
     5.12.             Contracts..................................... 14
     5.13.             No Violation.................................. 15
     5.14.             Transactions with Affiliates.................. 15
     5.15.             No Manipulation............................... 15
     5.16.             Taxes......................................... 16
     5.17.             Investment Company Act of 1940................ 16
     5.18.             Use of Proceeds............................... 16
     5.19.             Board of Directors............................ 16
     5.20.             Certificates.................................. 18
     5.21.             Rolly White................................... 18
     5.22.             Mortgage-Related Asset Revaluation............ 18
     5.23.             Other Transactions............................ 19
     5.24.             Best Efforts.................................. 19
     5.25.             Due Diligence................................. 19
     5.26.             Waiver of Certain Claims...................... 19

Section  6.            Representations, Warranties and Covenants of
                       Purchaser..................................... 20
     6.1.     Compliance with United States Securities Laws.......... 21
     6.2.     Status of Purchaser.................................... 21
     6.3.     Restrictions on Re-Sale................................ 22
     6.4.     Due Execution, Delivery and Performance of
              the Purchase Agreement and Other Obligations........... 23
     6.5.     Representations, Warranties and Covenants at
              Closing................................................ 24
</TABLE>


                                   (i)

<PAGE>   3


<TABLE>
<S>           <C>      <C>                                            <C>

Section  7.            Survival of Representations, Warranties,
                       Covenants and Agreements...................... 24

Section  8.            Conditions to Closing......................... 24
     8.1.     Exchange Offer......................................... 25
     8.2.     Additional Equity...................................... 25
     8.3.     Purchaser Board Approval............................... 25
     8.4.     Waiver of Change of Control Payments................... 25
     8.5.     Servicing Purchase Agreements.......................... 25
     8.6.     Registration Rights Agreement.......................... 26
     8.7.     Opinion of Greenberg Traurig........................... 26
     8.8.     Comfort Letter......................................... 34
     8.9.     Offering Memorandum.................................... 34
     8.10.             Other Transactions............................ 34
     8.11.             No Material Adverse Effect.................... 34
     8.12.             Certificates.................................. 34
     8.13.             Regulatory Matters............................ 35
     8.14.             Consents...................................... 35
     8.15.             Related Party Indebtedness.................... 36
     8.16.             Documents..................................... 36
     8.17.             Additional Matters Relating to Option Shares.. 36
     8.18.             Additional Conditions......................... 36
              (a)  Servicing Purchase Agreements..................... 36
              (b)  Certificate of Designation........................ 36
              (c)  Letter from FBR................................... 37
              (d)  Warehouse Line Agreement.......................... 37
              (e)  Flow Loan Purchase Agreement...................... 37
              (f)  Right of First Refusal............................ 37
              (g)  Amendment of Placement Agreement.................. 38
              (h)  Agreements with FBR and Emanuel J. Friedman....... 38
              (i)  Employment and Non-Competition Agreements......... 38
              (j)  Option Agreement.................................. 38

Section  9.            Conditions to Closing......................... 39

Section  10.           Compliance with the Securities Act............ 39
     10.1.             Information Available......................... 39
     10.2.             Legend Requirement............................ 39

Section 11.            Broker's Fee.................................. 40

Section 12.            Notices....................................... 41

Section 13.            Amendments.................................... 42

Section 14.            Headings...................................... 42

Section 15.            Enforcement................................... 42

Section 16.            Governing Law................................. 43

Section 17.            Severability.................................. 43

Section 18.            Counterparts.................................. 44
</TABLE>


                                  (ii)

<PAGE>   4




<TABLE>
<S>           <C>      <C>                                            <C>
Section 19.            Assignment.................................... 44


EXHIBITS

EXHIBIT A - TERMS OF REGISTRATION RIGHTS AGREEMENT................... 46

EXHIBIT B - TERMS OF SERIES A PREFERRED STOCK........................ 47

EXHIBIT C - TERMS OF BULK SERVICING PURCHASE AGREEMENT............... 48

EXHIBIT D - TERMS OF FLOW SERVICING PURCHASE AGREEMENT............... 49

EXHIBIT E - JURISDICTIONS OF FOREIGN QUALIFICATION................... 52

EXHIBIT F - OTHER TRANSACTIONS....................................... 53

EXHIBIT G - FBR LETTER RE:  VOTING OF SHARES ........................ 54

EXHIBIT H - TERMS OF WAREHOUSE LINE AGREEMENT........................ 55

EXHIBIT I - TERMS OF FLOW LOAN PURCHASE AGREEMENT.................... 61

EXHIBIT J - TERMS OF RIGHT OF FIRST REFUSAL AGREEMENT................ 62

EXHIBIT K - LIST OF EMPLOYEES REQUIRED TO ENTER INTO
            EMPLOYMENT AGREEMENTS.................................... 65
</TABLE>




                                      (iii)
<PAGE>   5



                            MEGO MORTGAGE CORPORATION

                                 PREFERRED STOCK
                               PURCHASE AGREEMENT

     This Preferred Stock Purchase Agreement is made as of June 9, 1998, by and
between Sovereign Bancorp, Inc., a Pennsylvania corporation, with its principal
offices at 1130 Berkshire Boulevard, P.O. Box 12646, Reading, Pennsylvania 19612
(the "Purchaser"), and Mego Mortgage Corporation (the "Company"), a Delaware
corporation, with its principal offices at 1000 Parkwood Circle, 5th Floor,
Atlanta, Georgia.

     WHEREAS, the Company is engaging in a plan of recapitalization (the
"Recapitalization") which includes the following: (i) a private offering (the
"Common Stock Offering") of shares of its common stock, par value $.01 per share
(the "Common Stock"); (ii) a private offering (the "Series A Preferred Stock
Offering") by the Company of shares of its Series A Convertible Preferred Stock,
par value $.01 per share (the "Series A Preferred Stock"); and (iii) an exchange
offer to occur concurrent with the Common Stock Offering and the Series A
Preferred Stock Offering (together, the "Offerings") and as a condition thereto
to exchange shares of Series A Preferred Stock and/or new 12.5% Subordinated
Notes Due 2001 ("New Notes") of the Company or a combination thereof, subject to
certain limitations, for any and all of the outstanding 12.5% Senior
Subordinated Notes Due 2001 of the Company, subject to certain conditions (the
"Exchange Offer");

     WHEREAS, the Company will enter into a Placement Agreement (the "Placement
Agreement"), with Friedman, Billings,


                                        1


<PAGE>   6
Ramsey & Company, Incorporated ("FBR"), a Virginia corporation, pursuant to
which FBR will act as placement agent in connection with the issue and sale of
the Common Stock and Series A Preferred Stock (together with the New Notes, the
"Securities") to be issued in the Offerings, and;

     WHEREAS, the completion of the Offerings (the "Closing") is scheduled to
take place on June 18, 1998, or such other date (the "Closing Date") as is
agreed upon by the Company and FBR;

     WHEREAS, the Company wishes to offer and sell to Purchaser, and Purchaser
wishes to buy from the Company, on the terms and conditions set forth herein, up
to 10,000 shares of Series A Preferred Stock having an aggregate liquidation
amount of $10,000,000 for a purchase price of $1,000 per share, or $10,000,000
in aggregate;

     WHEREAS, the Company wishes to grant to Purchaser an option to purchase up
to 6,666,667 shares of Common Stock at a purchase price of $1.50 per share on
the terms and conditions set forth herein;

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Purchase Agreement, the parties agree as follows:

     Section 1. Definitions. Capitalized terms not otherwise defined herein
shall have the meanings assigned to them in the draft of the Company's Offering
Memorandum, dated June 9, 1998 attached hereto as Attachment 1 (the "Offering
Memorandum").

                                        2

<PAGE>   7
     Section 2. Agreement to Sell and Purchase the Securities. Subject to the
terms and conditions of this Purchase Agreement, that certain registration
rights agreement (the "Registration Rights Agreement") to be entered into by and
between the Company and Purchaser, as provided in Exhibit A hereto, and the
Placement Agreement, the Company agrees to sell and Purchaser agrees to buy
10,000 shares (the "Initial Shares") of Series A Preferred Stock having an
aggregate liquidation amount of $10,000,000 for a purchase price of $1,000 per
share, or $10,000,000 in the aggregate (the "Purchase Price"). The terms of the
Series A Preferred Stock will be as set forth on Exhibit B hereto. Purchaser
shall pay the Purchase Price on the Closing Date in New York Clearing House
Funds, to the account of the Company.

     The Company represents to Purchaser that, prior to the Closing, the Company
will be executing substantially identical purchase agreements with respect to
shares of Common Stock and Series A Preferred Stock (except for the name and
address of the Purchaser and the number of shares of Series A Preferred Stock
and Common Stock purchased) with certain other investors (the "Other
Purchasers") for an aggregate purchase price of at least $20,000,000. Purchaser
and Other Purchasers are hereinafter sometimes referred to as the "Purchasers,"
and this Purchase Agreement and such other Purchase Agreements are hereinafter
sometimes referred to as the "Purchase Agreements."

     Section 3. Option Shares. In addition, upon the basis of the warranties and
representations and other terms and


                                        3

<PAGE>   8
conditions herein set forth, the Company will at the Closing grant an option
(the "Option") to the Purchaser to purchase from the Company up to 6,666,667
additional shares of Common Stock at a purchase price of $1.50 per share (the
"Option Shares"), which option will be evidenced by an Option Agreement (the
"Option Agreement") which shall be delivered by the Company to Purchaser at the
Closing and which shall include antidilution provisions in form and substance
satisfactory to Purchaser. The Option will expire 180 days after the second
anniversary of the Closing Date and may be exercised in whole or in part at any
time and from time to time upon written notice by the Purchaser to the Company
setting forth the number of Option Shares as to which the Purchaser is then
exercising the Option and the time and date of payment and delivery for such
Option Shares. Any such time and date of delivery (a "Date of Delivery") shall
be determined by Purchaser, but shall not be later than five full business days
(nor earlier, without the consent of the Company, than three full business days)
after the exercise of said option (and the delivery of such notice, such
delivery date being referred to as the "Notice Date"). Each closing at which the
documents relating to the purchase of Option Shares are exchanged is referred to
as an "Option Closing." The Initial Shares and the Option Shares are referred to
as the "Shares."

     Section 4. Issuance of the Certificates Representing the Securities. At the
Closing and at each Option Closing, the Company will cause to be delivered to
the Purchaser, one certificate for the Initial Shares or the Option Shares being

                                        4


<PAGE>   9
purchased, as applicable, registered in the name of Purchaser as set forth on
the signature page hereof (or in such other name as may be designated by
Purchaser to the Company in writing) upon payment of the applicable purchase
price therefore).

     Section 5. Representations, Warranties and Covenants of the Company. The
Company hereby represents and warrants to, and covenants with, Purchaser as 
follows:

          5.1. Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has all requisite power and authority, and all necessary
authorizations, approvals, consents, orders, licenses, certificates and permits
of and from all governmental or regulatory bodies or any other person or entity,
to own, lease and license its assets and properties and conduct its business as
now being conducted and as described in the Offering Memorandum, except for such
authorizations, approvals, consents, orders, licenses, certificates and permits
the failure to so obtain would not have a material adverse effect upon the
assets or properties, business, results of operations, prospects or condition
(financial or otherwise) of the Company and its subsidiaries, taken as a whole
(a "Material Adverse Effect"); no such authorization, approval, consent, order,
license, certificate or permit contains a materially burdensome restriction
other than as disclosed in the Offering Memorandum; and the Company has all such
corporate power and authority, and has or will have as of the Closing such
authorizations, approvals, consents, orders,

                                        5


<PAGE>   10
licenses, certificates and permits as shall be necessary to enter into, deliver
and perform this Agreement, the Purchase Agreements and the Other Transaction
Documents (as defined in Section 5.3, below) and to issue and sell the
Securities (except as may be required under state securities laws). The Company
is duly qualified to do business and is in good standing in every jurisdiction
where such qualification is required by controlling law and where the failure to
so qualify is reasonably likely to have a Material Adverse Effect. The Company
has no subsidiaries that would be deemed to be "significant subsidiaries" for
purposes of Rule 1-02 of Regulation S-X promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), substituting in the tests
set forth in such rule the figure "5%" in each case for "10%."

          5.2. Authorized Capital Stock. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Offering Memorandum. All
issued and outstanding shares of Company capital stock have been duly and
validly authorized and issued, are fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, and have not
been issued in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right. All of the
outstanding shares of capital stock of the Company's subsidiaries have been duly
and validly authorized and issued and are fully paid and non-assessable and are
owned, directly or indirectly, by the Company, free and clear of any lien,
pledge, charge, security

                                        6


<PAGE>   11
interest or other encumbrance. The Shares have been duly authorized and, in the
case of the Option Shares, reserved for issuance, and, when issued and sold
pursuant to this Purchase Agreement and, in the case of the Option Shares, the
Option Agreement, will be duly and validly issued, fully paid and nonassessable
and none of them will be issued in violation of any preemptive or other similar
right. Except as disclosed in the Offering Memorandum, there is no outstanding
option, warrant or other right calling for the issuance of, and there is no
commitment, plan or arrangement to issue, any share of capital stock of the
Company or any subsidiary or any security convertible into, or exercisable or
exchangeable for, such capital stock. The shares of Common Stock into which the
Initial Shares are convertible (the "Underlying Common Stock") have been duly
authorized and reserved for issuance and, when issued upon such conversion, will
be duly and validly issued, fully paid and nonassessable and none of them will
be issued in violation of any preemptive or other similar right. The Shares and
the Common Stock conform in all material respects to all statements in relation
thereto contained in the Offering Memorandum.

          5.3. Due Execution, Delivery and Performance. The execution, delivery
and performance of each of this Agreement and the Placement Agreement, the
Registration Rights Agreement, the Purchase Agreements entered into with the
Other Purchasers, the Option Agreement and the similar Option Agreement entered
into between the Company and City National Bank of West Virginia ("City
National"), the Bulk Servicing Purchase Agreement and the

                                        7

<PAGE>   12
Flow Servicing Purchase Agreement referred to in Section 8.5 below (the
"Servicing Purchase Agreements"), the Warehouse Line Agreement referred to in
Section 8.18(d) below, and the Flow Purchase Agreement referred to in Section
8.18(e) below (collectively, the "Other Transaction Documents") by the Company
(a) have been (or prior to Closing will be) duly authorized by all requisite
corporate action of the Company and (b) will not violate (i) the Certificate of
Incorporation or Bylaws of the Company, or (ii) any provision of any indenture,
mortgage, agreement, contract, or other instrument to which the Company or any
of its subsidiaries is bound or be in conflict with, or result in a breach of or
constitute (upon notice or lapse of time or both) a default under any such
indenture, mortgage, agreement, contract, or other instrument or result in the
creation or imposition of any lien, security interest, mortgage, pledge, charge
or other encumbrance of any nature whatsoever upon any of the properties or
assets of the Company or any of its subsidiaries, except for any such
violations, conflicts, breaches or defaults which have been waived in writing as
of the Closing or would not have a Material Adverse Effect. Upon execution and
delivery, this Agreement and the Other Transaction Documents will constitute
legal, valid and binding obligations of the Company, enforceable in accordance
with their respective terms, except insofar as the enforcement thereof may be
limited by bankruptcy law or other laws relating to or affecting the enforcement
of creditors' rights generally or by general equitable principles (regardless of
whether such enforceability is considered in a

                                        8


<PAGE>   13
proceeding in equity or at law) and except as rights to indemnity or
contribution may be limited under applicable law.

          5.4. Offering Memorandum and Additional Information. The Company has
furnished, and Purchasers acknowledge receipt of the Offering Memorandum.

     The Offering Memorandum when combined with the documents incorporated by
reference therein does not, and any amendment or supplement thereto will not,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading. Each document incorporated by reference into the Offering Memorandum
complies in all material respects with the requirements of the Exchange Act, and
the Commission's rules and regulations thereunder ("Exchange Act Regulations")
and, when read together with the other information in the Offering Memorandum,
does not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.

          5.5. Legal Proceedings. There are no actions, suits, investigations or
proceedings pending or threatened other than as disclosed in the Offering
Memorandum (including the documents incorporated by reference therein and
provided to the Purchasers) to which the Company or any of its subsidiaries is a
party or to which any of their properties is subject before or by any court or
governmental agency or both which is reasonably

                                        9
<PAGE>   14
likely to have, individually or in the aggregate, a Material Adverse Effect; and
to the knowledge of the Company, no such actions, suits, investigations or
proceedings are threatened by any person, corporation or governmental agency or
body.

          5.6. No Material Adverse Change. Subsequent to the respective dates as
of which information is given in the Offering Memorandum, and except as
specifically described therein, there has not been (i) any material adverse
change in the business, properties or assets described or referred to in the
Offering Memorandum, or the results of operations, condition (financial or
otherwise) earnings, operations, business or business prospects, of the Company
and its subsidiaries, taken as a whole, (ii) any transaction entered into
(whether binding or nonbinding) by the Company and/or its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, except
transactions in the ordinary course of business, (iii) any obligation that is
material to the Company and its subsidiaries, direct or indirect, contingent or
noncontingent, matured or unmatured, absolute or otherwise, incurred by the
Company or its subsidiaries, except obligations incurred in the ordinary course
of business, (iv) any change in the capital stock (other than upon the exercise
of stock options described in the Offering Memorandum) or outstanding
indebtedness of the Company or its subsidiaries (other than indebtedness
incurred in the ordinary course of business consistent with past practice), (v)
any dividend or distribution of any kind declared, paid or made on the capital
stock of the Company or any of its subsidiaries, or

                                       10


<PAGE>   15

(vi) any change in senior management or key employees, and no such change or
event is reasonably expected.

          5.7. Law and Regulation. The Company and its subsidiaries are in
compliance with, and conduct their respective businesses in conformity with all
applicable laws and governmental regulations governing the businesses conducted
by the Company and its subsidiaries, as the case may be, except for failures to
comply or conform which would not have a Material Adverse Effect.

          5.8. Accounting Matters. Deloitte & Touche LLP ("D&T"), which has
audited the financial statements, together with the related notes, of the
Company as of August 31, 1997 and 1996, and for each of the three years ended
August 31, 1997, 1996, and 1995, which are included in the Offering Memorandum,
are independent public accountants as required by the Securities Act of 1933, as
amended (the "Securities Act") and the Securities Act Regulations (as if the
Offering Memorandum was a prospectus filed as part of a registration statement
filed under the Securities Act).

     The financial statements included or incorporated by reference in the
Offering Memorandum comply as to form in all material respects with applicable
accounting requirements of the Securities Act, the Securities Act Regulations,
the Exchange Act, and the Exchange Act Regulations, including Regulation S-X
under the Securities Act (as if such financial statements were filed with or
incorporated by reference in a registration statement under the Securities Act),
and said financial statements present


                                       11


<PAGE>   16
fairly the financial position of the Company and its Subsidiaries on a
consolidated basis as of the dates indicated and the results of their operations
for the periods specified; except as otherwise stated in the Offering
Memorandum, such financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis and such
financial statements are consistent in all material respects with financial
statements and other reports filed by the Company and its Subsidiaries with the
Commission; the supporting schedules included are incorporated by reference in
the Offering Memorandum and present fairly the information required to be stated
therein. The selected and summary financial and statistical data included in the
Offering Memorandum present fairly the information shown therein and have been
compiled on a basis consistent with the audited financial statements presented
therein.

     The Company and each of its subsidiaries (i) make and keep books and
records which, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of assets; (ii) maintain a system of internal
accounting controls sufficient to provide reasonable assurance that: (a)
transactions are executed in accordance with management's general or specific
authorizations, (b) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets, (c) the recorded
accountability for assets is compared with the existing assets at reasonable


                                       12


<PAGE>   17
intervals and appropriate action is taken with respect thereto, and (d) access
to assets is permitted only with management's general or specific authorization;
and (iii) otherwise conform to the requirements of the Exchange Act, Section
13(b) and Regulation 13b-2 thereunder and shall continue to do so for so long as
Purchaser holds any Shares.

          5.9. Compliance with Securities Laws. Assuming (i) the accuracy of the
representations and warranties of FBR and the Purchasers as set forth in the
Placement Agreement and the Purchase Agreements, and (ii) that the Purchaser,
the Other Purchasers and the participants in the Exchange Offer are either
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act) or "accredited investors" (as defined in Rule 501(a) under the Securities
Act) (the Company having received representations from such persons to that
effect), the Company has complied with all applicable federal and state
securities or Blue Sky laws in connection with the Offerings and the Offerings
are or will be exempt from registration under such laws.

          5.10. Intangibles. The Company owns or possesses adequate and 
enforceable rights to use all trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses, know-how and other
similar rights and proprietary knowledge (collectively, "Intangibles") necessary
for the conduct of its business as described in the Offering Memorandum. The
Company has not received any notice of, nor to its best knowledge is aware of,
any infringement of or conflict


                                       13


<PAGE>   18
with asserted rights of others with respect to any Intangibles which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a Material Adverse Effect.

          5.11. Title. The Company has good title to each of the items of
personal property which are reflected in the financial statements referred to in
Section 5.8 or are referred to in the Offering Memorandum as being owned by it
and valid and enforceable leasehold interests in each of the items of real and
personal property which are referred to in the Offering Memorandum as being
leased by it, in each case free and clear of all liens, encumbrances, claims,
security interests and defects, other than those described in the Offering
Memorandum and those which do not and will not have a Material Adverse Effect.

          5.12. Contracts. Each material contract or agreement to which the
Company is a party is in full force and effect and is valid and enforceable by
and against the Company in accordance with its terms, assuming the due
authorization, execution and delivery thereof by each of the other parties
thereto. Except as disclosed in the Offering Memorandum, neither the Company,
nor to the best knowledge of the Company, any other party is in default in the
observance or performance of any term or obligation to be performed by it under
any such agreement, and no event has occurred which with notice or lapse of time
or both would constitute such a default, in any such case which default or event
would have a Material Adverse Effect. Except as described in the Offering
Memorandum, no default exists, and no

                                       14


<PAGE>   19
event has occurred which with notice or lapse of time or both would constitute a
default, in the due performance and observance of any term, covenant or
condition, by the Company of any other agreement or instrument to which the
Company is a party or by which it or its properties or business may be bound or
affected which default or event would have a Material Adverse Effect.

          5.13. No Violation. The Company is not in violation of any term or
provision of its Certificate of Incorporation or Bylaws or of any franchise,
license, permit, judgment, decree, order, statute, rule or regulation, where the
consequences of such violation would have a Material Adverse Effect.

          5.14. Transactions with Affiliates. No transaction has occurred or is
contemplated between or among the Company and any of its officers or directors
or any affiliate or affiliates of any such officer or director that would have
been required to be described in the Offering Memorandum if it were part of a
Registration Statement under the Securities Act and is not described in the
Offering Memorandum.

          5.15. No Manipulation. The Company has not taken, nor will it take,
directly or indirectly, any action designed to or which might reasonably be
expected to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of any of the Shares.


                                       15
<PAGE>   20
          5.16. Taxes. The Company or its former parent, Mego Financial Corp.,
has filed all Federal, state, local and foreign tax returns which are required
to be filed by the Company through the date hereof, or has received extensions
thereof, and has paid all taxes shown on such returns and all assessments
received by it to the extent that the same are material and have become due.

          5.17. Investment Company Act of 1940. The Company is not, and will not
become upon the issuance and sale of the Securities and the application of net
proceeds therefrom as described in the Offering Memorandum under the caption
"Use of Proceeds," an "investment company" or, assuming that FBR is not an
"investment company," an entity "controlled" by an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (the "1940
Act").

          5.18. Use of Proceeds. The Company will apply the proceeds from the
Offerings as set forth in the Offering Memorandum.

          5.19. Board of Directors. As of the Closing, the Board of Directors of
the Company shall have seven members and Purchaser shall be entitled at the
Closing or at any time thereafter to designate one member, who shall be
appointed to the Board of Directors promptly following his designation and who
shall also be elected to any executive or similar committee of the Board of
Directors. After the Closing and until the first date on which Purchaser holds
shares of Series A Preferred Stock (on an as-converted basis) and Common Stock
representing less


                                       16


<PAGE>   21

than 7.0% of the outstanding shares of Common Stock (including the number of
shares of Common Stock into which all outstanding shares of Series A Preferred
Stock are convertible) (the "7% Termination Date") (a) the Board of Directors
shall continue to have seven members (as adjusted pursuant to the following
sentence and the similar provision of the Preferred Stock Purchase Agreement of
even date herewith between the Company and City National), and (b) Purchaser
shall be entitled to nominate one member of the Board of Directors at each
meeting of shareholders at which directors are elected, and such member shall
also be elected to any executive or similar committee of the Board of Directors.
Promptly following the first to occur of (i) the purchase by Purchaser pursuant
to the exercise of the Option of all of the Option Shares, or (ii) the
acquisition by Purchaser by exercise of the Option or otherwise of such number
of shares of Common Stock that Purchaser shall immediately following such
acquisition own in the aggregate 15 percent (15%) or more of the then
outstanding shares of Common Stock, the number of members of the Board of
Directors shall be increased by one and Purchaser shall be entitled to designate
one additional member of the Board of Directors, such designee to be promptly
appointed by the Board of Directors to fill the vacancy so created. Thereafter
and until the 7% Termination Date, Purchaser shall be entitled to nominate two
members of the Board of Directors at each meeting of shareholders at which
directors are elected, and one such member designated by Purchaser shall be
elected to any executive or similar committee of the Board of

                                       17


<PAGE>   22
Directors. The Company shall use its best efforts to cause the nominees of
Purchaser to be elected to the Board of Directors and appointed to such
committee. In addition, Purchaser shall have the right at all times until the 7%
Termination Date to designate a representative (who shall be reasonably
satisfactory to the Company) who shall be given notice of and who shall have the
right to attend all meetings of the Board of Directors of the Company and all
meetings of any executive or similar committee of the Board of Directors.

          5.20. Certificates. Any certificates signed by any officer of the
Company or its subsidiaries, and delivered to the Purchasers or to counsel for
the Purchasers pursuant to the terms of this Agreement shall be deemed a
representation and warranty by the Company to the Purchaser as to the matters
covered thereby.

          5.21. Rolly White. Prior to Closing, the Company shall offer Rolly
White a senior position with the Company with responsibilities relating to loan
production and retail acquisitions and shall use commercially reasonable efforts
to employ Mr. White in such position as soon as possible.

          5.22. Mortgage-Related Asset Revaluation. Immediately following
Closing, the Company shall cooperate with Purchaser, with the advice of their
respective advisors, to arrive at a mutually satisfactory, and more conservative
set of assumptions to be used to value the mortgage-related assets carried on
the Company's balance sheet.


                                       18
<PAGE>   23
          5.23. Other Transactions. The material terms of all of the 
transactions relating to the Recapitalization are accurately disclosed on
Exhibit F.

          5.24. Best Efforts. The Company shall cooperate with Purchaser and
shall use its reasonable best efforts to do or cause to be done all things
necessary or appropriate on its part in order to effect the consummation of the
transactions contemplated under this Agreement.

          5.25. Due Diligence. In order to permit Purchaser to perform further
due diligence, the Company shall give to Purchaser and its accountants, counsel
and other authorized representatives reasonable access during normal business
hours throughout the period prior to the Closing Date to all of its properties,
books, records, contracts and other documents relating to its business as
Purchaser may reasonably request, subject to the obligation of Purchaser and its
authorized representatives to maintain the confidentiality of all non-public
information concerning the Company obtained by reason of such access.

          5.26. Waiver of Certain Claims. The Company acknowledges that
Purchaser is a unitary thrift holding company which owns all of the outstanding
capital stock of Sovereign Bank, a federally chartered savings bank ("Sovereign
Bank"), which now and which may in the future compete directly or indirectly
with the Company. The Company hereby waives and covenants not to sue Purchaser,
Sovereign Bank and Purchaser's other affiliated entities, and the officers,
directors, employees


                                       19

<PAGE>   24
and agents of each of them (including, without limitation, any person who is
appointed to the Board of Directors of the Company pursuant to Section 5.19
above) and the heirs, personal representatives, successors and assigns of each
of them (collectively, the "Released Parties") in connection with any and all
claims, causes of action, counterclaims, set-offs and rights of contribution, at
law or in equity, which the Company (alone or in combination with others) may in
the future have against the Released Parties or any of them for any liability
for any loss, damage, injury or expense of any kind arising from or relating to
any: (i) conflict or alleged conflict of interest, (ii) breach or alleged breach
of any fiduciary duty which may be owed to the Company (including, without
limitation any breach or alleged breach of the duty of loyalty arising under the
corporate opportunity doctrine), or (iii) violation or alleged violation of any
similar duty or obligation which may arise by reason of the fact that Purchaser
and/or Sovereign Bank and Purchaser's other affiliated entities will following
consummation of the transactions contemplated by this Agreement be a stockholder
of the Company, have one or more of its designees serving as directors of the
Company, be a provider of credit to the Company, a purchaser of mortgages from
the Company, a provider of services to the Company, or otherwise.

          Section 6. Representations, Warranties and Covenants of Purchaser.
Purchaser hereby represents, warrants and covenants to the Company as follows:

                                       20

<PAGE>   25
          6.1. Compliance with United States Securities Laws. Purchaser
understands and acknowledges that the Shares and the Underlying Common Stock
have not been registered under the Securities Act, and that the Shares and the
Underlying Common Stock may not be offered or sold in the United States or to,
or for the account or benefit of, any "U.S. person" (as defined in Regulation S
under the Securities Act), unless such Securities are registered under the
Securities Act or such offer or sale is made pursuant to an exemption from the
registration requirements of the Securities Act. The Shares are being offered
and sold in reliance on an exemption from registration pursuant to Section 4(2)
of the Securities Act and Rule 506 promulgated thereunder. Purchaser further
represents that it has read and understands the investor notices and legends set
forth in the Offering Memorandum.

          6.2. Status of Purchaser. Purchaser is purchasing the Shares and will
acquire the Underlying Common Stock for its own account or for persons or
accounts as to which it exercises investment discretion. Such Purchaser is an
"accredited investor" (as defined in Rule 501(a) under the Securities Act) and
is knowledgeable, sophisticated and experienced in making, and is qualified to
make, decisions with respect to investments in restricted securities and has
requested, received, reviewed and considered all information it deems relevant
in making a decision to execute this Purchase Agreement and to purchase the
Shares. Purchaser has agreed to purchase the Shares for investment and not with
a view to


                                       21


<PAGE>   26
distribution. To the extent that any certificate representing the Shares is
registered in the name of Purchaser's nominee, Purchaser confirms that such
nominee is acting as custodian for Purchaser of the Shares represented thereby.

          6.3. Restrictions on Re-Sale. Purchaser understands that the Shares
and the Underlying Common Stock are only transferable on the books and records
of the Company and its Transfer Agent and Registrar and that the Company and the
Transfer Agent and Registrar will not register any transfer of the Shares or the
Underlying Common Stock which the Company in good faith believes violates the
restrictions set forth in this Section 6.3 or violates any state or federal
securities laws. Purchaser will not, directly or indirectly, voluntarily offer,
sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy,
purchase or otherwise acquire or take a pledge of) its rights under this
Purchase Agreement or the Shares or the Underlying Common Stock otherwise than
in compliance with the Securities Act, any applicable state securities or blue
sky laws and any applicable securities laws of jurisdictions outside the United
States, and the rules and regulations promulgated thereunder.

     Purchaser understands that the Company intends to register the Option
Shares and the Underlying Common Stock under the Securities Act as contemplated
in the Registration Rights Agreement. After registration of the Option Shares
and the Underlying Common Stock under the Securities Act, Purchaser agrees to
comply with the prospectus delivery and all other


                                       22
<PAGE>   27
requirements of the Securities Act in connection with any sale or other
disposition of the Option Shares and the Underlying Common Stock. Purchaser
agrees that Purchaser or its broker will deliver to each transferee a copy of a
current prospectus until the Company gives written notice to the Purchaser that
delivery of a current prospectus is no longer required. Purchaser agrees to
confirm with the Company that the prospectus is in fact current and that the
Option Shares and the Underlying Common Stock may be lawfully sold prior to any
sale or other disposition by Purchaser.

          6.4. Due Execution, Delivery and Performance of the Purchase Agreement
and Other Obligations. Upon approval of this Agreement and the transactions
contemplated herein by its Board of Directors: Purchaser will have full right,
power, authority and capacity to enter into this Purchase Agreement and to
consummate the transactions contemplated hereby; the execution, delivery and
performance of this Purchase Agreement by Purchaser will have been duly
authorized by all requisite corporate action of Purchaser; upon the execution
and delivery of this Purchase Agreement by Purchaser, this Purchase Agreement
shall constitute the legal, valid and binding obligations of Purchaser,
enforceable against Purchaser in accordance with its terms except insofar as the
enforcement thereof may be limited by bankruptcy law or other laws relating to
or affecting the enforcement of creditors' rights generally or by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law) and except as

                                       23
<PAGE>   28
rights to indemnity and contribution may be limited under applicable law.

          6.5. Representations, Warranties and Covenants at Closing. Each of the
representations and warranties contained in this Section 6 is true and correct
as of the date of this Purchase Agreement and will be true and correct as of the
Closing Date or the applicable Date of Delivery with the same effect as though
such representations and warranties had been made on and as of such date. Each
of the covenants contained in this Section 6 will have been performed as of the
Closing Date or the applicable Date of Delivery if performance is required as of
such date by this Section 6.

          Section 7. Survival of Representations, Warranties, Covenants and
Agreements. Notwithstanding any investigation made by either party to this
Purchase Agreement, all representations, warranties, covenants and agreements
made by the Company and Purchaser herein shall survive the execution of this
Purchase Agreement, the delivery of certificates representing the Shares and the
receipt of payment for the Shares.

          Section 8. Conditions to Closing. The obligations of the Purchaser
hereunder are subject to (i) the accuracy of the representations and warranties
on the part of the Company in all material respects on the date hereof, at the
Closing Date and at each Date of Delivery, (ii) the performance by the Company
of its obligations hereunder in all material respects, and (iii) the following
further conditions:

                                       24


<PAGE>   29
               8.1. Exchange Offer. The Company shall have consummated the
Exchange Offer with respect to at least $76 million in aggregate principal
amount of Original Notes.

               8.2. Additional Equity. The Company shall have consummated the 
sale of additional shares of Common Stock and Series A Preferred Stock pursuant
to the Offerings for aggregate gross proceeds to the Company of not less than
$20,000,000.

               8.3. Purchaser Board Approval. Purchaser's Board of Directors
shall have approved this Purchase Agreement and the transactions contemplated
hereby. Purchaser warrants and represents that such approval has been obtained
as of the date hereof.

               8.4. Waiver of Change of Control Payments. All current and former
directors, officers, employees and consultants of the Company or any subsidiary
who would be entitled as a result of the consummation of the Recapitalization to
receive payments or other benefits pursuant to "change of control" provisions of
any agreement between such person and the Company or any subsidiary shall have
irrevocably waived their rights to receive such payments or benefits and the
Company shall have irrevocably determined not to make such payments.

               8.5. Servicing Purchase Agreements. The Company and City National
shall have entered into a Bulk Servicing Purchase Agreement including the terms
set forth on Exhibit C and a Flow Servicing Purchase Agreement including the
terms set forth on Exhibit D and each such Agreement shall have been determined


                                       25
<PAGE>   30
by Purchaser in the exercise of its sole and absolute discretion to be 
satisfactory in form and substance.

               8.6. Registration Rights Agreement. The Company and Purchaser 
shall have entered into the Registration Rights Agreement and such
Agreement shall have been determined by Purchaser in the exercise of its sole
and absolute discretion to be satisfactory in form and substance.

               8.7. Opinion of Greenberg Traurig. The Company shall have
furnished to the Purchaser on the Closing Date and on each Date of Delivery an
opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., counsel for
the Company, addressed to the Purchaser and dated the Closing Date and each Date
of Delivery and in form reasonably satisfactory to Stevens & Lee, counsel for
the Purchaser, stating that:

                    (a) the authorized shares of capital stock of the Company
     conform as to legal matters to the description thereof contained in the
     Offering Memorandum under the heading "Description of Capital Stock"; the
     Company has an authorized capitalization as set forth in the Offering
     Memorandum under the caption "Capitalization"; the issued and outstanding
     shares of capital stock of the Company have been duly and validly
     authorized and issued and are fully paid and non-assessable; to such
     counsel's knowledge, except as set forth in the Offering Memorandum, there
     are no outstanding (i) securities or obligations of the Company convertible
     into or exercisable or exchangeable for any shares of capital stock of the
     Company,

                                       26
<PAGE>   31
     (ii) warrants, rights, or options to subscribe for or purchase from the
     Company any shares of capital stock or any such convertible or exchangeable
     securities or obligations, or (iii) obligations of the Company to issue any
     shares of capital stock, any such convertible or exchangeable securities or
     obligation, or any such warrants, rights, or options; the Shares have been
     duly authorized and, in the case of the Option Shares, reserved for
     issuance, and, when issued and sold pursuant to this Purchase Agreement
     and, in the case of the Option Shares, the Option Agreement, will be duly
     and validly issued, fully paid and nonassessable; the shares of Common
     Stock into which the Shares are convertible have been duly authorized and
     reserved for issuance and, when issued upon such conversion in accordance
     with the terms thereof, will be duly and validly issued, fully paid and
     nonassessable.

                    (b) the Company has been duly incorporated and is validly
     existing and in good standing under the laws of the State of Delaware with
     all requisite corporate power and authority to own, lease and license its
     assets and properties and conduct its business as now being conducted and
     as described in the Offering Memorandum and to enter into, deliver and
     perform this Agreement, the Purchase Agreements and the Other Transaction
     Documents;

                    (c) the Company is duly qualified in or registered by and in
     good standing as a foreign corporation in each jurisdiction listed on
     Exhibit E hereto;

                                       27
<PAGE>   32
                    (d) to such counsel's knowledge, except as described in the 
     Offering Memorandum, the Company is not in breach of, or in default under
     (nor has any event occurred that with notice, lapse of time, or both would
     constitute a breach of or default under) its Certificate of Incorporation
     or in the performance or observation of any obligation, agreement,
     covenant, or condition contained in any license, indenture, mortgage, deed
     of trust, loan or credit agreement, or any other agreement or instrument
     known to such counsel to which the Company or any of its subsidiaries is a
     party or by which any of them or their respective properties may be bound
     or affected or under any law, regulation, or rule or any decree, judgment,
     or order applicable to the Company or any of its subsidiaries, except such
     breaches or defaults that are not reasonably likely to have a Material
     Adverse Effect;

                    (e) the execution, delivery, and performance of this
     Agreement and the Other Transaction Documents by the Company and the
     consummation by the Company of the transactions contemplated under this
     Agreement and the Other Transaction Documents, as the case may be, do not
     and will not conflict with, or result in any breach of, or constitute a
     default under (nor constitute any event that with notice, lapse of time, or
     both would constitute a breach of or default under) (i) any provisions of
     the Company's certificate of incorporation or by-laws, (ii) any provision
     of any license, indenture, mortgage, deed of

                                       28
<PAGE>   33

     trust, loan or credit agreement, or other agreement or instrument known to
     such counsel and to which the Company or any subsidiary is a party or by
     which any of them or their respective properties may be bound or affected,
     or (iii) to such counsel's knowledge, assuming (x) the accuracy of the
     representations and warranties of the Company, FBR and the Purchasers set
     forth in the Placement Agreement, the Purchase Agreements and the Other
     Transaction Documents, and (y) that the Purchaser, the Other Purchasers and
     the participants in the Exchange Offer are either "qualified institutional
     buyers" (as defined in Rule 144A under the Securities Act) or "accredited
     investors" (as defined in Rule 501(a) under the Securities Act), any law or
     regulation or any decree, judgment, or order applicable to the Company or
     any subsidiary, except in the case of clause (ii) for such conflicts,
     breaches, or defaults that have been waived or individually or in the
     aggregate are not reasonably likely to have a Material Adverse Effect;

                    (f) the Company has full corporate power, and authority to
     enter into and perform this Agreement and the Other Transaction Documents
     and to consummate the transactions contemplated herein; this Agreement and
     the Other Transaction Documents have been duly authorized, executed, and
     delivered by the Company and will constitute valid and binding agreements
     of the Company enforceable against the Company in accordance with their
     terms, except as may be limited by bankruptcy, insolvency,

                                       29


<PAGE>   34
     reorganization, moratorium, or similar laws affecting creditors' rights
     generally, and by general principles of equity, whether considered at law
     or in equity, and except as rights to indemnity or contribution may be
     limited under applicable law;

                    (g) assuming (x) the accuracy of the representations and 
     warranties of the Company, FBR and the Purchasers set forth in the
     Placement Agreement, the Purchase Agreements and the Other Transaction
     Documents, and (y) that the Purchaser, the Other Purchasers and the
     participants in the Exchange Offer are either "qualified institutional
     buyers" (as defined in Rule 144A under the Securities Act) or "accredited
     investors" (as defined in Rule 501(a) under the Securities Act), no
     approval, authorization, consent, or order of or filing with any federal
     or, to such counsel's knowledge, state governmental or regulatory
     commission, board, body, authority, or agency is required in connection
     with the execution, delivery, and performance by the Company of this
     Agreement and the Other Transaction Documents or the consummation of the
     transactions contemplated hereby and thereby by the Company, or the sale
     and delivery of the Shares by the Company as contemplated hereby, other
     than (i) the filing of a certificate of designation of the Series A
     Preferred Stock with the Secretary of State of Delaware, (ii) the filing of
     a Current Report on Form 8-K, (iii) filings required pursuant to the terms
     of the Registration Rights Agreement

                                       30


<PAGE>   35
     and any other registration rights agreements entered into pursuant to the
     Offerings and the Exchange Offer, and (iv) as may be required pursuant to
     any state securities laws;

                    (h) to such counsel's knowledge, each of the Company and its
     subsidiaries has all necessary licenses, authorizations, consents, and
     approvals and has made all necessary filings required under any federal,
     state, or local law, regulation or rule, and has obtained all necessary
     authorizations, consents, and approvals from other persons, required to
     conduct their respective businesses, as described in the Offering
     Memorandum, except to the extent that any failure to have any such
     licenses, authorizations, consents, or approvals would not, individually or
     in the aggregate, have a Material Adverse Effect; to such counsel's
     knowledge, neither the Company nor any of its subsidiaries is in violation
     of, in default under, or has received any notice regarding a possible
     violation, default, or revocation of any such license, authorization,
     consent, or approval or any federal, state, local, or foreign law,
     regulation, or decree, order, or judgment applicable to the Company or any
     of its subsidiaries, which would result in a Material Adverse Effect; and
     no such license, authorization, consent, or approval contains a materially
     burdensome restriction that is not adequately disclosed in the Offering
     Memorandum;
                                       31


<PAGE>   36
                    (i) the issuance and sale of the Shares by the Company is
     not subject to preemptive or other similar rights arising by operation of
     law, under the Certificate of Incorporation or Bylaws of the Company or
     under any agreement known to such counsel to which the Company or any of
     its subsidiaries is a party;

                    (j) the form of certificate used to evidence the Common
     Stock complies in all material respects with all applicable statutory
     requirements, with any applicable requirements of the Certificate of
     Incorporation and Bylaws of the Company and the requirements of The Nasdaq
     National Market;

                    (k) the statements under the captions "Business --
     Government Regulation," "Description of the Original Notes," "Description
     of the New Notes," "Description of Capital Stock" and "Certain Federal
     Income Tax Consequences" in the Offering Memorandum, insofar as such
     statements constitute a summary of the legal matters referred to therein,
     constitute accurate summaries thereof in all material respects;

                    (l) except as described in the Offering Memorandum, to such
     counsel's knowledge, there are no actions, suits, investigations or
     proceedings pending to which the Company or any of its subsidiaries is a
     party or to which any of their properties is subject before or by any court
     or governmental agency or both, which is reasonably

                                       32


<PAGE>   37
     likely to have, individually or in the aggregate, a Material Adverse
     Effect,

                    (m) neither the Company nor any of its subsidiaries is, or
     solely as a result of transactions contemplated hereby and the application
     of the proceeds from the sale of the Shares or the consummation of the
     Recapitalization, will become an "investment company" or, assuming that FBR
     is not an "investment company," a company "controlled" by an "investment
     company" within the meaning of the Investment Company Act of 1940, as
     amended (the "1940 Act").

          In addition, such counsel shall state that they have participated in
conferences with the directors, officers and employees of the Company and its
independent public accountants at which the contents of the Offering Memorandum
were discussed and, although such counsel is not passing upon and does not
assume responsibility for the accuracy, completeness, or fairness of the
statements contained in the Offering Memorandum (except as and to the extent
stated above), they have no reason to believe that the Offering Memorandum, as
of its date and as of the date of such counsel's opinion, contained or contains
any untrue statement of a material fact or omitted or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading (it
being understood that, in each case, such counsel need express no view with
respect to

                                       33
<PAGE>   38
the financial statements and other financial and statistical data included in
the Offering Memorandum).

               8.8. Comfort Letter. The Purchaser shall have received from
Deloitte & Touche LLP, letters relating to the Offering Memorandum dated as of
the Closing Date and each Date of Delivery, as applicable, addressed to the
Purchaser and in form and substance satisfactory to it.

               8.9. Offering Memorandum. The Offering Memorandum, as amended or
supplemented after the date hereof, shall not, in Purchaser's reasonable
judgment, (i)disclose a material change in the assets or properties, business,
results of operations, prospects or condition (financial or otherwise) of the
Company and its subsidiaries taken as a whole, as described in the Offering
Memorandum, or (ii) contain an untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.

               8.10. Other Transactions. There shall have been, in Purchaser's
reasonable judgment, no material change in the terms of the transactions
described in Exhibit F.

               8.11. No Material Adverse Effect. Between the time of execution
of this Agreement and the Closing Date or the relevant Date of Delivery no event
shall have occurred which has had or is reasonably likely to have a Material
Adverse Effect.

               8.12. Certificates. The Company will, on the Closing Date and on
each Date of Delivery, deliver to the

                                       34


<PAGE>   39

Purchaser a certificate of the Chief Executive Officer and the Chief Financial
Officer of the Company to the effect that, to each of such officer's knowledge,
the representations and warranties of the Company set forth in this Agreement
are true and correct as of such date and the conditions set forth in Sections
8.1, 8.2, 8.4, 8.10, 8.11, 8.14 and 8.15 of this Agreement have been met. The
Company shall have furnished to the Purchaser such other documents and
certificates as to the accuracy and completeness of any statement in the
Offering Memorandum, the representations, warranties and statements of the
Company contained herein, and the performance by the Company of its covenants
contained herein, and the fulfillment of any conditions contained herein as of
the Closing Date or any Date of Delivery as the Purchaser may reasonably
request.

               8.13. Regulatory Matters. Purchaser shall have received all
approvals from the Office of Thrift Supervision and any other regulatory agency
having jurisdiction over Purchaser, necessary to consummate the transactions
contemplated by this Agreement.

               8.14. Consents. The Company shall have obtained in writing all
consents of third parties necessary to permit the consummation of the
transactions contemplated by this Agreement and the Other Transaction Documents
and no such consent shall contain any term or condition that Purchaser
reasonably deems to be materially disadvantageous to the Company or Purchaser.

                                       35
<PAGE>   40
               8.15. Related Party Indebtedness. At the Closing, the Company
shall have no outstanding indebtedness to Mego Financial Corp.

               8.16. Documents. The Company shall have delivered to Purchaser
executed copies of the Purchase Agreements entered into with the Other
Purchasers and all other agreements between the Company and any Other Purchasers
or any holder of the Original Notes or the New Notes relating to the Offerings
or the Recapitalization.

               8.17. Additional Matters Relating to Option Shares. In connection
with the purchase by Purchaser of Option Shares, the Company shall deliver to
the Purchaser on the Date of Delivery such documents as the Purchaser may
reasonably request with respect to the good standing of the Company, the due
authorization and issuance of the Option Shares and other matters related to the
issuance of the Option Shares.

               8.18. Additional Conditions. The obligations of Purchaser
hereunder are further subject to the satisfaction of each of the following
conditions:

                    (a) Servicing Purchase Agreements. The Servicing Purchase
     Agreements entered into by the Company and City National shall have been
     determined by Purchaser in the exercise of its sole and absolute discretion
     to be satisfactory in form and substance.

                    (b) Certificate of Designation. The certificate of
     designation of the Series A Preferred Stock shall have been determined by
     Purchaser in the exercise of

                                       36
<PAGE>   41
     its sole and absolute discretion to be satisfactory in form and substance.

                    (c) Letter from FBR. FBR shall have delivered to Purchaser a
     letter in the form attached hereto as Exhibit G.

                    (d) Warehouse Line Agreement. The Company and Sovereign Bank
     shall have entered into a Warehouse Line Agreement, which Agreement: (i)
     shall include, inter alia, the terms set forth in Exhibit H hereto, and
     (ii) shall otherwise have been determined by Purchaser in the exercise of
     its sole and absolute discretion to be satisfactory in form and substance.

                    (e) Flow Loan Purchase Agreement. The Company and Sovereign
     Bank shall have entered into a Flow Loan Purchase Agreement, which
     Agreement: (i) shall include, inter alia, the terms set forth in Exhibit I
     hereto, and (ii) shall otherwise have been determined by Purchaser in the
     exercise of its sole and absolute discretion to be satisfactory in form and
     substance.

                    (f) Right of First Refusal. The Company and Purchaser shall
     have entered into a Right of First Refusal Agreement, which Agreement: (i)
     shall include, inter alia, the terms set forth in Exhibit J hereto, and
     (ii) shall otherwise have been determined by Purchaser in the exercise of
     its sole and absolute discretion to be satisfactory in form and substance.

                                       37


<PAGE>   42
                    (g) Amendment of Placement Agreement. The Company and FBR
     shall have entered into an Amendment to the Placement Agreement under the
     terms of which the parties thereto agree that the fees to be paid to FBR
     shall be paid by the delivery of shares of Common Stock valued at $1.50 per
     share.

                    (h) Agreements with FBR and Emanuel J. Friedman. Purchaser
     shall have entered into Agreements with each of FBR and Emanuel J. Friedman
     with respect to shares of Common Stock held by FBR in its investment
     account and by Emanuel J. Friedman under the terms of which Purchaser is
     granted a right of first refusal and a "tag along" right, which Agreements
     shall have been determined by Purchaser in the exercise of it sole and
     absolute discretion to be satisfactory in form and substance.

                    (i) Employment and Non-Competition Agreements. The Company
     shall have entered into an Employment Agreement or other retention
     arrangement (including a 12 month covenant not to compete) with at least
     three of the four Company employees identified on Exhibit K hereto, which
     Agreements or other retention arrangements shall have been determined by
     Purchaser in its sole and absolute discretion to be satisfactory in form
     and substance.

                    (j) Option Agreement. The Option Agreement shall have been
     executed by the Company and delivered to Purchaser and shall have been
     determined by

                                       38
<PAGE>   43
     Purchaser in its sole and absolute discretion to be satisfactory in form
     and substance.

          Section 9. Conditions to Closing. The obligations of the Company
hereunder are subject to (i) the accuracy of the representations and warranties
on the part of the Purchaser in all material respects on the date hereof, at the
Closing Date and at each Date of Delivery, and (ii) the performance by the
Purchaser of its obligations hereunder in all material respects.

          Section 10. Compliance with the Securities Act. 

               10.1. Information Available. So long as Purchaser holds any 
shares of the Company's capital stock, the Company will furnish to each 
Purchaser:

                    (a) as soon as practicable after available, one copy of (i)
     its Annual Report to Shareholders, and (ii) if not included in substance in
     the Annual Report to Shareholders, its Annual Report on Form 10-K, and
     (iii) each of its Quarterly Reports to Shareholders and its Quarterly
     Reports on Form 10-Q, and

                    (b) upon the reasonable request of Purchaser, all other 
     information of a kind that is generally available to the public.

               10.2. Legend Requirement. Purchaser hereby agrees that the Shares
and the Underlying Common Stock will be subject to Section 6.3 hereof and to
that effect the following legend will appear on the Shares and any Underlying
Common Stock until such time as the Company may deem such legend to be no longer
required under the federal or state securities laws:

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<PAGE>   44
               The Securities represented by this certificate have not been
               registered under the Securities Act of 1933, as amended, of the
               United States of America (the "Act") and may have been issued in
               reliance upon the exemption set forth in Section 4(2) of the
               Securities Act and Rule 506 promulgated thereunder. The
               Securities represented by this certificate may not be offered,
               sold, transferred or otherwise disposed of in the United States
               or to, of for the account or benefit of, any "U.S. person" (as
               defined in Regulation S) unless registered under the Act or an
               exemption from the registration requirements of the Act is
               available.

               Section 11. Broker's Fee. Purchaser acknowledges that the Company
has advised it that the Company intends to pay FBR, (the "Placement Agent"): (i)
a fee (the "Offerings Fee") equal to 6.0% of the gross proceeds received from
the sale of the shares of Common Stock (except for those shares sold to Emanuel
J. Friedman) and Series A Preferred Stock sold in the Offerings and shares of
Common Stock (except for those shares sold to Emanuel J. Friedman or his
affiliates) sold in the Rights Offering; and (ii) a fee (the "Advisory Fee") of
$1,000,000 as financial advisor in connection with the Recapitalization.
Purchaser further acknowledges that the Company has advised it that the Offering
Fee is payable upon consummation of the Offerings in Common Stock valued at the 
Offering Price and the

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<PAGE>   45
Advisory Fee is payable upon consummation of the Rights Offering in Common Stock
valued at the Offering Price. Placement Agent shall not receive any fee in
connection with the acquisition of shares of the Underlying Common Stock
pursuant to the exercise by Purchaser of the Option. Purchaser further
acknowledges that the Company has advised it that the Company has also agreed:
(i) to reimburse the Placement Agent on request by the Placement Agent for the
Placement Agent's out-of-pocket expenses, including, among other things, the
fees and expenses of legal counsel; and (ii) to indemnify the Placement Agent
against certain liabilities, including liabilities under the Securities Act, and
other liabilities incurred in connection with the Offerings, and to contribute
to payments the Placement Agent may be required to make in respect thereof. The
parties hereto hereby represent that there are no other brokers or finders
entitled to compensation in connection with the sale of the securities
contemplated hereby.

               Section 12. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by registered air
mail, postage prepaid, or sent by facsimile transmission with a confirmation
copy sent by registered mail, and shall be deemed given when so mailed:

                         (a) if to the Company, to 1000 Parkwood Circle,
          Atlanta, Georgia 30339, Attention: Jeffrey S. Moore, or to such other
          person at such other place as the Company shall designate to the
          Purchaser in writing;

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<PAGE>   46

                         (b) if to Purchaser, to 1130 Berkshire Boulevard, P.O.
          Box 12646, Reading, Pennsylvania 19612, Attention: Jay S. Sidhu, or at
          such other address or addresses as Purchaser may have furnished to the
          Company, with a copy to Stevens & Lee, 607 Washington Street, P.O. Box
          679, Reading, Pennsylvania 19603-0679, Attention: Joseph M. Harenza
          and Clinton W. Kemp; or

                         (c) if to any transferee or transferees of Purchaser, 
          at such address or addresses as shall have been furnished to the other
          parties hereto at the time of the transfer or transfers, or at such
          other address or addresses as may have been furnished by such
          transferee or transferees to the other parties hereto in writing.

               Section 13. Amendments. No amendment, interpretation or waiver of
any of the provisions of this Purchase Agreement shall be effective unless made
in writing and signed by the parties to this Purchase Agreement.

               Section 14. Headings. The headings of the sections, subsections
and subparagraphs of this Purchase Agreement are used for convenience only and
shall not affect the meaning or interpretation of the contents of this Purchase
Agreement.

               Section 15. Enforcement. The failure to enforce or to require the
performance at any time of any of the provisions of this Purchase Agreement
shall in no way be construed to be a waiver of such provisions, and shall not
affect either the validity of this Purchase Agreement or any part hereof or the

                                       42
<PAGE>   47

right of any party thereafter to enforce each and every provision in accordance
with the terms of this Purchase Agreement.

               Section 16. Governing Law. This Purchase Agreement and the
relationships of the parties in connection with the subject matter of this
Purchase Agreement shall be governed by and determined in accordance with the
laws of the State of Georgia in the United States of America.

               Section 17. Severability. If any severable provision of this
Purchase Agreement is held to be invalid or unenforceable by any judgment of a
tribunal of competent jurisdiction, the remainder of this Purchase Agreement
shall not be affected by such judgment, and the Purchase Agreement shall be
carried out as nearly as possible according to its original terms and intent.

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<PAGE>   48
               Section 18. Counterparts. This Purchase Agreement may be executed
in counterparts, all of which shall constitute one agreement, and each such
counterpart shall be deemed to have been made, executed and delivered on the
date set out at the head of this Purchase Agreement without regard to the dates
or times when such counterparts may actually have been made, executed or
delivered.

               Section 19. Assignment. This Purchase Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of, as the case
may be, and be enforceable by and against the parties hereto and their
respective successors and assigns, but neither this Purchase Agreement nor any
of the rights, interests or obligations of the parties hereunder shall be
assigned by any of the parties hereto without the prior written consent of each
of the other parties.

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

                                 MEGO MORTGAGE CORPORATION

                                 By: /s/ Jeffrey S. Moore           
                                    ----------------------------------
                                          Name:   Jeffrey S. Moore
                                          Title:  President and Chief
                                                  Executive Officer

                                 SOVEREIGN BANCORP, INC.

                                 By: /s/ Jay S. Sidhu
                                    ----------------------------------
                                          Name:  Jay S. Sidhu
                                          Title: President and
                                                 Chief Executive Officer


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