<PAGE>   1
                                                                    EXHIBIT 10.2


                                                                  EXECUTION COPY



                        --------------------------------


                        FINANCIAL ASSET SECURITIES CORP.
                                  as Depositor,

                           MEGO MORTGAGE CORPORATION,
                  as Seller, Servicer and Claims Administrator,

                          NORWEST BANK MINNESOTA, N.A.,
                               as Master Servicer

                                       AND

                  FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
                   as Trustee and Contract of Insurance Holder


                         POOLING AND SERVICING AGREEMENT
                           (Mego Mortgage Home Loans)

                          Dated as of November 1, 1996

                            -------------------------

                      Home Loan Asset-Backed Certificates,
                                  Series 1996-3
                              (Issuable in Classes)

                            -------------------------


<PAGE>   2
                                TABLE OF CONTENTS

<TABLE>
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                                    ARTICLE I

                                   Definitions

Section 1.01.   Defined Terms................................................  1
Section 1.02.   Rules of Interpretation...................................... 31
Section 1.03.   Interest Calculations........................................ 31

                                   ARTICLE II

                        Transfer and Assignment of Loans;
                            Issuance of Certificates

Section 2.01.   Transfer and Assignment of Loans............................. 32
Section 2.02.   Acceptance by Trustee........................................ 35
Section 2.03.   Representations and Warranties of Mego....................... 37
Section 2.04.   Defective Loans.............................................. 45
Section 2.05.   Representations and Warranties of the Depositor.............. 48
Section 2.06.   Execution, Countersignature and Delivery of Certificates..... 49

                                   ARTICLE III

                     Administration and Servicing of Loans;
                              Claims Administration

Section 3.01.   Servicing Standard........................................... 51
Section 3.02.   Servicing Arrangements....................................... 52
Section 3.03.   Servicing Record............................................. 53
Section 3.04.   Annual Statement as to Compliance; Notice of Master
                Servicer Termination Event................................... 57

Section 3.05.   Annual Independent Accountants' Report; Servicer Review
                Report....................................................... 57
Section 3.06.   Access to Certain Documentation and Information Regarding
                Loans........................................................ 59
Section 3.07.   [Reserved]................................................... 59
Section 3.08.   Advances..................................................... 59
Section 3.09.   Reimbursement of Interest Advances and Foreclosure
                Advances..................................................... 60

Section 3.10.   Modifications, Waivers, Amendments and Consents.............. 61
Section 3.11.   Due-On-Sale; Due-on-Encumbrance.............................. 61
Section 3.12.   Claim for FHA Insurance and Foreclosure...................... 62
Section 3.13.   Sale of Foreclosed Properties................................ 67
Section 3.14.   Management of Real Estate Owned.............................. 68
Section 3.15.   Inspections.................................................. 69
Section 3.16.   Maintenance of Insurance..................................... 69
</TABLE>


                                       (i)
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<TABLE>
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Section 3.17.   Release of Files............................................. 70
Section 3.18.   Certain Tax Matters.......................................... 71
Section 3.19.   Filing of Continuation Statements............................ 71
Section 3.20.   Fidelity Bond................................................ 72
Section 3.21.   Errors and Omissions Insurance............................... 72

                                   ARTICLE IV

                       Distributions to Certificateholders

Section 4.01.   General Provisions Relating to Distributions to 
                Certificateholders........................................... 73
Section 4.02.   Distributions to Certificateholders.......................... 73
Section 4.03.   Collection Accounts and FHA Premium Accounts and the FHA
                Reserve Fund................................................. 74
Section 4.04.   Distribution Accounts........................................ 75
Section 4.05.   Distributions................................................ 75
Section 4.06.   FHA Premium Accounts......................................... 79
Section 4.07.   General Provisions Regarding the Accounts; Eligible Accounts. 80
Section 4.08.   Statements to Certificateholders............................. 81
Section 4.09.   [Reserved]................................................... 82
Section 4.10.   Claims Under the Policies.................................... 82

                                    ARTICLE V

                                The Certificates

Section 5.01.   The Certificates............................................. 84
Section 5.02.   Registration of Transfer and Exchange of Certificates........ 84
Section 5.03.   Mutilated, Destroyed, Lost or Stolen Certificates............ 87
Section 5.04.   Persons Deemed Owners........................................ 88
Section 5.05.   Trustee to Make Payments From Trust Only..................... 88

                                   ARTICLE VI

                               The Master Servicer

Section 6.01.   Liability of the Master Servicer............................. 89
Section 6.02.   Merger or Consolidation of, or Assumption of, the Master
                Servicer..................................................... 89
Section 6.03.   Limitation on Liability of the Master Servicer and Others.... 90
Section 6.04.   Master Servicer Not to Resign; Expenses; Assignment.......... 90
Section 6.05.   Master Servicer May Own Certificates......................... 91
Section 6.06.   Representations and Warranties of the Master Servicer........ 91
Section 6.07.   General Covenants of the Master Servicer..................... 93

                                   ARTICLE VII
</TABLE>


                                      (ii)

<PAGE>   4
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                       Master Servicer Termination Events

Section 7.01.   Master Servicer Termination Events; Waiver................... 95
Section 7.02.   Consequences of a Master Servicer Termination Event.......... 96
Section 7.03.   Appointment of Successor..................................... 97
Section 7.04.   Notification to Certificateholders........................... 98
Section 7.05.   Waiver of Past Defaults...................................... 98

                                  ARTICLE VIII

                             Concerning the Trustee

Section 8.01.   Duties of the Trustee and Contract of Insurance Holder......  99
Section 8.02.   Certain Matters Affecting the Trustee....................... 100
Section 8.03.   Trustee Not Liable for Certificates or Loans................ 102
Section 8.04.   Trustee May Own Certificates................................ 102
Section 8.05.   Trustee's Fees and Expenses; Indemnification................ 103
Section 8.06.   Eligibility Requirements for Trustee........................ 103
Section 8.07.   Resignation and Removal of the Trustee...................... 103
Section 8.08.   Successor Trustee........................................... 104
Section 8.09.   Merger or Consolidation of the Trustee...................... 105
Section 8.10.   Appointment of Co-Trustee or Separate Trustee............... 105
Section 8.11.   Appointment of Custodians................................... 106
Section 8.12.   Certain Tax Matters......................................... 107
Section 8.13.   Representations and Warranties of the Trustee............... 109
Section 8.14.   Streit Act.................................................. 111
Section 8.15.   Rights to Direct Trustee.................................... 111
Section 8.16.   Reports to the Securities and Exchange Commission........... 111

                                   ARTICLE IX

                                   Termination

Section 9.01.   Termination................................................. 112

                                    ARTICLE X

                            Miscellaneous Provisions

Section 10.01.  Amendment................................................... 115
Section 10.02.  Recordation of Agreement.................................... 116
Section 10.03.  Rights of Certificateholders................................ 116
Section 10.04.  GOVERNING LAW............................................... 117
Section 10.05.  Notices..................................................... 117
Section 10.06.  Severability of Provisions.................................. 119
Section 10.07.  Waiver of Notice............................................ 120
</TABLE>


                                      (iii)
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Section 10.08.  Access to List of Holders................................... 120
Section 10.09.  Third-Party Beneficiaries................................... 120
Section 10.10.  The Certificate Insurer..................................... 120
Section 10.11.  Consent to Jurisdiction..................................... 121
Section 10.12.  Trial by Jury Waived........................................ 121
Section 10.13.  Separate Counterparts....................................... 121

                                   ARTICLE XI

                    Class R Certificate Transfer Restrictions

Section 11.01.  Restrictions on Transfer.................................... 122

                                   ARTICLE XII

                   Concerning the Contract of Insurance Holder

Section 12.01.  Compliance with Title I and Filing of FHA Claims............ 125
Section 12.02.  Regarding the Contract of Insurance Holder.................. 126
</TABLE>

<TABLE>
<S>             <C>
Exhibit A:      Form of Servicing Agreement
Exhibit B:      Loan Schedule
Exhibit C-1:    Form of Class A Certificate
Exhibit C-2:    Form of Class S Certificate
Exhibit D:      Form of Class R Certificate

Exhibit E-1:    Form of Master Servicer Certificate -- Group I
Exhibit E-2:    Form of Master Servicer Certificate -- Group II
Exhibit F-1:    Form of Monthly Statement to the Certificateholders -- Group I
Exhibit F-2:    Form of Monthly Statement to the Certificateholders -- Group II
Exhibit G:      Underwriting Guidelines

Exhibit H:      [Reserved]

Exhibit I:      Form of "qualified institutional buyer" Transferee's Certificate
Exhibit J:      Form of "accredited investor" Transferee's Certificate
Exhibit K:      Form of Transferor's Certificate
Exhibit L:      Form of Transfer Affidavit for the Class R Certificate
Exhibit M:      Depository Agreement
Exhibit N-1:    Form of Policy-Group 1 Certificates
Exhibit N-2:    Form of Policy-Group 2 Certificates
</TABLE>


                                      (iv)


<PAGE>   6
               POOLING AND SERVICING AGREEMENT, dated as of November 1, 1996,
among MEGO MORTGAGE CORPORATION ("Mego", the "Seller", the "Servicer" and the
"Claims Administrator", as applicable), FINANCIAL ASSET SECURITIES CORP., as
Depositor (the "Depositor"), FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, as
Trustee and Contract of Insurance Holder (in each respective capacity, the
"Trustee" and the "Contract of Insurance Holder") and NORWEST BANK MINNESOTA,
N.A., as Master Servicer (the "Master Servicer").

                              W I T N E S S E T H:

               In consideration of the mutual agreements herein contained, Mego,
as Seller, Servicer and Claims Administrator, the Depositor, the Master
Servicer, the Trustee, and the Contract of Insurance Holder agree as follows for
the benefit of each of them, the Certificate Insurer and for the benefit of the
Holders from time to time of Home Loan Asset-Backed Certificates, Series 1996-3
issued hereunder:

                                    ARTICLE I

                                   Definitions

               Section 1.01. Defined Terms. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the meanings specified in this Article.

               Accountant's Report. As defined in Section 3.05(a).

               Accounts. The Distribution Accounts, the FHA Premium Accounts and
the Collection Accounts.

               Acquisition Date. With respect to any Foreclosed Property, the
first day on which such Foreclosed Property is considered to be acquired by the
Trust within the meaning of Treasury Regulation Section 1.856-6(b)(1) (i.e., the
first day on which the Trust is treated as the owner of such Foreclosed Property
for federal income tax purposes).

               Additional Trustee Fee. With respect to each Distribution Date
and Loan Group, the excess of $542, with respect to the Group I Loans, and $292,
with respect to the Group II Loans, over the Trustee Fee received by the Trustee
in respect of such Loan Group on such Distribution Date.

               Aggregate Class A Certificate Balance. With respect to any date
of determination and Certificate Group, the aggregate of the Class A Certificate
Balances as of such date for all Classes of Class A Certificates of such
Certificate Group.

               Aggregate Interest Distribution. With respect to any Distribution
Date and Certificate Group, the aggregate of the Class Interest Distributions
for each Class of Certificates in such Certificate Group.


                                       1
<PAGE>   7
               Aggregate Principal Balance. With respect to any date of
determination and Loan Group, the sum of the Principal Balances for all Loans in
such Loan Group.

               Agreement. This Pooling and Servicing Agreement and all
amendments hereof and supplements hereto.

               Amount Available. With respect to any Distribution Date, the
related Determination Date and each Certificate Group, an amount equal to the
sum of (i) the Collected Amount for the related Loan Group in respect of such
Distribution Date, plus (ii) Insured Payments for such Certificate Group, if
any, received by the Trustee with respect to such Distribution Date.

               Annual Default Percentage (Three Month Average). With respect to
any Determination Date and Loan Group I, the average of the percentage
equivalents of the fractions for each of the three immediately preceding Due
Periods, the numerator of which is the product of (i) the aggregate of the
Principal Balances of all Loans in Loan Group I that became Credit Support
Multiple Defaulted Loans during such Due Period immediately prior to such Loans
in Loan Group I becoming Credit Support Multiple Defaulted Loans times (ii) 12,
and the denominator of which is the Aggregate Principal Balance of the Loans in
Loan Group I as of the end of such Due Period.

               Anticipated Termination Date. The Distribution Date next
following the Monthly Cut-Off Date specified in a Notice of Termination
delivered to the Trustee pursuant to Section 9.01(d), or the Distribution Date
specified in a Notice of Termination delivered to the Trustee by the Master
Servicer pursuant to Section 9.01(e), as the case may be.

               BIF. The Bank Insurance Fund, as from time to time constituted,
created under the Financial Institutions Reform, Recovery and Enhancement Act of
1989, or if at any time after the execution of this instrument the Bank
Insurance Fund is not existing and performing duties now assigned to it, the
body performing such duties on such date.

               Book-Entry Certificate. Any of the Class A Certificates, which
shall be registered in the name of the Depository or its nominee, the ownership
of which is reflected on the books of the Depository or on the books of a person
maintaining an account with such Depository (directly or as an indirect
participant in accordance with the rules of such Depository).

               Business Day. Any day other than a Saturday, a Sunday or a day on
which the Certificate Insurer and banking institutions in the City of New York
or the City in which the Corporate Trust Office is located or the city in which
the Master Servicer's or Servicer's servicing operations are located are
authorized or obligated by law, executive order or government decree to be
closed.

               Calendar Month. The period from and including the first day of a
calendar month to and including the last day of such calendar month.

               Certificate. Any one of the Home Loan Asset-Backed Certificates,
Series 1996- 3 executed by the Trustee on behalf of the Trust and countersigned
by the Trustee.


                                       2
<PAGE>   8
               Certificate Group. Each of the Group I Certificates and the Group
II Certificates.

               Certificate Insurer. MBIA Insurance Corporation, a stock
insurance company organized and created under the laws of the State of New York,
and any successors thereto.

               Certificate Insurer Default. The existence and continuance of any
of the following:

                        (a) the Certificate Insurer fails to make a payment
                required under a Policy in accordance with its terms; or

                        (b) (i) the entry by a court having jurisdiction in the
                premises of (A) a decree or order for relief in respect of the
                Certificate Insurer in an involuntary case or proceeding under
                any applicable United States federal or state bankruptcy,
                insolvency, rehabilitation, reorganization or other similar law
                or (B) a decree or order adjudging the Certificate Insurer a
                bankrupt or insolvent, or approving as properly filed a petition
                seeking reorganization, rehabilitation, arrangement, adjustment
                or composition of or in respect of the Certificate Insurer under
                any applicable United States federal or state law, or appointing
                a custodian, receiver, liquidator, rehabilitator, assignee,
                trustee, sequestrator or other similar official of the
                Certificate Insurer or of any substantial part of its property,
                or ordering the winding-up or liquidation of its affairs, and
                the continuance of any such decree or order for relief or any
                such other decree or order unstayed and in effect for a period
                of 60 consecutive days; or (ii) the commencement by the
                Certificate Insurer of a voluntary case or proceeding under any
                applicable United States federal or state bankruptcy,
                insolvency, reorganization or other similar law or of any other
                case or proceeding to be adjudicated a bankrupt or insolvent, or
                the consent by the Certificate Insurer to the entry of a decree
                or order for relief in respect of the Certificate Insurer in an
                involuntary case or proceeding under any applicable United
                States federal or state bankruptcy, insolvency, reorganization
                or other similar law or to the commencement of any bankruptcy or
                insolvency case or proceeding against the Certificate Insurer,
                or the filing by the Certificate Insurer of a petition or answer
                or consent seeking reorganization or relief under any applicable
                United States federal or state law, or the consent by the
                Certificate Insurer to the filing of such petition or to the
                appointment of or the taking possession by a custodian,
                receiver, liquidator, assignee, trustee, sequestrator or similar
                official of the Certificate Insurer or of any substantial part
                of its property, or the making by the Certificate Insurer of an
                assignment for the benefit of its creditors, or the failure by
                the Certificate Insurer to pay debts generally as they become
                due, or the admission by the Certificate Insurer in writing of
                its inability to pay its debts generally as they become due, or
                the taking of corporate action by the Certificate Insurer in
                furtherance of any such action.

               Certificate Owner. With respect to any Class A Certificate held
in book-entry form, the Person who is the beneficial owner of such Certificate,
as reflected on the books of the Clearing Agency (directly as a Depository
Participant or as an indirect participant, in each case in accordance with the
rules of such Clearing Agency).


                                       3
<PAGE>   9
               Certificate Rate. As to each Class of Senior Certificates, the
per annum rate set forth as follows: Class IA-1: 6.50%, Class IA-2: 6.84%, Class
IA-3: 7.23%, Class IIA: 6.98%, Class IS: 0.45% and Class IIS: 0.50%; provided,
however, with respect to any Distribution Date after the first Distribution Date
and each Class of Group IA Certificates, if the Maximum Rate for such
Distribution Date is less than the rate designated to such Class in the
immediately preceding clause, the Certificate Rate for such Distribution Date
shall be the Maximum Rate.

               Certificate Register and Certificate Registrar. The register
established, and the registrar appointed, pursuant to Section 5.02.

               Certificateholder or Holder. The Person in whose name a
Certificate of any Class is registered in the Certificate Register.

               Civil Relief Act. The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.

               Civil Relief Act Interest Shortfall. With respect to any
Distribution Date and Loan Group, for any Loan in such Loan Group as to which
there has been a reduction in the amount of interest collectible thereon for the
most recently ended Due Period as a result of the application of the Civil
Relief Act, the amount by which (i) interest collectible on such Loan during
such Due Period is less than (ii) one month's interest on the Principal Balance
of such Loan at the Loan Rate for such Loan before giving effect to the
application of the Civil Relief Act.

               Claims Administrator. Mego Mortgage Corporation, a corporation
organized under the laws of the State of Delaware, and its successors and
assigns.

               Class. With respect to each of the Class IA-1, Class IA-2, Class
IA-3, Class IIA, Class IS, Class IIS and Class R, all of the Certificates of
such Class.

               Class A Certificate. Any Certificate substantially in the form
attached hereto as Exhibit C-1 and designated as a Class A Certificate pursuant
to Section 5.01.

               Class A Certificate Balance. With respect to a Class of the Group
IA Certificates as of any date of determination, the Initial Class A Certificate
Balance for such Class, reduced by the sum of all Class A Principal
Distributions and Class A Guaranteed Principal Distribution Amounts previously
distributed with respect to such Class and with respect to a Class of the Group
IIA Certificates as of any date of determination, the Initial Class A
Certificate Balance for such Class, reduced by the sum of all Class A Principal
Distributions and Class A Guaranteed Principal Distribution Amounts previously
distributed with respect to such Class and all Insurance Default Amounts
previously calculated as of such date of determination. Payments in respect of
Loss Carryforward Amounts to holders of the Class of IIA Certificates pursuant
to Section 4.05(b)(ix) shall not reduce the Class A Certificate Balance of such
Class.

               Class A Guaranteed Principal Distribution Amount. With respect to
any Distribution Date and Certificate Group, the positive excess, if any, of (i)
the Aggregate Class A Certificate Balance for such Certificate Group as of such
Distribution Date (taking into

                                       4
<PAGE>   10
account distributions on such Distribution Date pursuant to clause (viii) of
Section 4.05(a) in the case of the Group I Certificates and clause (viii) of
Section 4.05(b) in the case of the Group II Certificates) over (ii) the
Aggregate Principal Balance of the Loans in the related Loan Group as of the end
of the related Due Period; provided, that on the Final Scheduled Distribution
Date for the related Certificate Group, the Class A Guaranteed Principal
Distribution Amount for such Certificate Group shall equal the amount referred
to in clause (i) of this definition for such Distribution Date.

               Class A Monthly Principal Amount. With respect to any
Distribution Date and Certificate Group, the amount equal to the sum of the
following amounts (without duplication) with respect to the immediately
preceding Due Period: (i) that portion of all Payments received on Loans in the
related Loan Group allocable to principal, including all full and partial
principal prepayments (excluding such payments in respect of such Loans that
became Defaulted Loans on or prior to the end of the preceding Due Period), (ii)
the Principal Balance as of the end of the immediately preceding Due Period of
each Loan in the related Loan Group that became a Defaulted Loan for the first
time during the such Due Period, (iii) the portion of the Purchase Price
allocable to principal of all Defective Loans in the related Loan Group with
respect to such Due Period and the portion of the purchase amount, if any, set
forth in 9.01(d) allocable to principal with respect to the Loans in the related
Loan Group, (iv) any Substitution Adjustments deposited to the related
Distribution Account pursuant to Section 2.04(d) on the previous Determination
Date, and (v) only with respect to the Group I Certificates, the amount of
Distributable Excess Spread, if any, in respect of such Distribution Date.

               Class A Principal Distribution. With respect to any Distribution
Date and Certificate Group (other than the related Final Scheduled Distribution
Date), (a) in the case of the Group I Certificates, the sum of the related Class
A Monthly Principal Amount for such Distribution Date and any outstanding
related Class A Principal Shortfall as of the close of business on the preceding
Distribution Date and (b) in the case of the Group IIA Certificates, the related
Class A Monthly Principal Amount for such Distribution Date; provided, however,
that the Class A Principal Distribution for each Certificate Group shall not
exceed the Aggregate Class A Certificate Balance of such Certificate Group. The
"Class A Principal Distribution" on the Final Scheduled Distribution Date for a
Certificate Group will equal the remaining Aggregate Class A Certificate Balance
of such Certificate Group as of such Distribution Date.

               Class A Principal Shortfall. As of the close of any Distribution
Date and any Class of Group IA Certificates, the excess of the sum of the
related Class A Monthly Principal Amount and any outstanding Class A Principal
Shortfall for such Certificate Group from the preceding Distribution Date, over
the amount in respect of principal that is actually distributed to such Group IA
Certificates on such preceding Distribution Date.

               Class Interest Distribution. With respect to any Distribution
Date and each Class of Senior Certificates, the sum of (i) the applicable Class
Monthly Interest Amount for such Class on such Distribution Date and (ii) the
applicable Class Interest Shortfall for such Class on such Distribution Date.

               Class Interest Shortfall. With respect to any Class of Senior
Certificates and any Distribution Date, the sum of (a) the excess of the related
Class Monthly Interest Amount for

                                       5
<PAGE>   11
the preceding Distribution Date and any outstanding Class Interest Shortfall
with respect to such Certificates on such preceding Distribution Date, over the
amount in respect of interest that is actually distributed to the related Class
of Senior Certificateholders on such preceding Distribution Date plus (b)
interest on such excess, to the extent permitted by law, at the applicable
Certificate Rate from such preceding Distribution Date through the current
Distribution Date.

               Class Monthly Interest Amount. With respect to any Distribution
Date and each Class of Senior Certificates, 30 days of interest at the
applicable Certificate Rate for such Class, on, with respect to the Class A
Certificates, the related Class A Certificate Balance as of the close of
business on the immediately preceding calendar month, or, with respect to each
Class of Class S Certificates, the related Class S Notional Amount for such
Distribution Date, in each case reduced by an amount equal to such Class' pro
rata share (based on the amount of interest to which such Class would have
otherwise been entitled) of the sum of (i) the Civil Relief Act Interest
Shortfall and (ii) the Net Prepayment Interest Shortfall, if any, for such
Distribution Date.

               Class R Certificate. Any Certificate substantially in the form
attached hereto as Exhibit D and designated as a Class R Certificate pursuant to
Section 5.01.

               Class S Certificate. Any Certificate substantially in the form
attached hereto as Exhibit C-2 and designated as Class S pursuant to Section
5.01.

               Class IS Notional Amount. As to any Distribution Date and the
Class IS Certificates, the Aggregate Principal Balance of the Loans in Loan
Group I as of the opening of business on the first day of the calendar month
preceding the calendar month of such Distribution Date (i.e., if the
Distribution Date is June 25, the first day of the calendar month preceding the
calendar month of such Distribution Date is May 1), or in the case of the first
Distribution Date, the Initial Loan Group I Principal Balance.

               Class IIS Notional Amount. As to any Distribution Date and the
Class IIS Certificates, the Aggregate Principal Balance of the Loans in Loan
Group II as of the opening of business on the first day of the calendar month
preceding the calendar month of such Distribution Date (i.e., if the
Distribution Date is June 25, the first day of the calendar month preceding the
calendar month of such Distribution Date is May 1), or in the case of the first
Distribution Date, the Initial Loan Group II Principal Balance.

               Class Vote. As long as Certificates of any Class of Senior
Certificates is Outstanding, a determination by the Holders of Outstanding
Certificates of such Class representing more than 50% of the aggregate of the
Voting Rights of such Class (or such higher percentage for such Classes as shall
be specified in the applicable provisions hereunder) with respect to which votes
are cast on the issue on or prior to 30 days after receipt of notice given as
provided in Section 10.05(b), and after all the Classes of Senior Certificates
are no longer Outstanding, by the Holders of Outstanding Class R Certificates
representing more than 50% of the Residual Interests of such Class R
Certificates; provided, that the Certificate Insurer shall be deemed to have
100% of the Voting Rights so long as no Certificate Insurer Default exists.


                                       6
<PAGE>   12
               Clearing Agency. An organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.

               Closing Date. December 17, 1996.

               Code. The Internal Revenue Code of 1986, as it may be amended
from time to time, and any successor statutes thereto.

               Collateral Performance Percentages. The Annual Default Percentage
(Three Month Average), the Pool Annual Default Percentage (Three Month Average),
the 30+ Delinquency Percentage (Rolling Three Month), the 60+ Delinquency
Percentage (Rolling Three Month), the Pool 60+ Delinquency Percentage (Rolling
Three Month) and the Cumulative Default Percentage.

               Collected Amount. With respect to any Determination Date, the
Distribution Date and each Loan Group, the sum of the amount on deposit in the
Distribution Account for the related Certificate Group on such Determination
Date plus the amounts required to be deposited into the related Distribution
Account pursuant to Sections 2.04(d), 4.03(b) and 4.03(d) in respect of the
related Loan Group and Distribution Date.

               Collection Account. As to each Loan Group, each of the accounts
denominated as a Collection Account and maintained or caused to be maintained by
the Trustee as described in Section 4.03.

               Contract of Insurance. The contract of insurance under Title I
covering the Loans held under the name First Trust of New York, National
Association, or any successor thereto, as Contract of Insurance Holder
hereunder.

               Contract of Insurance Holder. First Trust of New York, National
Association, its successors in interest, and any successor thereto pursuant to
the terms of this Agreement.

               Corporate Trust Office. The office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
located on the Closing Date at First Trust of New York, National Association,
180 East 5th Street, St. Paul, Minnesota 55101, Attention: Structured Finance.

               Credit File. With respect to any Loan, all of the related
documents listed in Section 2.01(b)(A)(vi) and any additional documents required
to be added thereto pursuant to this Agreement.

               Credit Support Multiple Defaulted Loan. A Loan with respect to
which (a) a claim has been submitted to the FHA in respect of such Loan pursuant
to the Contract of Insurance, (b) foreclosure proceedings have been commenced on
the related Property, (c) any portion of a Monthly Payment is more than 180
calendar days past due and unpaid by the Obligor; or (d) the Servicer has
determined in accordance with customary servicing practices, that the Loan is
uncollectible.


                                       7
<PAGE>   13
               Cumulative Default Percentage. As of any Determination Date and
Group I Loans, the aggregate of the Principal Balances of all Credit Support
Multiple Defaulted Loans of the Group I Loans (immediately prior to such Loans
becoming Credit Support Multiple Defaulted Loans) as of the prior Monthly
Cut-Off Date since the Closing Date, divided by the aggregate of the Initial
Loan Group I Principal Balance.

               Custodial Agreement. Any agreement entered into between the
Trustee and a Custodian pursuant to Section 8.11.

               Custodian. As of the Closing Date, the Trustee, and as of any
subsequent date of determination, any Person (other than Mego, the Depositor,
the Master Servicer or any of their respective affiliates) with whom the Trustee
has entered into a Custodial Agreement pursuant to Section 8.11 in effect as of
the date of determination.

               Cut-Off Date. With respect to any Loan, either the opening of
business on November 1, 1996, or, if such Loan is originated on or after
November 1, 1996, such Loan's date of origination.

               Defaulted Loan. A Loan with respect to which: (i) a claim has
been paid or finally rejected pursuant to the Contract of Insurance, (ii) the
Property has been repossessed and sold, or (iii) any portion of a Monthly
Payment is more than 180 calendar days past due (without giving effect to any
grace period).

               Defective Loan. A Loan required to be purchased or repurchased
pursuant to Section 2.04.

               Deficiency Amount. As to any Distribution Date and Certificate
Group, an amount equal to the sum of (a) the amount by which the Aggregate
Interest Distribution for such Distribution Date and Certificate Group exceeds
the amount on deposit in the related Distribution Account available to be
distributed therefor on such Distribution Date and (b) the Class A Guaranteed
Principal Distribution Amount for such Certificate Group for such Distribution
Date.

               Denomination. With respect to the Class A Certificates, the
portion of the Initial Class A Certificate Balance represented by such
Certificate as specified on the face thereof.

               Depository. The initial Depository shall be The Depository Trust
Company, the nominee of which is CEDE & Co., as the registered Holder of the
Book-Entry Certificates. The Depository shall at all times be a "clearing
corporation" as defined in Section 8-102(3) of the Uniform Commercial Code of
the State of New York.

               Depository Agreement. The agreement entered among the Depositor,
the Trustee, and the Depository, in connection with the issuance of the Class A
Certificates, substantially in the form of Exhibit M.

               Depository Participant. A broker, dealer, bank or other financial
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.


                                       8
<PAGE>   14
               Determination Date. Except as provided in the next sentence, with
respect to any Distribution Date, the fifth Business Day preceding such
Distribution Date. The first such Determination Date will be December 24, 1996.

               Directly Operate. With respect to any Foreclosed Property, the
furnishing or rendering of services to the tenants thereof, the management or
operation of such Foreclosed Property, the holding of such Foreclosed Property
primarily for sale, the performance of any construction work thereon, or any use
of such Foreclosed Property in a trade or business conducted by the Trust, in
each case other than through an Independent Contractor; provided, however, that
the Trustee (or the Master Servicer on behalf of the Trustee) shall not be
considered to Directly Operate a Foreclosed Property solely because the Trustee
(or the Master Servicer on behalf of the Trustee) establishes rental terms,
chooses tenants, enters into or renews leases, deals with taxes and insurance,
or makes decisions as to repairs or capital expenditures with respect to such
Foreclosed Property.

               Distributable Excess Spread. As to any Distribution Date and the
Group I Certificates, the lesser of (i) the amount of Excess Spread for such
Distribution Date and (ii) the portion of Excess Spread required to be
distributed pursuant to 4.05(a)(x) such that the Overcollateralization Amount
for such Distribution Date is equal to the Required OC Amount for such
Distribution Date.

               Distribution Account. As to each Certificate Group, the account
established and maintained by the Trustee pursuant to Section 4.04 for such
Certificate Group.

               Distribution Date. Except as provided in the next sentence, the
twenty-fifth (25th) day of the month or, if such twenty-fifth (25th) day is not
a Business Day, the immediately following Business Day. The first such
Distribution Date will be December 30, 1996.

               Due Date. With respect to any Monthly Payment, the date on which
such Monthly Payment is required to be paid pursuant to the related Note.

               Due Period. With respect to any Determination Date or
Distribution Date, the calendar month immediately preceding such Determination
Date or Distribution Date, as the case may be.

               Early Termination Notice Date. Any date on which each of the Loan
Group I Principal Balance and the Loan Group II Principal Balance are less than
10% of the Initial Loan Group I Principal Balance and the Initial Loan Group II
Principal Balance, respectively.

               Eligible Account. (i) A segregated trust account that is
maintained with the corporate trust department of a depository institution
acceptable to the Certificate Insurer (so long as a Certificate Insurer Default
shall not have occurred and be continuing), or (ii) a segregated direct deposit
account maintained with a depository institution or trust company organized
under the laws of the United States of America, or any of the States thereof, or
the District of Columbia, having a certificate of deposit, short term deposit or
commercial paper rating of at least A-1+ by Standard & Poor's and P-1 by Moody's
and (so long as a Certificate Insurer Default shall not have occurred and be
continuing) acceptable to the Certificate Insurer.


                                       9
<PAGE>   15
               Eligible Investments. Any one or more of the following types of
investments:

               (a) Direct obligations of the United States of America (including
obligations issued or held in book-entry form on the books of the Department of
the Treasury, and interests in such direct obligations) or obligations the
principal of and interest on which are unconditionally guaranteed by the United
States of America.

               (b) Bonds, debentures, notes or other evidence of indebtedness
issued or guaranteed by any of the following federal agencies and provided such
obligations are backed by the full faith and credit of the United States of
America (stripped securities are only permitted if they have been stripped by
the agency itself):

               1.   U.S. Export-Import Bank (Eximbank)

                    A.   Direct obligations or fully guaranteed certificates of
                         beneficial ownership

               2.   Farmers Home Administration (FmHA)

                    A.   Certificates of beneficial ownership

               3.   Federal Financing Bank

               4.   FHA Debentures (FHA)

               5.   General Services Administration

                    A.   Participation certificates

               6.   U.S. Maritime Administration

                    A.   Guaranteed Title XI financing

               7.   HUD

                    A.   Project Notes
                    B.   Local Authority Bonds
                    C.   New Communities Debentures - U.S. government guaranteed
                         debentures
                    D.   U.S. Public Housing Notes and Bonds - U.S. government
                         guaranteed public housing notes and bonds

               (c) Bonds, debentures, notes or other evidence of indebtedness
issued or guaranteed by any of the following non-full faith and credit U.S.
government agencies that are rated by both Rating Agencies in one of the top two
long-term rating categories (stripped securities are only permitted if they have
been stripped by the agency itself):

               1.   Federal Home Loan Bank System
                    A.   Senior debt obligations

               2.   FHLMC
                    A.   Participation Certificates
                    B.   Senior debt obligations


                                       10
<PAGE>   16
               3.   FNMA
                    A.   Mortgage-backed securities and senior debt obligations

               4.   Student Loan Marketing Association
                    A.Senior debt obligations

               5.   Resolution Funding Corp. obligations

               6.   Farm Credit System
                    A.   Consolidated systemwide bonds and notes

               (d) Money market funds registered under the Investment Company
Act of 1940, as amended, whose shares are registered under the Securities Act,
and having a rating by Standard & Poor's of AAAm-G; AAAm; or AAm and a rating by
Moody's of Aaa.

               (e) Certificates of deposit secured at all times by collateral
described in (a) and/or (b) above. Such certificates must be issued by
commercial banks, savings and loan associations or mutual savings banks which
have a short term rating by Moody's of P-1. The collateral must be held by a
third party and the Certificateholders must have a perfected first security
interest in the collateral.

               (f) Certificates of deposit, savings accounts, deposit accounts
or money market deposits which are fully insured by FDIC, including BIF and
SAIF.

               (g) Investment agreements, including guaranteed investment
contracts, acceptable to the Certificate Insurer and each Rating Agency.

               (h) Commercial paper rated "Prime - 1" by Moody's and "A-1" or
better by Standard & Poor's.

               (i) Bonds or notes issued by any state or municipality which are
rated by Moody's and Standard & Poor's in one of the two highest rating long
term categories assigned by such agencies.

               (j) Federal funds or bankers acceptances with a maximum term of
one year of any bank which has an unsecured, uninsured and unguaranteed
obligation rating of "Prime - 1" by Moody's and "A-1" or "A" or better by S&P.

               (k) Repurchase agreements provide for the transfer of securities
from a dealer bank or securities firm (seller/borrower) to the Trust
(buyer/lender), and the transfer of cash from the Trust to the dealer bank or
securities firm with an agreement that the dealer bank or securities firm will
repay the cash plus a yield to the Trust in exchange for the securities at a
specified date.

               Repurchase agreements ("repos") must satisfy the following
criteria or be approved by the Certificate Insurer.


                                       11
<PAGE>   17
               1.   Repos must be between the Trust and a dealer bank or
                    securities firm

                    A.   Primary dealers on the Federal Reserve reporting dealer
                         list which are rated A or better by Standard & Poor's
                         and P-1 by Moody's, or

                    B.   Banks rated "A" or above by Standard & Poor's and P-1
                         by Moody's.

               2.   The written repo contract trust must include the following:

                    A.   Securities which are acceptable for transfer are:

                         (1)   Direct U.S. governments, or

                         (2)   Federal agencies backed by the full faith and
                               credit of the U.S. government (or FNMA or FHLMC)
                               other than mortgage backed securities.

                    B.   The term of the repo may be up to 30 days

                    C.   The collateral must be delivered to the Trustee or
                         third party acting as agent for the Trustee
                         before/simultaneous with payment (perfection by
                         possession of certificated securities).

                    D.   Valuation of Collateral

                         (1)   The securities must be valued weekly,
                               marked-to-market at current market price plus
                               accrued interest.

                         (a)   The value of collateral must be equal to 104% of
                               the amount of cash transferred by the Trust to
                               the dealer bank or security firm under the repo
                               plus accrued interest. If the value of securities
                               held as collateral slips below 104% of the value
                               of the cash transferred by municipality, then
                               additional cash and/or acceptable securities must
                               be transferred. If, however, the securities used
                               as collateral are FNMA or FHLMC, then the value
                               of collateral must equal 105%.

               3.   Legal opinion which must be delivered to the Trustee:

                    a.   Repo meets guidelines under state law for legal
                         investment of public funds.

               Eligible Servicer. A Person that (i) is servicing a portfolio of
Title I mortgage loans, (ii) is legally qualified to service, and is capable of
servicing, the Loans and has all licenses required to service Title I mortgage
loans, (iii) has demonstrated the ability 


                                       12
<PAGE>   18
professionally and competently to service a portfolio of FHA insured mortgage
loans similar to the Loans with reasonable skill and care, (iv) has a net worth
calculated in accordance with generally accepted accounting principles of at
least $500,000 and (v) if other than Mego, is acceptable to the Certificate
Insurer.

               Excess Claim Amount. With respect to any Distribution Date, an
amount equal to (A) 90% of the excess of (x) claims paid under the Contract of
Insurance in respect of the FHA Loans over (y) the Trust Designated Insurance
Amount less (B) the amount deposited to the FHA Reserve Fund on previous
Distribution Dates.

               Excess Spread. With respect to any Distribution Date, the
positive excess, if any, of (x) the Collected Amount for the Group I Loans with
respect to such Distribution Date over (y) the amount required to be distributed
pursuant to priorities (i) through (ix) of Section 4.05(a) on such Distribution
Date.

               Exemption. An individual Prohibited Transactions Exemption
granted to an underwriter by the Department of Labor which provides relief from
certain of the prohibited transaction provisions of ERISA with respect to the
purchase, holding, and subsequent resale by an ERISA Plan of certificates in
pass-through trusts that meet the conditions and the requirements of such
exemption.

               FASIT. A "financial asset securitization investment trust" within
the meaning of Section 860L of the Code.

               FDIC. The Federal Deposit Insurance Corporation and any successor
thereto.

               FHA. The Federal Housing Administration and any successor
thereto.

               FHA Insurance. Insurance issued by FHA pursuant to Title I of the
National Housing Act of 1934, as amended.

               FHA Insurance Coverage Insufficiency. At the time of a
prospective claim for reimbursement under the Contract of Insurance for an FHA
Loan pursuant to Section 3.12, the amount by which the sum of all claims
previously paid by the FHA in respect of such FHA Loans and the amount expected
to be received in respect of such prospective claim for such FHA Loan exceeds
the Trust Designated Insurance Amount.

               FHA Insurance Coverage Reserve Account. The account established
by the FHA pursuant to the Contract of Insurance which is adjusted and
maintained under Title I (see 24 C.F.R. 201.32(a)).

               FHA Insurance Payment Amount. With respect to any Distribution
Date and with respect to an FHA Loan for which an insurance claim has been made
by the Contract of Insurance Holder or the Claims Administrator and paid by the
FHA or rejected, in part, by the FHA, an amount equal to the sum of such of the
following as are appropriate: (i) the amount, if any, received from the FHA,
(ii) with respect to claims rejected in part, the amount, if any, received from
Mego or the Master Servicer pursuant to Section 3.12 and (iii) the amount
received from the sale of FHA Pending Claims sold pursuant to Section 9.01(d).


                                       13
<PAGE>   19

               FHA Loans. The Loans designated as FHA Loans on the Loan
Schedule.

               FHA Pending Claims. As defined in Section 9.01(d).

               FHA Premium Account. The Eligible Accounts established and
maintained by the Trustee pursuant to Section 4.06(a).

               FHA Premium Account Deposit. With respect to any Distribution
Date and Loan Group, an amount equal to the greater of (i) 1/12 times .75% times
the aggregate Principal Balance of all FHA Loans in such Loan Group other than
Invoiced Loans as of the first day of the calendar month preceding the month of
such Distribution Date (or the aggregate Principal Balance of such Loans as of
the applicable Cut-Off Date with respect to the first Distribution Date) and
(ii) the positive excess, if any, of (A) the projected amount of premium and
other charges due under the Contract of Insurance for the next succeeding Due
Period over (B) the balance in the FHA Premium Account as of the related
Determination Date.

               FHA Reserve Amount. As to each FHA Loan, 10% of the Initial
Principal Balance thereof.

               FHA Reserve Fund. The account which is an Eligible Account
denominated as the FHA Reserve Fund to be established by the Trustee pursuant to
Section 4.03(d) hereof.

               File. With respect to any Loan, the related documents listed in
Section 2.01(b)(A) and any additional documents required to be added thereto
pursuant to this Agreement.

               Final Date. The later of:

                    (i) two years after the last insurance claim with respect to
          a Loan filed with the FHA was certified for payment by FHA, or

                    (ii) the final settlement date with respect to any insurance
          claim for a Loan rejected by the FHA.

               Final Residual Distribution Amount. With respect to the
Distribution Date which coincides with the Termination Date, all amounts, if
any, remaining in each Distribution Account and each FHA Premium Account and all
other assets, if any, held by the Trust after all payments required to be made
pursuant to Section 4.05 have been made or provided for on such Distribution
Date.

               Final Scheduled Distribution Date. The Distribution Date in
November 2022.

               FHLMC. The Federal Home Loan Mortgage Corporation.

               FNMA. The Federal National Mortgage Association.

               Foreclosed Loan. As of any date of determination, any Mortgage
Loan, other than a Mortgage Loan for which a claim is pending under the Contract
of Insurance, that has 


                                       14
<PAGE>   20
been discharged as a result of (i) the completion of foreclosure or comparable
proceedings; (ii) the Trustee's acceptance of the deed or other evidence of
title to the related Property in lieu of foreclosure or other comparable
proceeding; or (iii) the acquisition by the Trustee of title to the related
Property by operation of law.

               Foreclosed Property. With respect to any Mortgage Loan, any
Property acquired by the Trust as a result of:

                    (i) the completion of foreclosure or comparable proceedings
          with respect to the related Mortgage Loan;

                    (ii) the Trustee's acceptance of the deed or other evidence
          of title to the related Property in lieu of foreclosure or other
          proceeding with respect to the related Loan; or

                    (iii) the acquisition by the Trustee of title thereto by
          operation of law.

               Foreclosure Advances. As defined in Section 3.08(b).

               GNMA. The Government National Mortgage Association.

               Grantor Trust. A trust classified as a grantor trust under
subpart E, Part I of subchapter J of the Code.

               Grantor Trust Pool. The pool of assets consisting of the Group II
Loans which shall be classified as a grantor trust under subpart E, Part I of
subchapter J of the Code.

               Grantor Trust Provisions. Those Sections of the Code and Treasury
Regulations relating to trusts classified as grantor trusts under subpart E,
Part I of subchapter J of the Code.

               Group I Certificates. Each of the Class IA-1, Class IA-2, Class
IA-3, Class IS Certificates and Class R Certificates.

               Group II Certificates. The Class IIA Certificates and the Class
IIS Certificates.

               Group IA Certificates. The Class IA-1 Certificates, the Class
IA-2 Certificates and the Class IA-3 Certificates.

               Group IIA Certificates. The Class IIA Certificates.

               Group I Loan. As of any date of determination, each of the FHA
Loans that are Mortgage Loans and certain Mortgage Loans that are Non-FHA Loans,
in each case identified as a Group I Loan on the Loan Schedule.

               Group I Reserve Fund. As defined in the Insurance Agreement.

               Group II Loan. As of any date of determination, each of the FHA
Loans that are unsecured and certain Mortgage Loans that are Non-FHA Loans, in
each case identified as a Group II Loan on the Loan Schedule.

               Group II Reserve Fund. As defined in the Insurance Agreement.


                                       15
<PAGE>   21
               HUD. The United States Department of Housing and Urban
Development and any successor thereto.

               Indemnification Agreement. The Indemnification Agreement dated
December 11, 1996, among the Certificate Insurer, the Underwriter and Mego, as
the same may be amended from time to time.

               Independent. When used with respect to any specified Person, such
Person (i) is in fact independent of Mego, the Master Servicer, the Depositor or
any of their respective affiliates, (ii) does not have any direct financial
interest in or any material indirect financial interest in any of Mego, the
Master Servicer, the Depositor or any of their respective affiliates and (iii)
is not connected with any of Mego, the Master Servicer, the Depositor or any of
their respective affiliates, as an officer, employee, promoter, underwriter,
trustee, partner, director or Person performing similar functions; provided,
however, that a Person shall not fail to be Independent of Mego, the Master
Servicer, the Depositor or any of their respective affiliates merely because
such Person is the beneficial owner of 1% or less of any class of securities
issued by Mego, the Master Servicer, the Depositor or any of their respective
affiliates, as the case may be.

               Independent Accountants. A firm of nationally recognized
certified public accountants which is Independent.

               Independent Contractor. Either (i) any Person (other than the
Master Servicer) that would be an "independent contractor" with respect to the
Trust within the meaning of Section 856(d)(3) of the Code if the Trust were a
real estate investment trust except that the ownership tests set forth in that
section shall be considered to be met by any Person that owns, directly or
indirectly, 35 percent or more of any Class of Certificates), provided that the
Trust does not receive or derive any income from such Person and the
relationship between such Person and the Trust is at arm's length, all within
the meaning of Treasury Regulation section 1.856-4(b)(5) or (ii) any other
Person (including the Master Servicer) if the Master Servicer has delivered to
the Trustee an Opinion of Counsel to the effect that the taking of any action in
respect of any Foreclosed Property by such Person, subject to any conditions
therein specified, that is otherwise herein contemplated to be taken by an
Independent Contractor will not cause such Foreclosed Property to cease to
qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of
the Code (determined without regard to the exception applicable for purposes of
Section 860D(a) of the Code), or cause any income realized in respect of such
Foreclosed Property to fail to qualify as rents from real property within the
meaning of Section 856(d) of the Code.

               Initial Class A Certificate Balance. With respect to the Class
IA-1 Certificates: $19,630,000, the Class IA-2 Certificates: $10,790,000, the
Class IA-3 Certificates: $9,101,458, and the Class IIA Certificates:
$27,199,925.


                                       16
<PAGE>   22
               Initial Loan Group I Principal Balance. $40,062,299.05.

               Initial Loan Group II Principal Balance. $27,199,925.48.

               Initial Principal Balance. With respect to any Loan, the
outstanding principal balance thereof at the opening of business on the Cut-Off
Date for such Loan, after giving effect to all payments of principal received
prior thereto.

               Insurance Agreement. The Insurance Agreement, dated as of
November 1, 1996, as supplemented and amended from time to time among the
Certificate Insurer, the Trustee, the Contract of Insurance Holder, the
Depositor, the Master Servicer, the Servicer, the Seller and Claims
Administrator.

               Insurance Default Amount. For any Distribution Date, the Class A
Guaranteed Principal Distribution Amount or portion thereof, if any, for such
Distribution Date in respect of the Group II Certificates not distributed to the
holders of the Group IIA Certificates pursuant to Section 4.05(b)(x) on such
Distribution Date.

               Insurance Policies. With respect to any Property, any related
title or other insurance policy other than the Contract of Insurance or the
Policies.

               Insurance Proceeds. With respect to any Property, all amounts
collected in respect of Insurance Policies and not required to be applied to the
restoration of the related Property or paid to the related Obligor.

               Insurance Record. The record established and maintained by the
Master Servicer (in a manner consistent with the Title I provisions set forth in
24 C.F.R. Section 201.32) setting forth the FHA insurance coverage attributable
to the FHA Loans hereunder. To the extent consistent with adjustments pursuant
to Title I to the FHA Insurance Coverage Reserve Account, the Insurance Record
shall be reduced by the amount of claims approved for payment by the FHA with
respect to any FHA Loan or Related Series Loan after the date of transfer of the
related FHA reserve account to the Contract of Insurance.

               Insured Payment. As defined in the related Policy.

               Interest Advance. As defined in Section 3.08(a).

               Interested Person. As of any date of determination, the Master
Servicer, the Depositor, Mego, or any registered Holder of a Class R Certificate
on the date of determination, or any of their respective affiliates.

               Investment Order. With respect to amounts on deposit in an
Account, a written order with respect to the Eligible Investments in which the
amounts in such Account are to be invested, signed in the name of Mego by a
Responsible Officer of Mego.

               Invoiced Loan. An FHA Loan with respect to which the related
Obligor is required to pay the premium on FHA Insurance with respect to such FHA
Loan.


                                       17
<PAGE>   23
               Late Payment Rate. For any Distribution Date, the lesser of (i)
the rate of interest, as it is publicly announced by Citibank, N.A., as its
prime rate (any change in such prime rate of interest to be effective on the
date such change is announced by Citibank, N.A.) plus 2% and (ii) the maximum
rate permissible under any applicable law limiting interest rates. The Late
Payment Rate shall be computed on the basis of a year of 365 days calculating
the actual number of days elapsed.

               Legal File. With respect to any Loan, the related documents
listed in Section 2.01(b)(A)(i)-(v) and any additional documents required to be
added thereto pursuant to this Agreement.

               Loan. Either a Group I Loan or a Group II Loan, as the context
requires, or collectively, the Group I Loans and the Group II Loans.

               Loan Group. Either Loan Group I or Loan Group II as applicable.

               Loan Group I. The loan group comprised of Group I Loans.

               Loan Group II. The loan group comprised of Group II Loans.

               Loan Group I Principal Balance. For any date of determination,
the aggregate of the Principal Balances of all Group I Loans as of such date.

               Loan Group II Principal Balance. For any date of determination,
the aggregate of the Principal Balances of all Group II Loans as of such date.

               Loan Rate. With respect to any Loan, the fixed rate of interest
per annum set forth in the related Note (not including any amounts payable as
premium for FHA Insurance with respect to Invoiced Loans).

               Loan Schedule. The schedule of Loans included in the Trust as of
the Closing Date, specifying with respect to each such Loan the information set
forth on Exhibit B attached hereto.

               Loss Carryforward Amount. For any Distribution Date, the
aggregate of all Insurance Default Amounts calculated on prior Distribution
Dates, minus the sum of the amounts distributed to the holders of the Group II
Certificates pursuant to Section 4.05(b)(xi) on all prior Distribution Dates.

               Master Servicer. Norwest Bank Minnesota, N.A., a national banking
association, its successors in interest or any successor master servicer
appointed as herein provided.

               Master Servicer Certificate. As defined in Section 4.01(c).

               Master Servicer Fee. With respect to any Distribution Date and
Loan Group, 1/12 times 0.08% times the Aggregate Principal Balance of such Loan
Group as of the opening of business on the first day of the month preceding the
month of such Distribution 


                                       18
<PAGE>   24
Date (or, with respect to the first Distribution Date, the Initial Loan Group I
Principal Balance or Initial Loan Group II Principal Balance, as applicable).

               Master Servicer Termination Event. Any event specified in Section
7.01.

               Master Servicing Officer. Any officer of the Master Servicer
responsible for the administration and servicing of the Loans whose name and
specimen signature appears on a list of servicing officers furnished to the
Trustee by the Master Servicer, as such list may from time to time be amended.

               Maturity Date. With respect to any Loan and as of any date of
determination, the date on which the last payment of principal is due and
payable under the related Note.

               Maximum Rate. With respect to any Distribution Date and the Group
IA Certificates, a rate equal to the quotient of (a) the excess of (i) the
aggregate of the Monthly Payments of the Group I Loans allocable to interest due
during the related Due Period net of the portion thereof allocable to Master
Servicer Fees and Servicer Fees on the Group I Loans over (ii) the sum of the
amounts required to be distributed for such Distribution Date pursuant to
subsections (i), (iv)-(vi) of Section 4.05(a) and (b) one-twelfth of the
Aggregate Class A Certificate Balance of the Group I Certificates (prior to
giving effect to distributions made on such Distribution Date).

               Monthly Cut-Off Date. The last day of any calendar month, and
with respect to any Distribution Date, the last day of the calendar month
immediately preceding such Distribution Date.

               Monthly Payment. With respect to any Loan and any Due Period, the
payment of principal and interest due in such Due Period from the Obligor
pursuant to the related Note (as amended or modified, if applicable, pursuant to
Section 3.10). The Monthly Payment related to a Determination Date or a
Distribution Date shall be the Monthly Payment due in the next preceding Due
Period.

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

               Mortgage. With respect to any Mortgage Loan, the mortgage, deed
of trust or other instrument creating a mortgage lien (and in a title theory
state the document conveying title to the Property as security for the related
Loan) on the related Property.

               Mortgage Loan. As of any date of determination, each of the
Loans, secured by an interest in a Property, transferred and assigned to the
Trustee pursuant to Section 2.01(a).

               Mortgagee or Obligee. With respect to any Loan as of any date of
determination, the holder of the related Note and any related Mortgage as of
such date.

               Mortgagor or Obligor. With respect to any Loan, the obligor(s) on
the related Note.


                                       19
<PAGE>   25
               Net Loan Rate. With respect to each Loan, the related Loan Rate
less the rate at which the Servicer Fee is calculated.

               Net Prepayment Interest Shortfall. As to any Distribution Date
and Loan Group, the amount by which aggregate Prepayment Interest Shortfalls for
the Loans in such Loan Group during the preceding Due Period exceed the Servicer
Fee for such Loan Group for such Distribution Date.

               Non-FHA Loans. The Loans designated as Non-FHA Loans on the Loan
Schedule. Each Non-FHA Loan is a Mortgage Loan.

               Nonrecoverable Advances. With respect to any Loan, (i) any
Interest Advance previously made and not reimbursed in the case of Loan Group I,
pursuant to Section 4.05(a)(iii), or in the case of Loan Group II, Section
4.05(b)(iii), or (ii) an Interest Advance proposed to be made in respect of a
Loan which, in the good faith business judgment of the Master Servicer, as
evidenced by an Officer's Certificate delivered to the Certificate Insurer, Mego
and the Trustee no later than the Business Day following such determination,
would not be recoverable ultimately from the Payments in respect of that Loan.

               Note. With respect to any Loan, the note (or notes), retail
installment sale contract or other instrument evidencing the indebtedness under
such Loan.

               Notice of Termination. Notice given to the Trustee by the Master
Servicer pursuant to Section 9.01(e), or by Mego pursuant to Section 9.01(d).

               Obligee. See Mortgagee.

               Obligor. See Mortgagor.

               OC Floor. The product of 1% times the Initial Loan Group I
Principal Balance, which product is equal to $400,622.99.

               OC Multiple. As to any Distribution Date and the Group I Loans,
the highest OC Multiple based upon the data set forth in the Master Servicer's
Certificate for such Distribution Date as set forth in the following chart:


                                       20
<PAGE>   26
<TABLE>
<CAPTION>
                           30+ Day                    60+ Day                  Annual Default
                         Delinquency                Delinquency                       %
                          Percentage            Percentage (Rolling          (3 Month Average)
      OC              (Rolling 3 Month)              3 Month)                       for
   Multiple              Loan Group I              Loan Group I                 Loan Group I
   --------           -----------------         -------------------          -----------------
<S>                   <C>                       <C>                          <C>  
     1.00               0.00% to 7.99%            0.00% to 3.49%               0.00% to 4.99%

     1.25               8.00% to 8.99%            3.50% to 4.99%               5.00% to 5.99%

     1.50              9.00% to 11.99%            5.00% to 6.99%               6.00% to 6.99%

     2.50                 **=12.00%                  **=7.00%                    **=7.00%
</TABLE>
<TABLE>
<CAPTION>
                                            CUMULATIVE DEFAULT PERCENTAGE
                                                     LOAN GROUP I
                      ------------------------------------------------------------------------
                           Months*                    Months                     0 Months 
                             012                      024                       Maturity
   --------           -----------------         -------------------          -----------------
<S>                   <C>                       <C>                          <C>  
     2.50                   **5.0%                      **8.0%                       **12.0%
</TABLE>


----------
* Month 0 is November, 1996.
** Greater Than

               OC Reduction Date. shall be the later of (i) the Distribution
Date occurring in December 1999 and (ii) the Distribution Date on which the
Aggregate Principal Balance of the Group I Loans for such Distribution Date is
equal to or less than one-half of the Initial Loan Group I Principal Balance.

               Officer's Certificate. A certificate signed by (i) any Master
Servicing Officer or (ii) the Chairman of the Board, the Vice Chairman of the
Board, the President, a Vice President, an Assistant Vice President, the
Treasurer, the Secretary or one of the Assistant Treasurers or Assistant
Secretaries of the Depositor or Mego, as the case may be, as required by this
Agreement.

               Opinion of Counsel. A written opinion of counsel (who is
acceptable to the Certificate Insurer and the Rating Agencies), who may be
employed by Mego, the Master Servicer, the Depositor or any of their respective
affiliates.

               Other Fees. With respect to any Distribution Date, (i) amounts in
respect of fees and expenses due to any provider of services to the Trust,
except the Trustee, the Master Servicer, the Servicer, the Claims Administrator,
the Contract of Insurance Holder and also except any Person, the fees of which
are required by this Agreement to be paid by the Master Servicer, the Servicer,
the Claims Administrator, the Contract of Insurance Holder or the 


                                       21
<PAGE>   27
Trustee, but including such amounts payable to the successor Master Servicer
pursuant to Section 7.03(c); (ii) any taxes assessed against the Trust; (iii)
the reasonable transition expenses of a successor Master Servicer incurred in
acting as successor Master Servicer; and (iv) expenses of either the Trustee or
the Master Servicer incurred pursuant to Section 8.01(e).

               Outstanding. With respect to any Class of Certificates as of any
date of determination, all Certificates of such Class theretofore executed,
countersigned and delivered pursuant to this Agreement except:

                    (i) Certificates theretofore cancelled by the Certificate
          Registrar or delivered to the Certificate Registrar for cancellation;

                    (ii) Certificates or portions thereof for which the amount
          of the final distribution to be made thereon has been previously
          deposited with the Trustee in trust for the Holders of such
          Certificates;

                    (iii) Certificates in exchange for or in lieu of which other
          Certificates have been executed, countersigned and delivered pursuant
          to this Agreement; and

                    (iv) Certificates alleged to have been destroyed, lost or
          stolen for which replacement Certificates have been issued as provided
          for in Section 5.03;

provided, however, that, in determining whether the Holders of the requisite
percentage of any Class of Certificates have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Certificates
owned by Mego, the Depositor, any Holder of a Class R Certificate or any
affiliate of any of the foregoing shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent, or waiver, only Certificates which the Trustee knows to be so owned
shall be so disregarded; provided further that in the event that 100% of any
Class of Senior Certificates are owned by Mego, the Depositor or any affiliate
of any of the foregoing, such certificates shall be deemed to be Outstanding;
provided, further, that Certificates to which payments are made under the
related Policy shall be deemed to be Outstanding and the Certificate Insurer
shall be deemed to be the Holder of such Certificate to the extent so paid.

               Overcollateralization Amount. As of any Distribution Date the
amount, if any, by which the sum of the Aggregate Principal Balance of the Group
I Loans as of the end of the related Due Period exceeds the Aggregate Class A
Certificate Balance of the Group I Certificates after giving effect to
distributions of principal to be made on such Distribution Date.

               Ownership Interest. Any record or beneficial ownership interest
in any Class R Certificate.

               Payment. With respect to any Loan or the related Foreclosed
Property and any Determination Date, all amounts received or collected by or on
behalf of the Master Servicer during the preceding Due Period in respect of such
Loan or Foreclosed Property from whatever source, including without limitation,
amounts received or collected from, or representing:


                                       22
<PAGE>   28
                    (i) the related Obligor;

                    (ii) the application to amounts due on such Loan (or, in the
          case of any Foreclosed Property, to amounts previously due on the
          related Foreclosed Loan) of any related Insurance Proceeds, any
          related condemnation awards or settlements or any payments made by any
          related guarantor or third-party credit-support provider;

                    (iii) FHA Insurance Payment Amounts with respect to such
          Loan;

                    (iv) the operation or sale of the related Foreclosed
          Property;

                    (v) the Purchase Price with respect to such Loan; or

                    (vi) amounts deposited into the related Distribution Account
          pursuant to Section 9.01(d).

               Percentage Interest. As to any Class A Certificate, the
percentage interest obtained by dividing the Denomination of such Certificate by
the aggregate of the Initial Class A Certificate Balance of all Certificates of
such Class. As to any Class S Certificate or Class R Certificate, the percentage
interest set forth on the face of such Certificate.

               Permitted Transferee. Any Person other than (i) the United
States, any state or any political subdivision thereof, any possession of the
United States, or any agency or instrumentality of any of the foregoing (other
than an instrumentality that is a corporation if all of its activities are
subject to tax and a majority of its board of directors is not selected by any
such governmental unit), (ii) a foreign government, international organization
or any agency or instrumentality of either of the foregoing (other than an
instrumentality that is a corporation if all of its activities are subject to
tax and a majority of its board of directors is not selected by any such
governmental unit), (iii) an organization (except certain farmers' cooperatives
described in Code Section 521) exempt from tax imposed by Chapter 1 of the Code
(including the tax imposed by Section 511 of the Code on unrelated business
taxable income) on any excess inclusions (as defined in Code Section 860E(c)(1))
with respect to any Class R Certificate, (iv) rural electric and telephone
cooperatives described in Code Section 1381(a)(2)(c), (v) any other Person so
designated by the Trustee based upon an Opinion of Counsel that the holding of
an ownership interest in a Class R Certificate by such Person may cause the
Trust or any Person having an ownership interest in any Class R Certificate,
other than such Person, to incur a liability for any tax imposed under the Code
that would not otherwise be imposed but for the transfer of an ownership
interest in a Class R Certificate to such Person and (vi) a Person that is not a
citizen or resident of the United States, a corporation, partnership, or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, or an estate or trust the income of which is
subject to United States federal income taxation regardless of its source unless
such person provides the Trustee with a duly completed Internal Revenue Service
Form 4224. The terms "United States," "state" and "international organization"
shall have the meanings set forth in Code Section 7701 or successor provisions.


                                       23
<PAGE>   29
               Person. Any individual, corporation, limited liability company,
partnership, joint venture association, joint-stock company, trust,
unincorporated organization or government or any agency or government or any
agency or political subdivision thereof.

               Plan of Complete Liquidation. With respect to the REMIC Pool, a
written plan adopted by the Trustee, as attorney-in-fact for the
Certificateholders of the Group I Certificates, authorizing and instructing the
Trustee to liquidate the REMIC Pool within the meaning of Section 860F(a)(4) of
the Code by (i) selling all the Loans and Foreclosed Properties then held by the
REMIC Pool on the terms specified therein, and (ii) making a final distribution
to Certificateholders of the Group I Certificates of the cash proceeds of such
sale and of all other cash then held by the REMIC Pool (less amounts retained to
meet any expenses of, and any claims against, the REMIC Pool), all in accordance
with the provisions of Section 9.01. With respect to the Grantor Trust Pool, a
written plan adopted by the Trustee, as attorney-in-fact for the
Certificateholders, authorizing and instructing the Trustee to liquidate the
Grantor Trust Pool by (i) selling all the Group II Loans then held by the
Grantor Trust Pool on the terms specified therein, and (ii) making a final
distribution to Certificateholders of the Group II Certificates of the cash
proceeds of such sale and of all other cash then held by the Grantor Trust Pool
(less amounts retained to meet any expenses of, and any claims against, the
Grantor Trust Pool), all in accordance with the provisions of Section 9.01.

               Policies. With respect to the Group I Certificates (other than
the Class R Certificates), the certificate guaranty insurance policy number
22640 and with respect to the Group II Certificates, the certificate guaranty
insurance policy number 22641, each dated as of the Closing Date, as set forth
in Exhibit N-1 and N-2, respectively, issued by the Certificate Insurer to the
Trustee for the benefit of Senior Certificateholders.

               Pool Annual Default Percentage (Three Month Average). With
respect to any Determination Date, the average of the percentage equivalents of
the fractions determined for each of the three immediately preceding Due Periods
the numerator of which is the product of (i) the aggregate of the Principal
Balances of all Loans that became Credit Support Multiple Defaulted Loans during
such Due Period immediately prior to such Loans becoming Credit Support Multiple
Defaulted Loans times (ii) 12, and the denominator of which is the Aggregate
Principal Balance of the Loans as of the end of such Due Period.

               Pool 60+ Delinquency Percentage (Rolling Three Month). With
respect to any Determination Date, the average of the percentage equivalents of
the fractions determined for each of the three immediately preceding Due Periods
the numerator of each of which is equal to the aggregate Principal Balance of
Loans that are 60+ Day Delinquent Loans as of the end of such Due Period and the
denominator of which is the Aggregate Principal Balance of the Loans as of the
end of such Due Period.

               Preference Amount. As defined in the related Policy.

               Premium. The premium payable to the Certificate Insurer in
accordance with Section 3.02 of the Insurance Agreement.


                                       24
<PAGE>   30
               Prepayment Interest Shortfall. As to any Loan and Principal
Prepayment, the amount by which one month's interest at the related Loan Rate
(or such lower rate as may be in effect from a Loan because of the application
of the Civil Relief Act) minus the rate at which the Servicing Fee is calculated
on such Principal Prepayment exceeds the amount of interest paid by the
Mortgagor in connection with such Principal Prepayment.

               Principal Balance. With respect to any Loan, and for any date of
determination, the Initial Principal Balance of such Loan reduced by all amounts
previously received or collected in respect of principal on such Loan on or
subsequent to the Cut-Off Date for such Loan; provided, that with respect to any
Defaulted Loan, the Principal Balance shall be zero immediately after the Due
Period in which such Loan becomes a Defaulted Loan.

               Principal Prepayment. Any payment or other receipt of principal
in full due on a Loan made by an Obligor which is received in advance of the
scheduled Maturity Date of such Loan.

               Property. With respect to any Mortgage Loan, any fee interest in
the residential property subject to the lien of the related Mortgage.

               Prospectus Supplement. The prospectus supplement, dated December
11, 1996, relating to the Group IA Certificates and Group IIA Certificates.

               Purchase Agreement. The loan purchase agreement entered into
between Mego, as Seller, and the Depositor, as purchaser, dated as of November
1, 1996.

               Purchased Loan. As of any Monthly Cut-Off Date and Loan Group,
any Loan (including any Defaulted Loan) in such Loan Group that became subject
to purchase or repurchase pursuant to Section 2.04(b) or Section 3.12, and in
each case, as to which the Purchase Price has been deposited in the related
Distribution Account by Mego or the Master Servicer, as applicable.

               Purchase Price. With respect to a Loan, means the Principal
Balance of such Loan as of the date of purchase, plus unpaid accrued interest at
the related Loan Rate to the last day of the month in which such purchase occurs
(without regard to any Interest Advance that may have been made with respect to
such Loan).

               Rating Agency. Each of Moody's and Standard & Poor's, so long as
such rating agency maintains ratings on any of the Senior Certificates; and if
either Moody's or Standard & Poor's no longer maintains ratings on the Senior
Certificates, such other nationally recognized statistical rating organization
specified by Mego and (so long as a Certificate Insurer Default shall not have
occurred and be continuing) acceptable to the Certificate Insurer.

               Record Date. With respect to any Distribution Date, the last day
of the month (or if such last day is not a Business Day, the Business Day
immediately preceding such last day) preceding the month of such Distribution
Date.


                                       25
<PAGE>   31
               Reimbursement Amount. As of any Distribution Date and Certificate
Group, the sum of (x) (i) Insured Payments previously received by the Trustee
and not previously re-paid to the Certificate Insurer, in the case of the Group
I Certificates, pursuant to Section 4.05(a)(ix) or, in the case of the Group II
Certificates, pursuant to Section 4.05(b)(ix) hereof plus (ii) interest accrued
on such Insured Payment not previously repaid calculated at the Late Payment
Rate from the date the Trustee received such Insured Payment and (y) (i) the
amount of any Premium in respect of such Certificate Group not paid on the date
due and (ii) interest on such amount at the Late Payment Rate. The Certificate
Insurer shall notify the Trustee and Depositor of the amount of any
Reimbursement Amount.

               Rejected Claim. With respect to any FHA Loan, a claim for payment
made to the FHA under the Contract of Insurance that has been finally rejected
after all appeals with FHA have been exhausted for any reason (including a
rejection of a previously paid claim and a demand by the FHA of a return of the
FHA Insurance Payment Amount for the related FHA Loan) other than a refusal or
rejection due to clerical error in computing the claim amount or because the
amount of the FHA Insurance Coverage Reserve Account as shown in the Insurance
Record is zero.

               Related Series. Means (i) the Trust, (ii) Mego Mortgage FHA Title
I Loan Trust 1996-2, (iii) Mego Mortgage FHA Title I Loan Trust 1996-1, and (iv)
each of the subsequent series of trusts, of which the Trustee is the trustee and
the Certificate Insurer is the certificate insurer, to which Related Series
Loans are sold directly or indirectly by Mego, established pursuant to pooling
and servicing agreements.

               Related Series Loans. Means FHA Title I loans related to a
Related Series which: (i) are sold by Mego, directly or indirectly, to a trust
and (ii) the Title I insurance coverage attributable to which is made available
to cover claims with respect to the FHA Loans and the Related Series Loans in
each other Related Series by virtue of terms relating to the administration of
the FHA Insurance Coverage Reserve Account substantially similar to the terms
hereof.

               REMIC. A "real estate mortgage investment conduit," as defined in
the REMIC Provisions.

               REMIC Pool. The pool of assets consisting of the Group I Loans
for which an election shall be made to be treated as a REMIC under the REMIC
Provisions.

               REMIC Provisions. Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Sections
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and regulations (either proposed, temporary or final) and related
revenue rulings and procedures, as the foregoing may be in effect from time to
time.

               Required OC Amount. With respect to each Distribution Date, the
greater of (a) the OC Floor or (b) the product of (i) the OC Multiple for such
Distribution Date and (ii)(x) if such Distribution Date is prior to the OC
Reduction Date, the product of 3.75% and the Initial Group I Principal Balance,
or (y) if such Distribution Date is on or after the OC Reduction Date, the
lesser of (A) the product of 3.75% times the Initial Loan Group I Principal
Balance and (B)


                                       26
<PAGE>   32
the product of 7.50% times the Aggregate Principal Balance of the Group I Loans
as of such Distribution Date, or such lower amount as may be established by the
Certificate Insurer in its sole discretion after notice to and written approval
by the Rating Agencies; provided, however, on any Distribution Date during the
occurrence and continuance of a Trigger Event and for three Distribution Dates
after the conclusion of a Trigger Event, notwithstanding anything to the
contrary contained in this definition, the Required OC Amount shall be equal to
the greater of (a) the OC Floor or (b) the product of (i) the OC Multiple for
such Distribution Date times (ii) the product of 3.75% times the Initial Group I
Principal Balance.

               Residual Interest. The fractional undivided interest evidenced by
a Class R Certificate in all amounts distributable to Holders of Class R
Certificates pursuant to Section 4.05(a).

               Responsible Officer. When used with respect to the Trustee, an
officer in its Corporate Trust Office, or any other officer assigned by the
Trustee to administer its corporate trust matters, and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject. When
used with respect to any other Person that is not an individual, the President,
any Vice-President or Assistant Vice-President or the Controller of such Person,
or any other officer or employee having similar functions.

               SAIF. The Savings Association Insurance Fund, as from time to
time constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and performing
duties now assigned to it, the body performing such duties on such date.

               Securities Act. The Securities Act of 1933, as amended.

               Senior Certificate. Any of the Class IA-1, Class IA-2, Class
IA-3, Class IIA, Class IS Certificates or Class IIS Certificates.

               Servicer. Mego or any other Eligible Servicer with whom the
Master Servicer has entered into a Servicing Agreement pursuant to Section 3.02.

               Servicer Fee. With respect to any Distribution Date and Loan
Group, 1/12 times 1.00% times the Aggregate Principal Balance of such Loan
Group, as of the opening of business on the first day of the month preceding the
month of such Distribution Date (or, with respect to the first Distribution
Date, the Initial Loan Group I Principal Balance or Initial Loan Group II
Principal Balance, as applicable), reduced by the sum of (a) aggregate
Prepayment Interest Shortfall for such Loan Group for the related Due Period and
(b) any Additional Trustee Fee in respect of such Loan Group for such
Distribution Date.

               Servicer Review Report. As defined in Section 3.05(d).

               Servicer Termination Event. With respect to the Servicing
Agreement, the events specified in Section 7.02 therein.


                                       27
<PAGE>   33
               Servicing Agreement. The servicing agreement dated as of November
1, 1996, between Mego, as Servicer, the Master Servicer, the Trustee and the
Trust and any other agreement entered into in accordance with Section 3.02.

               Servicing Record. The records for each Loan Group maintained by
the Master Servicer pursuant to Section 3.03.

               Servicing Standard. The standard set forth in Section 3.01(a).

               60+ Day Delinquent Loan. With respect to any Determination Date
or related Distribution Date, a Loan, other than a Credit Support Multiple
Defaulted Loan, with respect to which any portion of a Monthly Payment is, as of
the prior Monthly Cut-Off Date, 61 days or more past due (without giving effect
to any grace period) and unpaid by the Obligor.

               60+ Delinquency Percentage (Rolling Three Month). With respect to
any Determination Date and Loan Group I, the average of the percentage
equivalents of the fractions determined for each of the three immediately
preceding Due Periods the numerator of each of which is equal to the aggregate
Principal Balance of Loans in such Loan Group that are 60+ Day Delinquent Loans
as of the end of such Due Period and the denominator of which is the Aggregate
Principal Balance of the Loans in such Loan Group as of the end of such Due
Period.

               Standard & Poor's. Standard & Poor's Rating Services, or any
successor thereto.

               Start-up Day. The day designated as such in Section 8.12(a).

               Substitute Loan. A Loan: (i) having characteristics such that the
representations and warranties made pursuant to Section 2.03(b) with respect to
the Loans in the related Loan Group are true and correct as of the date of
substitution with respect to such Loan; (ii) each Monthly Payment with respect
to such Loan shall be greater than or equal to the Monthly Payments due in the
same Due Period on the Loan for which such Substitute Loan is being substituted;
(iii) the Maturity Date with respect to such Loan shall be no later than the
Maturity Date of the Loan for which such Substitute Loan is being substituted;
(iv) as of the date of substitution, the Principal Balance of such Loan is less
than or equal to (but not more than 1% less than) the Principal Balance of the
Loan for which such Substitute Loan is being substituted; (v) the Loan Rate with
respect to such Loan is at least equal to the Loan Rate of the Loan for which
such Substitute Loan is being substituted and (vi) the FICO score for such Loan
must not be less than ten points of the FICO score for such Loan for which such
Substitute Loan is being substituted; provided however, in the event more than
one Substitute Loan is being substituted for one or more Defective Loans in a
Loan Group on any date, in which case (i) the weighted average Loan Rate for
such Substitute Loans must equal or exceed the weighted average Loan Rate of the
Defective Loans in such Loan Group immediately prior to giving effect to the
substitution, in each case weighted on the basis of the outstanding Principal
Balance of such loans as of such day, (ii) the sum of the Monthly Payments with
respect to such Substitute Loans shall be greater than or equal to the Monthly
Payments due in the same Due Period on the Defective Loans for which a
substitution is being made, and (iii) as of the date of substitution, the
aggregate Principal Balances of such


                                       28
<PAGE>   34
Substitute Loans are less than or equal to (but not more than 1% less than) the
aggregate Principal Balances of the Defective Loans for which such a
substitution is being made.

               Substitution Adjustment Amount. The meaning assigned to such term
in Section 2.04(d).

               Tax Return. For the Group I Loans, the federal income tax return
on Internal Revenue Service Form 1066, U.S. Real Estate Mortgage Investment
Conduit Income Tax Return, including Schedule Q thereto, Quarterly Notice to
Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation, or any
successor forms, to be filed on behalf of the portion of the Trust consisting of
the REMIC Pool due to its classification as a REMIC under the REMIC Provisions,
together with any and all other information, reports or returns that may be
required to be furnished to the Certificateholders or filed with the Internal
Revenue Service or any other governmental taxing authority under any applicable
provisions of federal, state or local tax laws. For the Group II Loans, Internal
Revenue Service Form 1041, or any successor forms, to be filed on behalf of the
Trust due to its classification as a grantor trust under the Grantor Trust
Provisions, together with any and all other information, reports or returns that
may be required to be furnished to the Certificateholders, including Schedule
K-1 (Form 1041), or filed with the Internal Revenue Service or any other
governmental taxing authority under any applicable provisions of federal, state
or local tax laws.

               Termination Date. The earlier of (a) the Distribution Date in
November 2022 and (b) the Distribution Date next following the Monthly Cut-Off
Date coinciding with or next following the date of the liquidation or
disposition of the last asset held by the Trust pursuant to Section 3.13,
9.01(d) or 9.01(e).

               30+ Day Delinquent Loan. With respect to any Determination Date
or related Distribution Date, a Loan, other than a Credit Support Multiple
Defaulted Loan, with respect to which any portion of a Monthly Payment is, as of
the prior Monthly Cut-Off Date, 31 days or more past due (without giving effect
to any grace period) and unpaid by the Obligor.

               30+ Delinquency Percentage (Rolling Three Month). With respect to
any Determination Date and Loan Group I, the average of the percentage
equivalents of the fractions determined for each of the three immediately
preceding Due Periods the numerator of which is equal to the aggregate Principal
Balance of Loans in such Loan Group that are 30+ Day Delinquent Loans as of the
end of such Due Period, and the denominator of which is the Aggregate Principal
Balance of the Loans in such Loan Group as of the end of such Due Period.

               Title Document. The evidence of title to or ownership of the
Property required by Title I. (See 24 C.F.R. 201.26(a)(1) and 201.20).

               Title I. Section 2 of Title I of the National Housing Act of
1934, as amended, and the rules and regulations promulgated thereunder as each
may be amended from time to time and any successor statute, rules or regulations
thereto.

               Transaction Documents. This Agreement, the Purchase Agreement,
the Servicing Agreement, the Insurance Agreement and the Indemnification
Agreement.


                                       29
<PAGE>   35
               Transfer. Any direct or indirect purchase, transfer, sale,
assignment or other form of disposition of any Ownership Interest in a
Certificate other than any pledge of such Certificate for security.

               Transferee. Any Person who is acquiring by Transfer any Ownership
Interest in a Certificate.

               Trigger Event. The occurrence and continuance of any of the
following events:

                    (i) Mego shall fail to pay when due any amount payable by it
          under the Insurance Agreement, such failure results in a drawing under
          the Policy and the Certificate Insurer has not been reimbursed
          therefor;

                    (ii) Mego shall fail to pay when due any amount payable by
          it hereunder, such failure results in a drawing under the Policy and
          the Certificate Insurer has not been reimbursed therefor;

                    (iii) the Pool Annual Default Percentage (Three Month
          Average) exceeds 6.5% or the Pool 60+ Delinquency Percentage (Rolling
          Three Month) exceeds 6.0% or such higher percentage as determined from
          time to time by the Certificate Insurer;

                    (iv) any representation, warranty or statement of Mego made
          in the Insurance Agreement or in this Agreement shall prove to be
          incorrect in any material respect as of the time when the same shall
          have been made, and the circumstances or condition in respect of which
          such representation, warranty or statement was incorrect could (A) in
          the opinion of the Certificate Insurer have a material adverse affect
          on the interests of the Certificate Insurer and (B) has not been cured
          within the applicable cure period specified in the Insurance Agreement
          or this Agreement, as the case may be or otherwise remedied as
          provided in the applicable agreement;

                    (v) Mego shall dissolve or liquidate, in whole or in part,
          in any material respect unless the resulting successor entity (a)
          assumes all obligations of Mego under this Agreement, the Purchase
          Agreement and the Insurance Agreement and has a net worth at least
          equal to Mego's at the time of dissolution or liquidation, or (b) is
          acceptable to the Certificate Insurer;

                    (vi) Mego is the subject of a conservatorship, receivership
          or other insolvency proceeding; or

                    (vii) The Purchase Agreement or this Agreement ceases to be
          in full force and effect or any act or omission by Mego results in the
          Insurance Agreement not being in full force and effect.

               Trust. The trust established hereby and evidenced by the Home
Loan Asset- Backed Certificates, Series 1996-3, designated as the "Mego Mortgage
Home Loan Trust 1996-3."


                                       30
<PAGE>   36
               Trust Designated Insurance Amount. $3,674,309 or such greater
amount approved in advance in writing by the Certificate Insurer.

               Trust Property. The property and proceeds of every kind conveyed
pursuant to Section 2.01 hereof or in accordance with Section 2.04(c) hereof,
together with the Policies and the Accounts (including all cash and Eligible
Investments therein and all proceeds thereof).

               Trustee. First Trust of New York, National Association, its
successors in interest or any successor trustee appointed as herein provided.

               Trustee Fee. With respect to any Distribution Date and Loan
Group, one-twelfth of 0.045% times the Aggregate Principal Balance of such Loan
Group as of the opening of business on the first day of the calendar month
preceding the calendar month of such Distribution Date (or, with respect to the
first Distribution Date, the Initial Loan Group I Principal Balance or the
Initial Loan Group II Principal Balance, as applicable).

               Underwriter. Greenwich Capital Markets, Inc.

               Voting Rights. The portion of the aggregate voting rights of all
the Certificates evidenced by a Class of Certificates. At all times during the
term of this Agreement, 98% of all of the Voting Rights shall be allocated among
Holders of the Class A Certificates and the Holders of the Class S Certificates
shall be entitled to 2% of all of the Voting Rights. Voting Rights allocated to
a Class of Certificates shall be allocated among the Certificates of each such
Class in accordance with their respective Percentage Interests.

               Section 1.02. Rules of Interpretation.

               The terms "hereof," "herein" or "hereunder," unless otherwise
modified by more specific reference, shall refer to this Agreement in its
entirety. Unless otherwise indicated in context, the terms "Article," "Section,"
"Exhibit" or "Schedule" shall refer to an Article or Section of, or Exhibit or
Schedule to, this Agreement. The definition of a term shall include the
singular, the plural, the past, the present, the future, the active and the
passive forms of such term. Whenever the Agreement refers to a Certificate Group
and "related" Certificates, such reference shall be to all Certificates with the
same numeric designation as set forth in the definition of each Certificate
Group. Whenever the Agreement refers to a Certificate Group and "related" Loan
Group or Account, such reference shall be to the Loan Group or Account with the
same numeric designation as set forth in the definition of Loan Group.

               Section 1.03. Interest Calculations.

               All calculations of accrued interest on the Loans, the
Certificates and accrued fees shall be made on the basis of a 360-day year
consisting of twelve 30-day months.


                                       31
<PAGE>   37
                                   ARTICLE II

                        Transfer and Assignment of Loans;
                            Issuance of Certificates

               Section 2.01. Transfer and Assignment of Loans.

               (a) The Depositor as of the Closing Date does hereby, sell,
transfer, assign and otherwise convey to the Trustee for the benefit of the
Holders of the Certificates, in accordance with their terms and the terms
hereof, and the Certificate Insurer, without recourse other than as expressly
provided herein, and, with respect to the FHA Loans, in accordance with the
requirements for transfer of an insured loan in Title I and 24 C.F.R. Section
201.32(c), all the right, title and interest of the Depositor in and to (a) as
of the applicable Cut-Off Date, the Loans delivered to the Trustee on the
Closing Date, including the related Principal Balance and all payments and
collections on account thereof received on or after such Cut-Off Date (including
amounts due prior to such Cut-Off Date but received thereafter), the rights to
FHA Insurance reserves attributable to the FHA Loans as of the applicable
Cut-Off Date, the Files, the Insurance Policies and any proceeds from any
Insurance Policies, the Mortgages and security interests in Properties which
secure the Mortgage Loans and any and all documents or electronic records
relating to the Loans, and all proceeds of any of the foregoing, and (b) the
Purchase Agreement.

               It is the intention of the parties hereto that the transfers and
assignments contemplated by this Agreement shall constitute a sale of the Loans
and the other property specified in Section 2.01(a) from the Depositor to the
Trust and such property shall not be property of the Depositor. After the
Closing Date, Mego and the Depositor shall each account for the transfer of the
Loans in its financial statements as a sale of the Loans. If the assignment and
transfer of the Loans and the other property specified in this Section 2.01(a)
to the Trustee pursuant to this Agreement or the conveyance of the Loans or any
of such other property to the Trustee is held or deemed not to be a sale or is
held or deemed to be a pledge of security for a loan, the Depositor intends that
the rights and obligations of the parties shall be established pursuant to the
terms of the Agreement and that, in such event, (i) the Depositor shall be
deemed to have granted and does hereby grant to the Trustee a first priority
security interest in the entire right, title and interest of the Depositor in
and to the Loans and all other property conveyed to the Trustee pursuant to this
Section 2.01(a) and all proceeds thereof, and (ii) this Agreement shall
constitute a security agreement under applicable law. Within five days of the
Closing Date, the Depositor shall cause to be filed UCC-1 financing statements
naming the Trustee as "secured party" and describing the Loans being sold by the
Depositor to the Trust with the office of the Secretary of State of the State in
which the Depositor is located.

               (b) In connection with the sale, transfer, assignment and
conveyance pursuant to Section 2.01(a), the Depositor hereby delivers to, and
deposits with, the Trustee the following documents or instruments with respect
to each Loan so sold, transferred, assigned and conveyed (provided that the
Credit Files shall be held in the custody of Mego as custodian on behalf of the
Trustee). Notwithstanding anything herein to the contrary, the Credit Files are
hereby conveyed to the Trustee and are, and shall at all times hereinafter be,
held in the custody of Mego, as custodian on behalf of the Trustee:


                                       32
<PAGE>   38
          (A) With respect to each Loan:

                    (i) The original Note, showing a complete chain of
          endorsements or assignments from the named payee to the Trust and
          endorsed without recourse to the order of the Trustee which latter
          endorsement may be executed with a facsimile signature;

                    (ii) If such Loan is a Mortgage Loan, the original Mortgage
          with evidence of recording indicated thereon (except that a true copy
          thereof certified by an appropriate public official may be
          substituted); provided, however, that if the Mortgage with evidence of
          recording thereon cannot be delivered concurrently with the execution
          and delivery of this Agreement solely because of a delay caused by the
          public recording office where such Mortgage has been delivered for
          recordation, there shall be delivered to the Trustee a copy of such
          Mortgage certified as a true copy in an Officer's Certificate, which
          Officer's Certificate shall certify that such Mortgage has been
          delivered to the appropriate public recording office for recordation,
          and there shall be promptly delivered to the Trustee such Mortgage
          with evidence of recording indicated thereon upon receipt thereof from
          the public recording official (or a true copy thereof certified by an
          appropriate public official may be delivered to the Trustee);

                    (iii) If such Loan is a Mortgage Loan, the original
          assignment of Mortgage to the Trustee, in recordable form. Such
          assignments may be blanket assignments, to the extent such assignments
          are effective under applicable law, for Mortgages covering Properties
          situated within the same county. If the assignment of Mortgage is in
          blanket form an assignment of Mortgage need not be included in the
          individual File;

                    (iv) If such Loan is a Mortgage Loan, all original
          intermediate assignments of the Mortgage, showing a complete chain of
          assignments from the named mortgagee to the assignor to the Trustee,
          with evidence of recording thereon (or true copies thereof certified
          by appropriate public officials may be substituted); provided,
          however, that if the intermediate assignments of mortgage with
          evidence of recording thereon cannot be delivered concurrently with
          the execution and delivery of this Agreement solely because of a delay
          caused by the public recording office where such assignments of
          Mortgage have been delivered for recordation, there shall be delivered
          to the Trustee a copy of each such assignment of Mortgage certified as
          a true copy in an Officer's Certificate of Mego, which Officer's
          Certificate shall certify that each such assignment of Mortgage has
          been delivered to the appropriate public recording office for
          recordation, and there shall be promptly delivered to the Trustee such
          assignments of Mortgage with evidence of recording indicated thereon
          upon its receipt thereof from the public recording official (or true
          copies thereof certified by an appropriate public official may be
          delivered to the Trustee);


                                       33
<PAGE>   39
                    (v) An original of each assumption or modification
          agreement, if any, relating to such Loan;

                    (vi) (A) If such Loan is an FHA Loan, an original or copy of
          notice signed by the Obligor acknowledging HUD insurance, (B) an
          original or copy of truth-in-lending disclosure, (C) an original or
          copy of the credit application, (D) an original or copy of the
          consumer credit report, (E) an original or copy of verification of
          employment and income, or verification of self-employment income, (F)
          if such Loan is an FHA Loan, an original or copy of evidence of the
          Obligor's interest in the Property, (G) an original or copy of
          contract of work or written description with cost estimates, (H) if
          such Loan is an FHA Loan either (a) an original or copy of the
          completion certificate or an original or copy of notice of
          non-compliance, if applicable or (b) an original or copy of report of
          inspection of improvements to the Property or an original or copy of
          notice of non-compliance, if applicable, (I) to the extent not
          included in (C), an original or a copy of a written verification that
          the Mortgagor at the time of origination was not more than 30 days
          delinquent on any senior mortgage or deed of trust on the Property,
          (J) (i) if such Loan is an FHA Loan for which an appraisal is required
          pursuant to the applicable regulations, an original or a copy of an
          appraisal of the Property as of the time of origination of such FHA
          Loan or (ii) if such Loan is a Non-FHA Loan and secured by a Mortgage,
          (a) if the original principal balance is greater than $25,000 but less
          than $50,000, a copy of the HUD-1 or HUD 1-A Closing Statement
          indicating the sale price, or an existing Uniform Residential
          Appraisal Report, or a Drive-by Appraisal documented on Freddie Mac
          form 704, or a tax assessment, or (b) if the original principal
          balance exceeds $50,000, a full Uniform Residential Appraisal Report
          prepared by a national appraisal firm, (K) an original or a copy of a
          title search as of the time of origination with respect to the
          Property, and (L) if such Loan is an FHA Loan, any other documents
          required for the submission of a claim with respect to such FHA Loan
          to the FHA.

               With respect to any documents referred to clauses (A)(ii) and
(A)(iv) above that are not delivered to the Trustee because of a delay caused by
the public recording office such documents shall be delivered to the Trustee in
accordance with the terms of such clauses by Mego if such documents are received
by it or by the Depositor if such documents are received by it.

               (c) Mego, at the direction of the Depositor, concurrently with
the execution and delivery hereof, has delivered to the Trustee cash in an
amount equal to at least an aggregate amount representing for such Loan Group
(i) the accrued annual FHA premium due on each FHA Loan to the applicable
Cut-Off Date, and (ii) the amount of FHA premium collected in respect of the
Invoiced Loans after the applicable Cut-Off Date. The Trustee shall distribute
the amount referred to in clause (i) of the previous sentence into the related
FHA Premium Account for such Loan Group and shall distribute the amount referred
to in clause (ii) of the previous sentence for such Loan Group into the related
Distribution Account.

               (d) Except as provided in Section 8.11 hereof, the Trustee shall
take and maintain continuous physical possession of the Files (except with
respect to the Credit Files)


                                       34
<PAGE>   40
in the State of Minnesota, and in connection therewith, shall act solely as
agent for the holders of the Certificates and the Certificate Insurer in
accordance with the terms hereof and not as agent for Mego or any other party.

               (e) In addition to the documents delivered to the Trustee
pursuant to Section 2.01(b), on or prior to the Closing Date, the Policies will
be delivered to the Trustee for the benefit of the Holders of the Senior
Certificates of the related Certificate Group.

               (f) Within 60 days of the Closing Date, Mego, at its own expense,
shall cause the Trustee to record each assignment of Mortgage in favor of the
Trustee (which may be a blanket assignment if permitted by applicable law) in
the appropriate real property or other records; provided, however, the Trustee
need not cause to be recorded any assignment which relates to a Mortgage Loan in
any jurisdiction under the laws of which, as evidenced by an Opinion of Counsel
delivered by Mego (at Mego's expense) to the Trustee, the Certificate Insurer
and the Rating Agencies, the recordation of such assignment is not necessary to
protect the Trustee's interest in the related Mortgage Loan. With respect to any
assignment of Mortgage as to which the related recording information is
unavailable within 60 days following the Closing Date, such assignment of
Mortgage shall be submitted for recording within 30 days after receipt of such
information but in no event later than one year after the Closing Date. The
Trustee shall be required to retain a copy of each assignment of Mortgage
submitted for recording. In the event that any such assignment of Mortgage is
lost or returned unrecorded because of a defect therein, Mego shall promptly
prepare a substitute assignment of Mortgage or cure such defect, as the case may
be, and thereafter the Trustee shall be required to submit each such assignment
of Mortgage Loan for recording.

               Section 2.02. Acceptance by Trustee.

               (a) The Trustee hereby acknowledges conveyance of the Note, the
Mortgage, if applicable, and the other documents included in the Legal File
relating to each Loan listed on the Loan Schedule, receipt of such Legal Files
(the contents of which are subject to the Trustee's review pursuant to Section
2.02(b)), receipt of each Policy and receipt of the cash delivered to the
Trustee pursuant to Section 2.01(c), and declares that it holds and will hold
each such Loan, each related Legal File, each Policy, such cash, all proceeds of
any of the foregoing and all other rights, titles or interests of the Trustee in
any asset included in the Trust Property from time to time, in trust for the use
and benefit of all present and future Holders of the Certificates of each Class
and the Certificate Insurer. The Trustee hereby agrees to maintain possession of
the Notes in the State of Minnesota.

               (b) The Trustee agrees for the benefit of the Certificate Insurer
and the Certificateholders to review each Legal File within 45 Business Days
following the Closing Date, to confirm that all the documents and instruments
required to be included in each Legal File pursuant to Section 2.01(b) (i)-(v),
are so included and have been executed (and that documents which are required to
be originals bear original signatures) and that such documents and instruments
relate to the Loans identified in the Loan Schedule and are what they purport to
be on their face. Promptly upon completion of such review, the Trustee shall
prepare and deliver a list of the Legal Files which are incomplete as described
in this paragraph and deliver such list to the Certificate Insurer, the Master
Servicer, the Depositor and Mego.


                                       35
<PAGE>   41
               The Trustee agrees to review each Legal File within 60 days of
the Closing Date to confirm whether or not the recorded Mortgage or recorded
intermediate assignment or assignments, as the case may be, is contained in such
File. Promptly upon completion of such review, the Trustee shall prepare and
deliver a list of the Files which are incomplete as described in this paragraph
and deliver such list to the Certificate Insurer, the Master Servicer, the
Depositor and Mego and Mego shall be obligated to cure such incomplete File in
accordance with Section 2.04.

               In performing the review required by this Section 2.02(b), the
Trustee may presume the due execution (unless no signature appears thereon) and
genuineness of any such document and the genuineness of any signature thereon.
The Trustee shall have no responsibility for reviewing any File except as
expressly provided in this Section 2.02(b). Without limiting the effect of the
preceding sentence, in reviewing any File pursuant to such Subsection, the
Trustee shall have no responsibility for determining whether any document is
valid and binding, whether the text of any assignment or endorsement is in
proper form (except, with respect to each Loan, to determine if the Trustee is
the assignee or endorsee and to determine if there is a complete chain of title
from the Person who is the initial payee and initial Mortgagee), whether the
recordation of any document is in accordance with the requirements of any
applicable jurisdiction, whether any person who has executed any document is
authorized to do so, whether each assumption or modification agreement, if any,
relating to a Loan has been delivered to it, whether a blanket assignment is
permitted or effective in any applicable jurisdiction or, with respect to each
FHA Loan, whether the requirements for transfer of an insured loan specified in
Title I, 24 C.F.R. Section 201.32(c) or elsewhere have been complied with.

               (c) The Credit File shall be held in the custody of Mego for the
benefit of, and as agent for, the Certificateholders and the Trustee as the
owner thereof and the Certificate Insurer. It is intended that by Mego's
agreement pursuant to this Section 2.02(c) the Trustee shall be deemed to have
possession of the Credit File for purposes of Section 9- 305 of the Uniform
Commercial Code of the State in which such documents or instruments are located.
Mego shall promptly report to the Trustee and the Certificate Insurer any
failure by it to hold the Credit File as herein provided and shall promptly take
appropriate action to remedy any such failure. In acting as custodian of such
documents and instruments, Mego agrees not to assert any legal or beneficial
ownership interest in the Loans or such documents or instruments. Mego agrees to
indemnify the Certificateholders, the Certificate Insurer and the Trustee for
any and all liabilities, obligations, losses, damages, payments, costs, or
expenses of any kind whatsoever which may be imposed on, incurred by or asserted
against the Certificateholders, the Certificate Insurer or the Trustee as the
result of any act or omission by Mego relating to the maintenance and custody of
such documents or instruments which have been delivered to Mego; provided,
however, that Mego will not be liable for any portion of any such amount
resulting from the negligence or misconduct of any Certificateholder, the
Certificate Insurer or the Trustee and provided, further, that Mego will not be
liable for any portion of any such amount resulting from Mego's compliance with
any instructions or directions consistent with this Agreement issued to Mego by
the Trustee. The Trustee shall have no duty to monitor or otherwise oversee
Mego's performance as custodian hereunder.


                                       36
<PAGE>   42
               Section 2.03. Representations and Warranties of Mego.

               (a) Mego hereby represents and warrants to the Depositor, the
Master Servicer, the Trustee for the benefit of the Certificateholders and the
Certificate Insurer that as of the Closing Date:

                    (i) Mego is a corporation duly organized, validly existing
          and in good standing under the laws of the State of Delaware. Mego is
          duly qualified to do business, is in good standing and has obtained
          all necessary licenses, permits, charters, registrations and approvals
          (together, "approvals") necessary for the conduct of its business as
          currently conducted and the performance of its obligations under the
          Transaction Documents, in each jurisdiction in which the failure to be
          so qualified or to obtain such approvals would render any Transaction
          Document unenforceable in any respect or would have a material adverse
          effect upon the Transaction.

                    (ii) Mego has full power and authority to execute, deliver
          and perform, and to enter into and consummate all transactions
          required of it by this Agreement and each other Transaction Document
          to which it is a party; has duly authorized the execution, delivery
          and performance of this Agreement and each other Transaction Document
          to which it is a party; has duly executed and delivered this Agreement
          and each other Transaction Document to which it is a party; when duly
          authorized, executed and delivered by the other parties hereto, this
          Agreement and each other Transaction Document to which it is a party
          will constitute a legal, valid and binding obligation of Mego
          enforceable against it in accordance with its terms, except as such
          enforceability may be limited by general principles of equity (whether
          considered in a proceeding at law or in equity);

                    (iii) Neither the execution and delivery of this Agreement
          or any of the other Transaction Documents to which Mego is a party,
          the consummation of the transactions required of it herein or under
          any other Transaction Document, nor the fulfillment of or compliance
          with the terms and conditions of this Agreement or any of the other
          Transaction Documents will conflict with or result in a breach of any
          of the terms, conditions or provisions of Mego's charter or by-laws or
          any legal restriction or any material agreement or instrument to which
          Mego is now a party or by which it is bound, or which would adversely
          affect the creation and administration of the Trust as contemplated
          hereby, or constitute a material default or result in an acceleration
          under any of the foregoing, or result in the violation of any law,
          rule, regulation, order, judgment or decree to which Mego or their
          respective property is subject;

                    (iv) There is no action, suit, proceeding, investigation or
          litigation pending against Mego or, to its knowledge, threatened,
          which, if determined adversely to Mego, would materially adversely
          affect the sale of the Loans, the issuance of the Certificates, the
          execution, delivery or enforceability of this Agreement or any other
          Transaction Document, or which would have a material adverse affect on
          the financial condition of Mego;

                    (v) No consent, approval, authorization or order of any
          court or governmental agency or body is required for: (a) the
          execution, delivery and


                                       37
<PAGE>   43
          performance by Mego of, or compliance by Mego with, this Agreement,
          (b) the transfer of all FHA insurance reserves relating to the FHA
          Loans to the Contract of Insurance Holder, (c) the issuance of the
          Certificates, (d) the sale of the Loans or (e) the consummation of the
          transactions required of it by this Agreement, except: (A) such as
          shall have been obtained before the Closing Date, (B) the transfer of
          the FHA insurance reserves by the FHA to the Contract of Insurance
          Holder with respect to the FHA Loans as to which an FHA case number
          has not been assigned as of the Closing Date, and (C) such as may be
          required under state securities or "Blue Sky" laws in connection with
          the sale of the Certificates by the Underwriter;

                    (vi) Mego is not in default with respect to any order or
          decree of any court or any order, regulation or demand of any federal,
          state, municipal or governmental agency, which default might have
          consequences that would materially and adversely affect the condition
          (financial or other) or operations of Mego or its properties or might
          have consequences that would materially and adversely affect its
          performance hereunder;

                    (vii) Mego received fair consideration and reasonably
          equivalent value in exchange for the sale of the Loans to the
          Depositor;

                    (viii) HUD has approved in writing the transfer to the
          Contract of Insurance of the FHA Reserve Amount relating to each FHA
          Loan and all actions have been taken by Mego (other than the filing of
          the Transfer of Note Report Form 27030 with HUD) and all required
          consents have been obtained (other than approval upon HUD's receipt of
          such Transfer of Note Report), in either case, necessary to effect
          transfer to the Contract of Insurance Holder of the FHA Reserve Amount
          relating to each FHA Loan (except for FHA Loans with respect to which
          a case number has not been assigned as of the Closing Date). The FHA
          Reserve Amounts with respect to the FHA Loans transferred to the
          Contract of Insurance Holder both prior to and following the transfer
          of the FHA Loans to the Trustee will be available to satisfy claims
          with respect to such FHA Loans. The amount in the FHA Insurance
          Coverage Reserve Account, together with all amounts to be requested
          for transfer with respect to the FHA Loans, will equal $16,971,823.
          The amount to be requested for transfer with respect to the FHA Loans
          is $3,674,309, which is the sum of approximately 10% of the aggregate
          of the Initial Principal Balances of the FHA Loans;

                    (ix) Mego is a non-supervised lender in good standing with
          HUD under 24 CFR Section202.5 and is authorized to originate,
          purchase, hold, service and/or sell loans insured under 24 CFR Part
          201 pursuant to a valid contract of insurance, Number 70497-00003; and

                    (x) Mego has transferred the Loans without any intent to
          hinder, delay or defraud any of its creditors.

               (b) Mego hereby agrees for the benefit of the Depositor, the
Master Servicer and the Trustee for the benefit of the Certificateholders and
the Certificate Insurer, that the failure of any of the following
representations and warranties to be true and correct as to any Loan (and the
related Note and Mortgage, if applicable) as of the Cut-Off Date for such Loan,


                                       38
<PAGE>   44
or such later date if so specified in such representation and warranty, gives
rise to the remedy specified in Section 2.04:

                    (i) The information pertaining to each Loan set forth in the
          Loan Schedule was true and correct in all material respects as of the
          applicable Cut-Off Date;

                    (ii) As of the Closing Date at least 99.49% of the Loans (by
          aggregate Initial Principal Balance) are not more than 30 days and the
          remaining 0.51% of the Loans (by aggregate Initial Principal Balance)
          are not more than 59 days past due (without giving effect to any grace
          period); Mego has not advanced funds, induced, solicited or knowingly
          received any advance of funds from a party other than the Obligor,
          directly or indirectly, for the payment of any amount required by the
          Loan;

                    (iii) The terms of the Note and any related Mortgage contain
          the entire agreement of the parties and have not been impaired,
          waived, altered or modified in any respect, except by written
          instruments reflected in the related File and recorded, if necessary,
          to maintain the lien priority of the any related Mortgage; if such
          Loan is an FHA Loan the substance of each such waiver, alteration and
          modification has been approved by the FHA to the extent required under
          Title I; no other instrument of waiver, alteration, expansion or
          modification has been executed, and no Obligor has been released, in
          whole or in part, except in connection with an assumption agreement
          which assumption agreement is part of the related File and the payment
          terms of which are reflected in the related Loan Schedule and; if such
          Loan is an FHA Loan, has been approved by the FHA to the extent
          required under Title I;

                    (iv) The Note and any related Mortgage are not subject to
          any set-off, claims, counterclaim or defense and will not have such in
          the future with respect to the goods and services provided under the
          Note, including the defense of usury or of fraud in the inducement,
          nor will the operation of any of the terms of the Note and any related
          Mortgage, or the exercise of any right thereunder, render such Note or
          Mortgage unenforceable, in whole or in part, or subject to any right
          of rescission, set-off, counterclaim or defense, including the defense
          of usury, and no such right of rescission, set-off, counterclaim or
          defense has been asserted with respect thereto;

                    (v) Any and all requirements of any federal, state or local
          law applicable to the Loan (including any law applicable to the
          origination, servicing and collection practices with respect thereto)
          have been complied with;

                    (vi) No Note or Mortgage has been satisfied, cancelled,
          rescinded or subordinated, in whole or part; and Mego has not waived
          the performance by the Obligor of any action, if the Obligor's failure
          to perform such action would cause the Note or Mortgage Loan to be in
          default, except as otherwise permitted by clause (iii); and with
          respect to a Mortgage Loan, the related Property has not been released
          from the lien of the Mortgage, in whole or in part, nor has any
          instrument been executed that would effect any such satisfaction,
          subordination, release, cancellation or rescission;


                                       39
<PAGE>   45
                    (vii) Each related Mortgage is a valid, subsisting and
          enforceable lien on the related Property, including the land and all
          buildings on the Property;

                    (viii) The Note and any related Mortgage are genuine and
          each is the legal, valid and binding obligation of the maker thereof,
          enforceable in accordance with its terms, except as enforceability may
          be limited by bankruptcy, insolvency, reorganization or other similar
          laws affecting creditors' rights in general and by general principles
          of equity;

                    (ix) To Mego's best knowledge, all parties to the Note and
          any related Mortgage had legal capacity at the time to enter into the
          Loan and to execute and deliver the Note and any related Mortgage, and
          the Note and any related Mortgage have been duly and properly executed
          by such parties;

                    (x) As of the applicable Cut-Off Date, the proceeds of the
          Loan have been fully disbursed and there is no requirement for future
          advances thereunder, and any and all applicable requirements set forth
          in the Loan documents have been complied with; the Obligor is not
          entitled to any refund of any amounts paid or due under the Note or
          any related Mortgage;

                    (xi) Immediately prior to the sale, transfer and assignment
          to the Depositor, Mego will have good and indefeasible legal title to
          the Loan, the related Note and any related Mortgage and the full right
          to transfer such Loan, the related Note and any related Mortgage, and
          Mego will have been the sole owner thereof, subject to no liens,
          pledges, charges, mortgages, encumbrances or rights of others, except
          for such liens as will be released simultaneously with the transfer
          and assignment of the Loans to the Depositor; and immediately upon the
          sale, transfer and assignment contemplated by the Purchase Agreement,
          the Depositor will hold good title to, and be the sole owner of each
          Loan, the related Note and any related Mortgage, free of all liens,
          pledges, charges, mortgages, encumbrances or rights of others;

                    (xii) Except for those Loans referred to in Section
          2.03(b)(ii) above that are delinquent as of the Closing Date, there is
          no default, breach, violation or event of acceleration existing under
          the Loan, the related Note and any related Mortgage and there is no
          event which, with the passage of time or with notice and the
          expiration of any grace or cure period, would constitute a default,
          breach, violation or event of acceleration and neither Mego nor its
          predecessors have waived any default, breach, violation or event of
          acceleration;

                    (xiii) The Note and any related Mortgage contain customary
          and enforceable provisions such as to render the rights and remedies
          of the holder thereof adequate for the realization against the
          Property of the benefits of the security provided thereby, including,
          (A) in the case of any Mortgage designated as a deed of trust, by
          trustee's sale, and (B) otherwise by judicial foreclosure;

                    (xiv) Each FHA Loan is an FHA Title I property improvement
          loan (as defined in 24 C.F.R. Section 201.2) underwritten and
          originated by Mego in


                                       40
<PAGE>   46
          accordance with FHA requirements for the Title I Loan program as set
          forth in 24 C.F.R. Parts 201 and 202, and Mego has transmitted a loan
          report with respect to such FHA Loan to FHA so that such FHA Loan will
          be included in the Title I program;

                    (xv) The Loan is a fixed rate loan; the Note shall mature
          within not more than (a) for an FHA Loan, 20 years and 32 days and (b)
          for a Non-FHA Loan, 25 years, from the date of origination of the
          Loan; the Note is payable in substantially equal Monthly Payments,
          with interest payable in arrears, and requires a Monthly Payment which
          is sufficient to fully amortize the original principal balance over
          the original term and to pay interest at the related Loan Rate;
          interest on each Loan is calculated on the basis of a 360 day year
          consisting of twelve 30-day months, and the Note does not provide for
          any extension of the original term;

                    (xvi) The related Note is not and has not been secured by
          any collateral except, in the case of a Mortgage Loan, the lien of the
          corresponding Mortgage;

                    (xvii) With respect to any Mortgage Loan, if the related
          Mortgage constitutes a deed of trust, a trustee, duly qualified under
          applicable law to serve as such, has been properly designated and
          currently so serves and is named in the Mortgage, or a valid
          substitution of trustee has been recorded, and no extraordinary fees
          or expenses are or will become payable to the trustee under the deed
          of trust, except in connection with default proceedings and a
          trustee's sale after default by the Mortgagor;

                    (xviii) With respect to any Mortgage Loan, Mego has no
          knowledge of any circumstances or conditions not reflected in the
          representations set forth herein, or in the Loan Schedule, or in the
          related File with respect to the related Mortgage, the related
          Property or the Obligor which could reasonably be expected to
          materially and adversely affect the value of the related Property, or
          the marketability of the Mortgage Loan or to cause the Mortgage Loan
          to become delinquent or otherwise in default;

                    (xix) Assuming no material change to the applicable law or
          regulations in effect as of the Closing Date, after the consummation
          of the transactions contemplated by this Agreement, the Trustee or its
          designee on behalf of the Trust will have the ability to foreclose or
          otherwise realize upon a Property, if the Loan is a Mortgage Loan, or
          to enforce the provisions of the related Loan against the Obligor
          thereunder, if the foreclosure upon any such Property or enforcement
          of the provisions of the related Loan against the Obligor are
          undertaken as set forth in Section 3.12;

                    (xx) With respect to any FHA Loan that is a Mortgage Loan,
          the improvements to the Property relating to such FHA Loan, have been
          or shall be completed and inspected by the Servicer within the time
          period and to the extent required under the applicable Title I
          regulations, and evidence of such inspection shall have been delivered
          to the Trustee or, if not, a letter of non-compliance shall be
          delivered to the Trustee promptly upon the completion of such
          inspection;

                    (xxi) Each FHA Loan has been originated in compliance with
          the provisions of 24 C.F.R. Section 201.20, and, if required by Title
          I, the market value


                                       41
<PAGE>   47
          of the any related Property has been ascertained in accordance with
          the procedures established by HUD;

                    (xxii) There exists a File relating to each Loan and such
          File contains all of the original or certified documentation listed in
          Section 2.01(b)(A) for such Loan. Each Legal File has been delivered
          to the Trustee and each Credit File is being held in trust by Mego for
          the benefit of, and as agent for, the Certificateholders, the
          Certificate Insurer and the Trustee as the owner thereof. Each
          document included in the File which is required to be executed by the
          Obligor has been executed by the Obligor in the appropriate places.
          With respect to each Mortgage Loan, the related assignment of Mortgage
          to the Trustee is in recordable form and is acceptable for recording
          under the laws of the jurisdiction in which the Property is located.
          All blanks on any form required to be completed have been so
          completed;

                    (xxiii) Each FHA Loan is in respect of a home improvement
          loan or a retail installment sale contract, and each Property is
          improved by a residential dwelling and is not a Loan in respect of a
          manufactured home or mobile home or the land on which a manufactured
          home or mobile home has been placed;

                    (xxiv) Each FHA Loan was originated by Mego in accordance
          with the applicable underwriting criteria established by the FHA and
          HUD; each Non-FHA Loan was originated by Mego in accordance with
          Mego's "Express 35/Swift 60 Loan Program" or "Debt Consolidation 125
          Loan Program" underwriting guidelines, as applicable, attached hereto
          as Exhibit G;

                    (xxv) Any Property securing an FHA Loan is covered by any
          insurance required by Title I; if the Property securing any Mortgage
          Loan is in an area identified by the Federal Emergency Management
          Agency ("FEMA") as having special flood hazards, unless the community
          in which the area is situated is participating in the National Flood
          Insurance Program and the regulations thereunder or less than a year
          has passed since FEMA notification regarding such hazards, a flood
          insurance policy is in effect with respect to such Property with a
          generally acceptable carrier which complies with Section 102(a) of the
          Flood Disaster Protection Act of 1973; all improvements upon each
          Property securing a Non-FHA Loan are insured by a generally acceptable
          insurer against loss by fire hazards of extended coverage and such
          other hazards as are customary in the area where the Property is
          located pursuant to insurance policies conforming to the requirements
          of the Agreement; all such policies contain a standard mortgage clause
          naming Mego, its successors and assigns, as loss payee.

                    (xxvi) All costs, fees and expenses incurred in originating
          and closing the Loan and in recording any related Mortgage were paid
          and the Obligor is not entitled to any refund of any amounts, paid or
          due to the Obligee pursuant to the Note or any related Mortgage;

                    (xxvii) Except for the related FHA Premium Amount, if
          applicable, there is no obligation on the part of Mego or any other
          party other than the Obligor to make payments with respect to the
          Loan;


                                       42
<PAGE>   48

                    (xxviii) At the time of origination of the Loan, each
          related prior lien, if any, was not 30 or more days delinquent;

                    (xxix) All parties which have had any interest in the Loan,
          whether as mortgagee, assignee, pledgee or otherwise, are (or, during
          the period in which they held and disposed of such interest, were) (i)
          in compliance with any and all applicable licensing requirements of
          the laws of the state wherein the Property is located, and (ii) (A)
          organized under the laws of such state, or (B) qualified to do
          business in such state, or (C) federal savings and loan associations
          or national banks having principal offices in such state, or (D) not
          doing business in such state;

                    (xxx) With respect to each Mortgage Loan, the related
          Mortgage contains an enforceable provision requiring the consent of
          the Mortgagee to assumption of the related Mortgage Loan upon sale of
          the Property;

                    (xxxi) With respect to any Mortgage Loan, there is no
          homestead or other exemption available to the Mortgagor which would
          materially interfere with the right to sell the related Property at a
          trustee's sale or the right to foreclose the Mortgage; no relief has
          been requested or allowed to the Mortgagor under the Civil Relief Act;

                    (xxxii) Subject to Section 2.04(b), each FHA Loan has been
          submitted to the FHA for insurance pursuant to the FHA Title I loan
          program and each FHA Loan has been or will be assigned a case number
          by the FHA for the FHA Title I loan program;

                    (xxxiii) Subject to Section 2.04(b), the FHA Reserve Amount
          with respect to each FHA Loan, has been or will be transferred to the
          FHA Insurance Coverage Reserve Account;

                    (xxxiv) The related File for each FHA Loan that is a
          Mortgage Loan contains a Title Document with respect to such Loan
          reflecting that title to the related Property is vested at least 50%
          in the Obligor under such Loan;

                    (xxxv) Each Property (including each residential dwelling
          improvement thereon) is free of damage which materially and adversely
          affects the value thereof and, if the related Loan is an FHA Loan,
          impairs the ability to insure the related Loan under the Title I
          program;

                    (xxxvi) Each Group I Loan is a "qualified mortgage" under
          Section 860G(a)(3) of the Code;

                    (xxxvii) Each Loan was originated in compliance with all
          applicable laws and, to the best of Mego's knowledge, no fraud or
          misrepresentation was committed by any Person in connection therewith
          or, if the related loan is an FHA Loan, in the application for any
          insurance required by Title I in relation to such FHA Loan;


                                       43
<PAGE>   49
                    (xxxviii) Each Loan has been serviced in accordance with all
          applicable laws and, to the best of Mego's knowledge, no fraud or
          misrepresentation was committed by any Person in connection therewith;

                    (xxxix) The transfer, assignment and conveyance of the Notes
          and the Mortgages by Mego to the Depositor were not subject to the
          bulk transfer laws or any similar statutory provisions in effect in
          any applicable jurisdiction;

                    (xl) Any Loan originated in the State of Texas, was
          originated pursuant to either Chapter 3 or Chapter 6 of the Texas
          Consumer Credit Code;

                    (xli) As of the applicable Cut-Off Date, no Mortgagor is a
          debtor under proceedings under the Bankruptcy Code, and no such
          Mortgagor has defaulted in payments on a Loan after the filing of such
          bankruptcy case, whether under a plan or reorganization or otherwise;

                    (xlii) Mego has not advanced funds, or induced, solicited or
          knowingly received any advance of loan payments from a party other
          than, with respect to a Mortgage Loan, the owner of the Property
          subject to the Mortgage;

                    (xliii) Mego originated the Loans through its network of
          dealers and correspondents;

                    (xliv) Each Loan conforms, and all such Loans in the
          aggregate conform, to the description thereof set forth in the
          Prospectus Supplement;

                    (xlv) With respect to FHA Loans secured by a Mortgage, the
          representations and warranties of the Mortgagor in each mortgage loan
          application and in connection with the related FHA Loan are true and
          correct in all material respects (and it shall be deemed that a breach
          is material only if a claim for payment made to the FHA under the
          Contract of Insurance in respect of such FHA Loan is a Rejected Claim
          as a result of such breach);

                    (xlvi) Each Loan either complies with the Home Ownership and
          Equity Protection Act of 1994 or is not subject to such act;

                    (xlvii) Mego has caused to be performed or shall cause to be
          performed within 15 Business Days of the Closing Date any and all acts
          required to preserve the rights and remedies of the Trustee in any
          insurance policies applicable to each Loan and, if such Loan is an FHA
          Loan, required by Title I, including, without limitation, any
          necessary notifications of insurers, assignments of policies or
          interests therein, and establishment of coinsured, joint loss payee
          and mortgagee rights in favor of the Trustee;

                    (xlviii) With respect to any Mortgage Loan, to Mego's best
          knowledge, there exists no violation of any environmental law (either
          local, state or federal), rule or regulation in respect of the
          Property which violation has or could have a material adverse effect
          on the market value of such Property. Mego has no knowledge of any


                                       44
<PAGE>   50
          pending action or proceeding directly involving the related Property
          in which compliance with any environmental law, rule or regulation is
          in issue; and, to Mego's best knowledge, nothing further remains to be
          done to satisfy in full all requirements of each such law, rule or
          regulation constituting a prerequisite to the use and enjoyment of
          such Property; and

                    (xlix) Not more than 0.762% of the FHA Loans (by aggregate
          Initial Principal Balance) and none of the Non-FHA Loans are secured
          by Mortgages on nonowner occupied Properties.

                    (l) Substantially all of the proceeds of each FHA Loan that
          is a Mortgage Loan were used to acquire, improve or protect an
          interest in real property. For purposes of this representation,
          "interest in real property" shall have the meaning set forth in
          Treasury Regulation Section1.856-3(c) and Section1.856-3(d).

                    (li) No Loan was selected from among Mego's assets in a
          manner which would cause them to be adversely selected as to credit
          risk from the pool of home improvement loans owned by Mego. The
          parties to the Agreement hereby acknowledge that the Seller is not
          selling $9,200,000 of Title I Loans with loan rates of 11% per annum
          or less in its inventory to the Trust.

               (c) The representations and warranties set forth in Section 2.03
(together with the remedies with respect thereto): (i) shall survive delivery of
the related Legal Files to the Trustee and the delivery of and payment for the
Certificates and shall be continuing (but shall speak as of their respective
dates) as long as any Certificate is Outstanding or this Agreement has not been
terminated, and (ii) are made exclusively to the Master Servicer, the Depositor,
the Certificate Insurer and the Trustee for the benefit of Certificateholders.
No representation or warranty made in this Section 2.03 shall constitute a
waiver of any right, claim or defense of the obligee with respect to any
Obligor, Note, Mortgage, or Property.

               Section 2.04. Defective Loans.

               (a) Upon determination by the Master Servicer, the Certificate
Insurer, the Depositor, Mego or the Trustee that:

                    (i) any document constituting a part of any File was not
          delivered to the Trustee or, with respect to any document constituting
          the Credit File, to Mego, as custodian for the Trustee, the
          Certificate Insurer and Certificateholders, by the time required
          hereby (which in the case of (A) a failure to deliver a recorded
          mortgage or recorded assignment pursuant to Section 2.01(b)(A)(ii) or
          (A)(iv) (only under the circumstances in which a delay is caused by
          the public recording office and an Officer's Certificate is required
          to be provided thereunder) shall be the 20 month anniversary of the
          Closing Date, (B) failure to deliver a completion certificate or
          inspection report pursuant to Section 2.01(b)(A)(vi)(H) shall be the
          14 month anniversary of the Closing Date, (C) a failure to deliver
          each other document constituting a part of any Legal File shall be the
          Closing Date and (D) a failure to deliver each document (other than
          those described in clause (B) above) specified in Section


                                       45
<PAGE>   51
          2.01(b)(A)(vi) shall be 45 Business Days after the Closing Date) to be
          so delivered or was defective in any material respect when delivered
          to the Trustee; or

                    (ii) any of the statements made by Mego in Section 2.03
          shall prove to have been untrue in a manner that materially and
          adversely affects the interests of Certificateholders or the
          Certificate Insurer in the Loan with respect to which such statement
          is made or in the Loans;

the party identifying any of the foregoing shall give prompt written notice to
the other parties and the Certificate Insurer. Nothing contained herein shall
require the Trustee to undertake any independent investigation or to make any
review of any File other than as provided for in Section 2.02.

               (b) Except with respect to a breach of the representations made
by Mego pursuant to Section 2.03(b)(xxxiii) and (xxxiv), in the event of a
determination referred to in Section 2.04(a) and a failure within sixty Business
Days of discovery or receipt of notice of such failure to effect a cure of the
circumstances giving rise to such defect, Mego shall be obligated, on the
Monthly Cut-Off Date next succeeding the expiration of such sixty-day period, to
repurchase (or substitute for, to the extent permitted by subsection (c) below)
the affected Loan. The Certificate Insurer and the Trustee on behalf of the
Certificateholders agree that if an FHA Loan is a Defective Loan because a
document is not included in the Credit File as of the 60th Business Day after
the discovery or receipt of notice thereof, such defect shall be deemed to be
cured if the Trustee shall have received during the sixty-day period after such
date a written statement addressed to it from the Director of HUD Title I
Insurance Division that such document would not be required in connection with a
claim for FHA Insurance with respect to such FHA Loan. Except as set forth in
Section 5 of the Indemnification Agreement, it is understood and agreed that the
obligation of Mego to repurchase or substitute any such Loan pursuant to this
Section shall constitute the sole remedy against it with respect to such breach
of the foregoing representations or warranties or the existence of the foregoing
conditions. For purposes of calculating 90 Business Days from the discovery of a
Defective Loan that is an FHA Loan because a document is not included in the
Credit File in this Section 2.04(b), a Business Day shall not include any day on
which the FHA is officially closed for reasons other than as specified in the
definition of Business Day. With respect to representations and warranties made
by Mego pursuant to Section 2.03(b) that are made to Mego's best knowledge, if
it is discovered by any of the Depositor, Mego, the Trustee or the Certificate
Insurer that the substance of such representation and warranty is inaccurate and
such inaccuracy materially and adversely affects the value of the related Loan,
notwithstanding Mego's lack of knowledge, such inaccuracy shall be deemed a
breach of the applicable representation and warranty.

               With respect to a breach of the representations made by Mego
pursuant to Section 2.03(b)(xxxiii) or (xxxiv) if the FHA has not assigned a
case number under the Contract of Insurance to an FHA Loan to indicate that such
FHA Loan is eligible for Title I Insurance coverage under the Contract of
Insurance on or before the 120th day after the Closing Date, Mego shall be
obligated, on the Monthly Cut-Off Date next succeeding such 120th day, to
repurchase such FHA Loan. If the FHA Reserve Amount with respect to an FHA Loan
has not been transferred to the FHA Insurance Coverage Reserve Account on or
before the 150th day after the Closing Date, Mego shall be obligated, on the
Monthly Cut-Off


                                       46
<PAGE>   52
Date next succeeding such 150th day, to repurchase such FHA Loan. The Claims
Administrator shall give notice in writing to each of the Master Servicer, the
Certificate Insurer, the Depositor, Mego and the Trustee of (i) any FHA Loan
with respect to which there has not been assigned a case number under the
Contract of Insurance on or before the 120th day after the Closing Date and (ii)
any FHA Loan that has not been transferred to the FHA Insurance Coverage Reserve
Account on or before the 150th day after the Closing Date. For purposes of
calculating either 120 or 150 days from the Closing Date in this Section
2.04(b), any day on which the FHA is officially closed for reasons other than
such day being a Saturday, Sunday or a day on which banking institutions in
Washington, D.C. are authorized or obligated by law, executive order or
governmental decree to be closed, shall not be counted in making such
calculation.

               If Mego is required to repurchase any Loan on a Monthly Cut-Off
Date that is not a Business Day, such repurchase shall be made on the last
Business Day preceding such Monthly Cut-Off Date. Any Loan required to be
purchased or repurchased pursuant to this Section 2.04(b) is referred to as a
"Defective Loan."

               (c) Mego shall be obligated to repurchase a Defective Loan for
the Purchase Price, payable to the Trustee in cash on the Monthly Cut-Off Date
specified in Section 2.04(b) for deposit in the related Distribution Account.
Notwithstanding the foregoing, within two years of the Closing Date, Mego may
elect in lieu of the purchase or repurchase of a Defective Loan as provided in
this Section 2.04, to substitute, as of the Monthly Cut-off Date specified in
Section 2.04(b), a Substitute Loan for the Defective Loan in accordance with the
provisions of this Section 2.04.

               (d) Mego shall notify the Servicer, the Trustee and the
Certificate Insurer in writing not less than five Business Days before the
related Determination Date which is on or before the date on which Mego would
otherwise be required to repurchase such Loan pursuant to Section 2.04(b) of its
intention to effect a substitution under this Section. On such Determination
Date (the "Substitution Date"), Mego shall deliver to the Trustee and the
Certificate Insurer (1) a list of the Loans to be substituted for by such
Substitute Loans, and attaching as an exhibit a supplemental Loan Schedule (the
"Supplemental Loan Schedule") setting forth the same type of information
appearing on the Loan Schedule and representing as to the accuracy thereof and
(2) an Opinion of Counsel to the effect set forth below. In connection with any
substitution pursuant to this Section 2.04, to the extent that the aggregate
Principal Balance of any Substitute Loan or Loans is less than the aggregate
Principal Balance of the corresponding Loan or Loans as of the Determination
Date on which the substitution is being made, Mego shall deposit such difference
(a "Substitution Adjustment Amount") to the Distribution Account on such date.

               (e) Concurrently with the satisfaction of the conditions set
forth in this Section 2.04 and the grant of such Substitute Loans to the Trustee
pursuant to Section 2.04(c), Exhibit B to this Agreement shall be deemed to be
amended to exclude all Loans being replaced by such Substitute Loans and to
include the information set forth on the Supplemental Loan Schedule with respect
to such Substitute Loans, and all references in this Agreement to Loans shall
include such Substitute Loans and be deemed to be made on or after the related
Substitution Date, as the case may be, as to such Substitute Loans.


                                       47
<PAGE>   53
               In connection with any Loan for which Mego elects to substitute a
Substitute Loan, Mego shall deliver to the Trustee and the Certificate Insurer
an Opinion of Counsel to the effect that such actions will not cause (x) any
federal tax to be imposed on the Trust, including without limitation, with
respect to a Substitute Loan for Loan Group I, any Federal tax imposed on
"prohibited transactions" under Section 860F(a)(1) of the Code or on
"contributions after the start-up day" under Section 860G(d)(1) of the Code or
(y) solely with respect to substitutions in Loan Group I, any portion of the
Trust to fail to qualify as a REMIC at any time that any Certificate is
outstanding. In the event that such opinion indicates that such substitution
will result in the imposition of a prohibited transaction tax, give rise to net
taxable income or be deemed a contribution to the REMIC after the "start-up
day", Mego shall not be permitted to substitute for such Loan but shall
repurchase such Loan in accordance with this Section 2.04.

               (f) Notwithstanding the provisions of Section 2.04(b), the
Certificate Insurer, in its sole discretion, may extend, by not more than 150
days from the date of the notice described in Section 2.04(b), the sixty-day
period available, pursuant to Section 2.04(b), to Mego to cure the circumstances
giving rise to a defect with respect to any Loan described in Section 2.04(a).

               (g) With respect to all Defective Loans or other Loans
repurchased by Mego pursuant to this Agreement, upon the deposit of the Purchase
Price therefor to the related Distribution Account, the Trustee shall assign to
Mego, without recourse, representation or warranty, all the Trustee's right,
title and interest in and to such Defective Loans or Loans, which right, title
and interest were conveyed to the Trustee pursuant to Section 2.01, including,
without limitation, the rights any FHA Insurance reserves attributable to such
Loans. The Trustee shall take any actions as shall be reasonably requested by
Mego to effect the repurchase of any such Loans.

               Section 2.05. Representations and Warranties of the Depositor.

               The Depositor hereby represents and warrants to Mego, the Master
Servicer and the Trustee for the benefit of the Certificateholders and the
Certificate Insurer, that, as of the Closing Date:

                    (i) The Depositor is a corporation duly organized, validly
          existing and in good standing under the laws of the State of Delaware
          with full power and authority to own its properties and conduct its
          business as such properties are presently owned and such business is
          presently conducted;

                    (ii) The Depositor has full power and authority to execute,
          deliver and perform, and to enter into and consummate all transactions
          required of it by this Agreement and each other Transaction Document
          to which it is a party; has duly authorized the execution, delivery
          and performance of this Agreement and each other Transaction Document
          to which it is a party; has duly executed and delivered this Agreement
          and each other Transaction Document to which it is a party; when duly
          authorized, executed and delivered by the other parties hereto, this
          Agreement and each other Transaction Document to which it is a party
          will constitute a legal, valid and binding obligation of the Depositor
          enforceable against it in accordance with its terms,


                                       48
<PAGE>   54
          except as such enforceability may be limited by general principles of
          equity (whether considered in a proceeding at law or in equity);

                    (iii) Immediately prior to the sale, transfer and assignment
          by the Depositor to the Trustee of each Loan, the Depositor had good
          and indefeasible title to each Loan and the related Note and any
          related Mortgage (insofar as such title was conveyed to it by Mego)
          subject to no prior lien, claim, participation interest, mortgage,
          security interest, pledge, charge or other encumbrance or other
          interest of any nature;

                    (iv) As of the Closing Date, the Depositor has transferred
          all right, title and interest in the Loans to the Trustee;

                    (v) The Depositor has not transferred the Loans to the
          Trustee with any intent to hinder, delay or defraud any of its
          creditors;

                    (vi) Neither the execution and delivery of this Agreement or
          any of the other Transaction Documents to which the Depositor is a
          party, the consummation of the transactions required of it herein or
          under any other such Transaction Document, nor the fulfillment of or
          compliance with the terms and conditions of this Agreement or any of
          the other Transaction Documents to which the Depositor is a party,
          will conflict with or result in a breach of any of the terms,
          conditions or provisions of the Depositor's charter or by-laws or any
          legal restriction or any material agreement or instrument to which the
          Depositor is now a party or by which it is bound, or which would
          adversely affect the creation and administration of the Trust as
          contemplated hereby, or constitute a material default or result in an
          acceleration under any of the foregoing, or result in the violation of
          any law, rule, regulation, order, judgment or decree to which the
          Depositor is subject;

                    (vii) There is no action, suit, proceeding, investigation or
          litigation pending against the Depositor or, to its knowledge,
          threatened, which, if determined adversely to the Depositor, would
          materially adversely affect the sale of the Loans, the issuance of the
          Certificates, the execution, delivery or enforceability of this
          Agreement or any other Transaction Document to which the Depositor is
          a party, or which would have a material adverse affect on the
          financial condition of the Depositor; and

                    (viii) The Depositor received fair consideration and
          reasonably equivalent value in exchange for the sale of the interest
          in the Loans evidenced by the Certificates.

               Section 2.06. Execution, Countersignature and Delivery of
Certificates.

               Concurrently with, and in consideration for, the sale, transfer,
assignment and conveyance by the Depositor of the Loans listed in the Loan
Schedule on the Closing Date, the delivery by the Depositor of the related Files
pursuant to Section 2.01(b), the delivery of the cash required by Section
2.01(c) to be deposited in the related Distribution Account and the related FHA
Premium Account, the Trustee has executed, authenticated and delivered to or
upon the order of the Depositor, the Class IA-1 Certificates, Class IA-2
Certificates, Class


                                       49
<PAGE>   55
IA-3 Certificates, Class IIA Certificates, Class IS Certificates, Class IIS
Certificates and the Class R Certificates specified in Section 5.01(a).


                                       50
<PAGE>   56
                                   ARTICLE III

                     Administration and Servicing of Loans;
                              Claims Administration

               Section 3.01. Servicing Standard.

               (a) The Master Servicer is hereby authorized to act as agent for
the Trust and in such capacity shall manage, service, administer and make
collections on the Loans, and perform the other actions required by the Master
Servicer under this Agreement. In performing its obligations hereunder the
Master Servicer shall at all times act in good faith in a commercially
reasonable manner in accordance with all requirements of the FHA applicable to
the servicing of the FHA Loans and otherwise in accordance with applicable law
and the Notes and Mortgages. The Master Servicer shall at all times service and
administer the FHA Loans in accordance with Title I, and shall have full power
and authority, acting alone and/or through the Servicer as provided in Section
3.02, subject only to this Agreement, the respective Loans, and, in the case of
the FHA Loans, the specific requirements and prohibitions of Title I, to do any
and all things in connection with such servicing and administration which are
consistent with the manner in which prudent servicers service FHA Title I home
improvement loans and which are consistent with the ordinary practices of
prudent mortgage lending institutions, but without regard to:

                    (i) any relationship that the Master Servicer, the Servicer
          or any affiliate of the Master Servicer or any Servicer may have with
          the related Obligor:

                    (ii) Mego's obligations to repurchase or substitute for a
          Defective Loan pursuant to Section 2.04(c) or any FHA Loans pursuant
          to Section 3.12(b);

                    (iii) the ownership of any Certificate by the Master
          Servicer or any affiliate of the Master Servicer;

                    (iv) the Master Servicer's obligation to make Interest
          Advances pursuant to Section 3.08(a), to make Foreclosure Advances
          pursuant to Section 3.08(b), or repurchase any FHA Loans pursuant to
          Section 3.12; or

                    (v) the Master Servicer's right to receive compensation for
          its services hereunder pursuant to Section 4.05.

               The Master Servicer may take any action hereunder, including
exercising any remedy under any Loan, retaining counsel in connection with the
performance of any of its obligations hereunder and instigating litigation to
enforce any obligation of any Obligor, without the consent or approval of the
Trustee or the Certificate Insurer, unless any such consent or approval is
expressly required hereunder or under applicable law.

               (b) The Trustee shall execute and return to the Master Servicer
or the Servicer designated in a written instruction from the Master Servicer to
the Trustee, within 5 days of the Trustee's receipt any and all documents or
instruments necessary to maintain the lien created by any Mortgage on the
related Property or any portion thereof, and, within


                                       51
<PAGE>   57
5 days of request by the Master Servicer or the Servicer therefor a power of
attorney in favor of the Servicer with respect to any modification, waiver, or
amendment to any document contained in any File and any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge, and
all other comparable instruments, with respect to the Loans and with respect to
the related Properties prepared and delivered to the Trustee by the Master
Servicer or any Servicer, all in accordance with the terms of this Agreement.

               (c) The Trustee shall furnish the Master Servicer within 5 days
of request of a Master Servicing Officer therefor any powers of attorney and
other documents necessary and appropriate to carry out its servicing and
administrative duties hereunder, including any documents or powers of attorney
necessary to foreclose any Loan. The forms of any such powers or documents shall
be appended to such requests.

               (d) Nothing in this Agreement shall preclude the Master Servicer,
in its individual capacity, from entering into other mortgage loans or other
financial transactions with any Obligor or from refinancing any Loan.

               (e) The Servicer hereby incorporates by reference the
representations, warranties and covenants made by it in Section 2.02 of the
Servicing Agreement.

               Section 3.02. Servicing Arrangements.

               (a) On or prior to the date hereof, the Master Servicer has
entered into a Servicing Agreement with respect to all of the Loans, in
substantially the form of the Form of the Servicing Agreement attached hereto as
Exhibit A with Mego, as Servicer. So long as no Certificate Insurer Default
shall have occurred and be continuing, upon the termination of the Servicing
Agreement, the Master Servicer may only appoint or consent to the appointment or
succession of a successor Servicer under the Servicing Agreement and may only
enter into a substitute servicing agreement which is in form and substance as
the Servicing Agreement attached hereto as Exhibit A (which, with the consent of
the Certificate Insurer, may differ in material respects from the Form of
Servicing Agreement attached hereto as Exhibit A) and with a Person acceptable
to the Certificate Insurer. So long as no Certificate Insurer Default exists,
the Master Servicer shall not consent to any material amendment, modification or
waiver of the provisions of a Servicing Agreement without the consent of the
Certificate Insurer.

               (b) No provision of this Agreement or the Servicing Agreement
shall be deemed to relieve the Master Servicer of any of its duties and
obligations to the Trustee on behalf of Certificateholders and the Certificate
Insurer with respect to the servicing and administration of the Loans as
provided hereunder; it being understood that the Master Servicer shall be
obligated with respect thereto to the same extent and under the same terms and
conditions as if it alone were performing all duties and obligations set forth
in this Agreement in connection with the collection, servicing and
administration of such Loans.

               (c) Without limitation of the provisions of Section 3.02(b), the
Master Servicer shall (i) review the servicing reports prepared by the Servicer
in order to ensure the accuracy thereof, (ii) review the reports submitted by
the Servicer to confirm that the Servicer is collecting and appropriately
accounting for Obligor payments of premium on FHA Insurance


                                       52
<PAGE>   58
on Invoiced Loans, (iii) otherwise monitor the performance by the Servicer under
the Servicing Agreement and notify the Trustee and the Certificate Insurer of
any Servicer Termination Event, and (iv) be obligated to ensure that the
Servicer deposits Payments into the related Collection Account. In the event the
Servicer fails to make such deposit, the Master Servicer will deposit such
amounts as set forth in Section 4.03(a).

               (d) The Master Servicer agrees that it shall at all times be
prepared (and shall take all steps reasonably required by the Certificate
Insurer to ensure such preparation), to perform the obligations of the Servicer
if the Servicer fails to perform its duties and obligations under the Servicing
Agreement.

               (e) The Servicing Agreement may provide that the Servicer may
retain, as additional compensation, prepayment penalties, assumption and
processing fees paid by any Obligor and all similar fees customarily associated
with the servicing of the Loans, including, but not limited to late charges,
paid by any Obligor.

               (f) At the direction of the Certificate Insurer, so long as no
Certificate Insurer Default exists, the Master Servicer shall terminate the
Servicer upon the occurrence and continuance of a Servicer Termination Event
pursuant to the terms of the Servicing Agreement.

               (g) Mego, as Servicer, shall provide information to the Master
Servicer monthly in a mutually agreeable format in order to enable the Master
Servicer to independently reconfirm the loan-by-loan reconciliation of the
outstanding Principal Balance of each Loan included in such information. The
Master Servicer shall prepare exception reports, if necessary, showing all
Principal Balance differences between the information provided by the Servicer
and the confirmations prepared by the Master Servicer and shall furnish such
reports to the Trustee for distribution to the Certificate Insurer. If requested
by the Certificate Insurer, the Servicer shall provide to the Certificate
Insurer all information provided to the Master Servicer pursuant to this Section
3.02(g).

               Section 3.03. Servicing Record.

               (a) The Master Servicer shall establish and maintain books and
records for each Loan Group, (each, a "Servicing Record") in which the Master
Servicer shall record by Loan Group: (i) all Payments received or collected by
or on behalf of the Master Servicer (through the Servicer or otherwise) or
received by the Trustee in respect of each Loan and each Foreclosed Property and
(ii) all amounts owing to the Master Servicer in compensation for services
rendered by the Master Servicer hereunder or in reimbursement of costs and
expenses incurred by the Master Servicer hereunder. In addition, the Master
Servicer shall establish and maintain records for the Insurance Record (which
shall be part of each Servicing Record) in which the Master Servicer shall
record all claims made under the Contract of Insurance, all payments received by
or on behalf of the Contract of Insurance Holder from the FHA for each such
claim and the amount of insurance coverage available in the Insurance Record.

               (b) Except as otherwise provided herein, amounts received or
collected by or on behalf of the Master Servicer or the Trustee from or on
behalf of any Obligor or in


                                       53
<PAGE>   59
respect of any Foreclosed Property or from FHA with respect to a claim made
under the Contract of Insurance shall be credited to applicable Servicing
Record:

                    (i) promptly following direct receipt or direct collection
          by the Master Servicer;

                    (ii) in the case of a Loan directly serviced by a Servicer,
          promptly following deposit of the receipt or collection in the related
          Collection Account; or

                    (iii) in the case of any amount received directly by the
          Trustee, promptly following the Master Servicer's actual knowledge of
          receipt by the Trustee pursuant to the notice required by Section
          3.12(e) or otherwise;

but in any event not later than the Determination Date next following the date
of receipt or collection by or on behalf of the Master Servicer (through the
Servicer or otherwise) or receipt by the Trustee. Amounts received or collected
by the Master Servicer in connection with the purchase or repurchase of any Loan
or any Foreclosed Property shall be so recorded on and as of the date of
receipt. Each Servicing Record shall separately reflect amounts so received or
collected by the Master Servicer in each Due Period. All Obligor Payments
received from FHA Loans from or on behalf of an Obligor shall be allocated in
accordance with Title I.

               (c) The Master Servicer shall credit to each Servicing Record
relating to each Due Period, on a Loan-by-Loan basis, each of the following
Payments collected or received by or on behalf of the Master Servicer (through
the Servicer or otherwise) or received by the Trustee in respect of each Loan in
the related Loan Group and each Foreclosed Property relating to such Loan Group:

                    (i) all payments on account of principal;

                    (ii) all payments on account of interest;

                    (iii) all proceeds of the purchase or repurchase of any Loan
          pursuant to Section 2.04(b) or, with respect to FHA Loans, Section
          3.12(b) and all Substitution Adjustment Amounts;

                    (iv) all amounts paid by or on behalf of the related Obligor
          in respect of Foreclosure Advances previously advanced by the Master
          Servicer or the Servicer;

                    (v) all revenues received or collected in respect of any
          Foreclosed Property, including all proceeds of the sale of any
          Foreclosed Property pursuant to Section 3.13;

                    (vi) all proceeds of the sale of the Loans and any
          Foreclosed Properties pursuant to Section 9.01;

                    (vii) all FHA Insurance Payment Amounts; and


                                       54
<PAGE>   60
                    (viii) all Insurance Proceeds, any condemnation awards or
          settlements or any payments made by any related guarantor or
          third-party credit-support provider and any and all other amounts
          received in respect of Loans and not specified above.

               (d) Notwithstanding anything to the contrary herein, the Master
Servicer shall not be required to credit to the Servicing Record, and neither
the Master Servicer nor any Certificateholder shall have any right or interest
in any amount due or received with respect to any Loan or any related Foreclosed
Property subsequent to the date of repurchase of such Loan or Foreclosed
Property from the Trust.

               (e) The Master Servicer shall separately record in each Servicing
Record for each Loan Group the items required to be included in the Master
Servicer Certificate for such Loan Group and additionally the following items
with respect to such Loan Group to the extent not included therein:

                    (i) on or before each Determination Date, the related unpaid
          Master Servicer Fee due the Master Servicer on the next Distribution
          Date;

                    (ii) on or before each Determination Date, all amounts
          retained by the Servicer in respect of the preceding Due Period in
          respect of amounts due Independent Contractors hired by the Master
          Servicer to operate and manage a Foreclosed Property pursuant to
          Section 3.14(c);

                    (iii) on or before each Determination Date, the amount of
          unreimbursed Interest Advances in respect of prior Distribution Dates
          and the amount which the Master Servicer or the Servicer is entitled
          to be reimbursed therefor in accordance with Section 3.08;

                    (iv) on or before each Determination Date, all amounts due
          as of the preceding Monthly Cut-Off Date in reimbursement of
          Foreclosure Advances previously advanced by the Master Servicer or the
          Servicer (separately identifying the type and amount of each then
          due);

                    (v) on or before each Determination Date and based on
          information provided to the Master Servicer by the Trustee, all Other
          Fees required to be distributed pursuant to Section 4.05(a)(xv) or
          4.05(b)(xiv), as applicable on the next succeeding Distribution Date;

                    (vi) promptly following each Distribution Date, the
          aggregate amount of the Master Servicer Fee and Servicer Fee paid to
          the Master Servicer or Servicer, respectively, on such Distribution
          Date pursuant to Section 4.05(a)(ii) or 4.05(b)(ii), as applicable;

                    (vii) promptly following each Distribution Date, the
          aggregate amount of Interest Advances and Foreclosure Advances
          reimbursed to the Master Servicer or the Servicer on such Distribution
          Date;


                                       55
<PAGE>   61
                    (viii) on or before each Determination Date, all unpaid
          Trustee Fees due the Trustee as of the preceding Monthly Cut-Off Date
          pursuant to Section 8.05;

                    (ix) on or before each Determination Date, the Principal
          Balance of Loans that became Defaulted Loans during the prior Due
          Period;

                    (x) on or before each Determination Date, each Collateral
          Performance Percentage,

                    (xi) on or before each Determination Date, the amount
          deposited into each Collection Account representing payments by the
          related Obligors on Invoiced Loans in respect of premium on FHA
          Insurance;

                    (xii) on or before each Determination Date, the amount
          remaining in the FHA Insurance Coverage Reserve Account with respect
          to all FHA Loans and the Related Series Loans, if any;

                    (xiii) on or before each Determination Date, identification
          by loan number, Obligor name, address of Property and Principal
          Balance of such Loan with respect to which the Master Servicer has
          requested that the Trustee obtain the environmental report required by
          Section 3.12 in connection with deciding pursuant to Section 3.12 to
          foreclose on or otherwise acquire title to the related Property;

                    (xiv) on or before each Determination Date, the Principal
          Balance of each such Loan with respect to which the Master Servicer
          has determined under the circumstances described in the penultimate
          sentence of Section 3.12(a) that in good faith in accordance with
          customary mortgage loan servicing practices that all amounts which it
          expects to receive with respect to such Loan have been received; and

                    (xv) on or before each Determination Date, any other
          information with respect to the Loans reasonably required by the
          Trustee or the Certificate Insurer to determine the amount of required
          distributions pursuant to Section 4.05(a) or 4.05(b), as applicable,
          and determinable by the Master Servicer without undue burden from the
          Servicer or the items otherwise required to be maintained in each
          Servicing Record.

               (f) On or before each Distribution Date, the Master Servicer will
determine, based on the date of origination of the FHA Loans as set forth in the
Loan Schedule, the amount of FHA insurance premium, if any, due on or prior to
the next succeeding Distribution Date with respect to each FHA Loan. On or
before such Distribution Date, the Master Servicer will compare such amounts
with respect to each FHA Loan against amounts invoiced by FHA with respect to
the Contract of Insurance as due on or prior to such next succeeding
Distribution Date and report all discrepancies to the Trustee. Mego will assist
the Trustee with the transfer of FHA Insurance with respect to each FHA Loan to
the Contract of Insurance Holder. The Master Servicer is not responsible for the
transfer of FHA Insurance or the payment of any premium for FHA Insurance.


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<PAGE>   62
               Section 3.04. Annual Statement as to Compliance; Notice of Master
Servicer Termination Event.

               (a) The Master Servicer will deliver to the Trustee, the
Depositor and the Certificate Insurer on or before May 31 of each year an
Officer's Certificate signed by two Responsible Officers of the Master Servicer
stating with respect to the Trust created hereunder, that:

                    (i) a review of the activities of the Master Servicer during
          the preceding calendar year (or in connection with the first such
          Officer's Certificate the period from the Closing Date through the end
          of 1996) and of the Master Servicer's performance under this Agreement
          with respect to such Trust has been made under the supervision of the
          signer of such Officer's Certificate; and

                    (ii) to the best of such signer's knowledge, based on such
          review, the Master Servicer has fulfilled all its obligations under
          this Agreement throughout such year (or such portion of such year), or
          there has been a default in the fulfillment of any such obligation, in
          which case such Officer's Certificate shall specify each such default
          known to such signer and the nature and status thereof and what action
          the Master Servicer proposes to take with respect thereto.

               (b) The Master Servicer shall deliver to the Trustee, the
Certificate Insurer and the Depositor, promptly after having obtained knowledge
thereof, but in no event later than 2 Business Days thereafter, written notice
in an Officer's Certificate of any event which with the giving of notice or
lapse of time, or both, would become a Master Servicer Termination Event under
Section 7.01. Each of Mego, the Depositor, the Certificate Insurer, the Trustee
and the Master Servicer shall deliver to the other of such Persons promptly
after having obtained knowledge thereof, but in no event later than 2 Business
Days thereafter, written notice in an Officer's Certificate of any event which
with the giving of notice or lapse of time, or both, would become a Master
Servicer Termination Event under any other clause of Section 7.01.

               Section 3.05. Annual Independent Accountants' Report; Servicer
Review Report.

               (a) The Master Servicer shall cause a firm of Independent
Accountants, who may also render other services to the Master Servicer, to
deliver to the Trustee, the Depositor and the Certificate Insurer on or before
May 31 (or 150 days after the end of the Master Servicer's fiscal year) of each
year, beginning on the first May 31 (or other applicable date) after the date
that is six months after the Closing Date, with respect to the twelve months
ended the immediately preceding December 31 (or other applicable date) (or such
other period as shall have elapsed from the Closing Date to the date of such
certificate) a report, conducted in accordance with generally accepted
accounting principles (the "Accountant's Report") including: (i) an opinion on
the financial position of the Master Servicer at the end of its most recent
fiscal year, and the results of operations and changes in financial position of
the Master Servicer for such year then ended on the basis of an examination
conducted in accordance with generally accepted auditing standards, and (ii) a
statement to the effect that, based on an examination of certain specified
documents and records relating to the servicing


                                       57
<PAGE>   63
of the Master Servicer's mortgage loan portfolio or the affiliate of the Master
Servicer principally engaged in the servicing of mortgage loans conducted in
compliance with the audit program for mortgages serviced for FNMA, the United
States Department of Housing and Urban Development Mortgagee Audit Standards or
the Uniform Single Attestation Program for Mortgage Bankers (the "Applicable
Accounting Standards") such firm is of the opinion that such servicing has been
conducted in compliance with the Applicable Accounting Standards except for such
exceptions as such firm shall believe to be immaterial and such other exceptions
as shall be set forth in such statement.

               (b) In addition, the Master Servicer will provide a report of a
firm of Independent Accountants which shall state that (1) a review in
accordance with agreed upon procedures (determined by the Certificate Insurer)
was made of such number of Master Servicer Certificates which the Independent
Accountants deem necessary to carry out their review of Master Servicer
performance, but in no case less than two and (2) except as disclosed in the
Accountant's Report, no exceptions or errors in the Master Servicer Certificates
so examined were found. The Accountant's Report shall also indicate that the
firm is independent of the Master Servicer within the meaning of the Code of
Professional Ethics of the American Institute of Certified Public Accountants.

               (c) The Master Servicer shall mail a copy of the Servicer Review
Report and any report or statement of the Servicer prepared pursuant to Section
6.04 of the Servicing Agreement to the Trustee.

               (d) (1) The Master Servicer shall, unless otherwise directed by
the Certificate Insurer, cause a firm of Independent Accountants chosen with the
consent of the Certificate Insurer to review, annually within 90 days after each
anniversary of the Closing Date, in accordance with agreed upon procedures
(determined by the Certificate Insurer) the performance of the Servicer under
the Servicing Agreement in order to confirm that the records of the Servicer
accurately reflect collections, delinquencies and other relevant data with
respect to the Loans reported to the Master Servicer for the purpose of
preparation of the Servicing Record, and that such data is accurately reported
to the Master Servicer for reflection in the Servicing Record. Any exceptions or
errors disclosed by such procedures shall be included in a report delivered to
the Master Servicer, the Trustee and the Certificate Insurer (the "Servicer
Review Report").

               (2) If the Certificate Insurer, upon receipt and review of the
Servicer Review Report, determines in its sole discretion that the errors or
exceptions disclosed by the Servicer Review Report warrant further review of the
performance of the Servicer, then the Certificate Insurer may, so long as no
Certificate Insurer Default exists, direct the Master Servicer to cause such
firm of Independent Accountants to perform such further review with respect to
the performance of Servicer as is reasonably requested by the Certificate
Insurer.

               (3) In addition to the foregoing, the Certificate Insurer may at
any time and from time to time, so long as no Certificate Insurer Default
exists, direct the Master Servicer to cause such firm of Independent Accountants
to conduct such additional reviews and prepare such additional reports with
respect to the performance of any Servicer as the Certificate Insurer deems
reasonably appropriate.


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<PAGE>   64
               Section 3.06. Access to Certain Documentation and Information
Regarding Loans.

               The Master Servicer shall provide to representatives of the
Trustee or the Certificate Insurer reasonable access to (a) the documentation
regarding the Loans and to those employees of the Master Servicer who are
responsible for the performance of the Master Servicer's duties hereunder and
(b) the books of account, records, reports and other papers of the Master
Servicer and to discuss its affairs, finances and accounts with its employees
and Independent accountants for the purpose of reviewing or evaluating the
financial condition of the Master Servicer. The Master Servicer shall provide
such access to any Certificateholder only in such cases where the Master
Servicer is required by applicable statutes or regulations (whether applicable
to the Master Servicer or to such Certificateholder) to permit such
Certificateholder to review such documentation. In each case, such access shall
be afforded without charge but only upon reasonable request and during normal
business hours. Nothing in this Section shall derogate from the obligation of
the Master Servicer to observe any applicable law prohibiting disclosure of
information regarding the Obligors, and the failure of the Master Servicer to
provide access as provided in this Section as a result of such obligation shall
not constitute a breach of this Section. Any Certificateholder, by its
acceptance of a Certificate (or by acquisition of its beneficial interest
therein), shall be deemed to have agreed to keep confidential and not to use for
its own benefit any information obtained by it pursuant to this Section, except
as may be required by applicable law or by any applicable regulatory authority.

               Section 3.07. [Reserved]

               Section 3.08. Advances.

               (a) With respect to the Loans (other than Defaulted Loans) in
each Loan Group and each Distribution Date, the Master Servicer shall advance
from its own funds and deposit into the related Distribution Account or from
funds on deposit in the related Collection Account in respect of amounts
available for distribution on future Distribution Dates, no later than the
related Determination Date, the excess, if any, of (i) the aggregate of the
portions of the Monthly Payments due with respect to all Loans of the related
Loan Group in the related Due Period allocable to interest (calculated at a rate
equal to the Net Loan Rate) over (ii) the aggregate amount deposited into the
Distribution Account with respect to all Loans in such Loan Group and such
Distribution Date and allocated in accordance with Section 3.03(c) to interest
(such amounts, "Interest Advances"). Any funds so applied from funds on deposit
in the related Collection Account in respect of amounts available for
distribution on future Distribution Dates shall be reimbursed by the Master
Servicer on or before any future Distribution Date to the extent that funds on
deposit in such Collection Account applied in the order of priority set forth in
such Section 4.05(a) or 4.05(b), as applicable, would be less than the amount
required to be distributed pursuant to Section 4.05(a) or 4.05(b), as
applicable, on such dates as a result of such Interest Advances.

               Notwithstanding anything herein to the contrary, no Interest
Advance shall be required to be made hereunder if the Master Servicer determines
that such Interest Advance would, if made, constitute a Nonrecoverable Advance.


                                       59
<PAGE>   65
               (b) The Master Servicer shall advance from its own funds the
following amounts in respect of any Mortgage Loan or Foreclosed Property, as
applicable (collectively, "Foreclosure Advances"):

                    (i) all third party costs and expenses (including legal fees
          and costs and expenses relating to bankruptcy or insolvency
          proceedings in respect of any Obligor) associated with the institution
          of foreclosure or other similar proceedings in respect of any Loan
          pursuant to Section 3.12;

                    (ii) all insurance premiums due and payable in respect of
          each Foreclosed Property, prior to the date on which the related
          Insurance Policy would otherwise be terminated;

                    (iii) all real estate taxes and assessments in respect of
          each Foreclosed Property that have resulted in the imposition of a
          lien thereon, other than amounts that are due but not yet delinquent;

                    (iv) all costs and expenses necessary to maintain each
          Foreclosed Property;

                    (v) all fees and expenses payable to any Independent
          Contractor hired to operate and manage a Foreclosed Property pursuant
          to Section 3.14(c); and

                    (vi) all fees and expenses of any Independent appraiser or
          other real estate expert retained by the Trustee pursuant to Section
          3.13(a).

The Master Servicer shall advance the Foreclosure Advances described in clauses
(i) through (v) above if, but only if, it has approved the foreclosure or other
similar proceeding in writing and the Master Servicer would make such an advance
if it or an affiliate held the affected Mortgage Loan or Foreclosed Property for
its own account and, in the Master Servicer's good faith judgment, such amounts
will be recoverable from related Payments. In making such assessment with
respect to the institution of such proceedings, the Master Servicer shall not
advance funds with respect to a Mortgage Loan unless the appraised value of the
related Property exceeds the sum of (i) the amounts necessary to satisfy any
liens prior to the liens on Mortgages securing such Mortgage Loan and (ii) the
reasonably anticipated costs of foreclosure or similar proceedings.

               Section 3.09. Reimbursement of Interest Advances and Foreclosure
Advances.

               (a) The Master Servicer shall be entitled to be reimbursed
pursuant to Section 4.05(a)(iii), in the case of Group I Loans and pursuant to
Section 4.05(b)(iii), in the case of Group II Loans, for previously unreimbursed
Interest Advances made from its own funds or any such previously unreimbursed
Interest Advance by the Servicer with respect to a Loan on Distribution Dates
subsequent to the Distribution Date in respect of which such Interest Advance
was made from Payments with respect to such Loan. If a Loan shall become a
Defaulted Loan and the Master Servicer shall not have been fully reimbursed for
any such Interest Advances with respect to such Loan, the Master Servicer shall
be entitled to be


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<PAGE>   66
reimbursed for the outstanding amount of such Interest Advances from unrelated
Loans in the same Loan Group pursuant to Section 4.05(a)(iii), in the case of
Group I Loans and pursuant to Section 4.05(b)(iii), in the case of Group II
Loans. No interest shall be due to the Master Servicer in respect of any
Interest Advance for any period prior to the reimbursement thereof.

               (b) The Master Servicer shall be entitled to be reimbursed
pursuant to Section 4.05(a)(iii), in the case of Group I Loans and pursuant to
Section 4.05(b)(iii), in the case of Group II Loans from related Payments for
Foreclosure Advances advanced on or prior to the related Monthly Cut-Off Date
but only to the extent the Master Servicer has satisfied the requirements of
Section 3.08. No interest shall be due to the Master Servicer in respect of any
Foreclosure Advance for any period prior to the reimbursement thereof.

               (c) The Trustee shall offset against amounts otherwise
distributable to the Master Servicer pursuant to Section 4.05(a)(iii), with
respect to Group I Loans and pursuant to Section 4.05(b)(iii), with respect to
Group II Loans, amounts, if any, which were required to be deposited in any
Collection Account pursuant to Section 4.03(a) with respect to the related Due
Period but which were not so deposited.

               Section 3.10. Modifications, Waivers, Amendments and Consents.

               (a) The Master Servicer shall not agree to any modification,
waiver or amendment of any provision of any Loan unless, in the Master
Servicer's good faith judgment, such modification, waiver or amendment (i) would
minimize the loss that might otherwise be experienced with respect to such Loan,
and (ii) in the case of any FHA Loan, complies with the requirements of Title I
or is required by Title I and such FHA Loan has experienced a payment default or
a payment default is reasonably foreseeable by the Master Servicer. The Master
Servicer shall agree to subordinate the position of the security interest in the
Property which secures any FHA Loan upon the Master Servicer's receipt of
written approval of HUD to such subordination or written certification by the
Servicer that such proposed subordination complies with current published HUD
requirements and provided such subordination (i) would permit the Obligor to
refinance a senior lien to take advantage of a lower interest rate or (ii) would
permit the Obligor to extend the term of the senior lien. Notwithstanding the
foregoing, at no time shall the aggregate of the Principal Balances of Loans
modified, waived or amended without the prior or subsequent approval of the
Certificate Insurer exceed 3% of the aggregate of the Initial Loan Group I
Principal Balance and the Initial Loan Group II Principal Balance and no
modification or amendment of a Loan shall involve the execution by the Obligor
of a new Note or, with respect to any Mortgage Loan, of a new Mortgage. At the
request of the Master Servicer, the Certificate Insurer, at its discretion, may
approve an increase in or waiver of the percentage referred to in the previous
sentence, such approval not to be unreasonably withheld.

               (b) The Master Servicer shall notify the Trustee and the
Certificate Insurer of any modification, waiver or amendment of any provision of
any Loan and the date thereof, and shall deliver to the Trustee for deposit in
the related File, an original counterpart of the agreement relating to such
modification, waiver or amendment, promptly following the execution thereof.
Such notice shall state that the conditions contained in this Section 3.10 have
been satisfied.


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               Section 3.11. Due-On-Sale; Due-on-Encumbrance.

               (a) If any Loan contains a provision, in the nature of a
"due-on-sale" clause, which by its terms:

                    (i) provides that such Loan shall (or may at the Obligee's
          option) become due and payable upon the sale or other transfer of an
          interest in the related Property; or

                    (ii) provides that such Loan may not be assumed without the
          consent of the related Obligee in connection with any such sale or
          other transfer,

then, for so long as such Loan is included in the Trust, the Master Servicer, on
behalf of the Trustee, shall exercise any right the Trustee may have as the
Obligee of record with respect to such Loan (x) to accelerate the payments
thereon, or (y) to withhold its consent to any such sale or other transfer, in a
manner consistent with the servicing standard set forth in Section 3.01.

               (b) If any Loan contains a provision, in the nature of a
"due-on-encumbrance" clause, which by its terms:

                    (i) provides that such Loan shall (or may at the Obligee's
          option) become due and payable upon the creation of any lien or other
          encumbrance on the related Property; or

                    (ii) requires the consent of the related Obligee to the
          creation of any such lien or other encumbrance on the related
          Property,

then, for so long as such Loan is included in the Trust, the Master Servicer, on
behalf of the Trustee, shall exercise any right the Trustee may have as the
Obligee of record with respect to such Loan (x) to accelerate the payments
thereon, or (y) to withhold its consent to the creation of any such lien or
other encumbrance, in a manner consistent with the servicing standard set forth
in Section 3.01.

               (c) Nothing in this Section 3.11 shall constitute a waiver of the
Trustee's right to receive notice of any assumption of a Loan, any sale or other
transfer of the related Property or the creation of any lien or other
encumbrance with respect to such Property.

               (d) Except as otherwise permitted by Section 3.10, the Master
Servicer shall not agree to modify, waive or amend any term of any Loan in
connection with the taking of, or the failure to take, any action pursuant to
this Section 3.11.

               Section 3.12. Claim for FHA Insurance and Foreclosure.

               (a) (x) If any Monthly Payment due under any FHA Loan is not paid
when the same becomes due and payable, or if the Obligor fails to perform any
other covenant or obligation under such FHA Loan and such failure continues
beyond any applicable grace period, the Master Servicer shall take such action
(consistent with Title I, including efforts to


                                       62
<PAGE>   68
cure the default of such FHA Loan pursuant to 24 C.F.R. Section 201.50) as it
shall deem to be in the best interest of the Trust. If the maturity of the
related Note has been accelerated pursuant to the requirements under Title I
following the Master Servicer's efforts to cure the default of such FHA Loan
(and such FHA Loan is not required to be purchased pursuant to Section 2.04(b)),
and (i) if an FHA Insurance Coverage Insufficiency does not exist at the time,
the Claims Administrator shall initiate, on behalf of the Trust and the Contract
of Insurance Holder, a claim under the Contract of Insurance for reimbursement
for loss on such FHA Loan pursuant to Title I (see 24 C.F.R. Section 201.54), or
(ii) if an FHA Insurance Coverage Insufficiency exists at the time, the Master
Servicer shall determine within 90 days in accordance with Section 3.12(c)
whether or not to proceed against the Property securing such FHA Loan, if such
FHA Loan is a Mortgage Loan or against the Obligor, if such FHA Loan is
unsecured, and if thereafter an FHA Insurance Coverage Insufficiency does not
exist, the Claims Administrator may submit a claim under the Contract of
Insurance with respect to such FHA Loan if it has obtained the prior approval of
the Secretary of HUD pursuant to 24 C.F.R. Section 201.51; (y) if any Monthly
Payment due under any Non-FHA Loan is not paid when the same is due and payable,
or if the Obligor fails to perform any other covenant or obligation under such
Non-FHA Loan and such failure continues beyond any applicable grace period, the
Master Servicer shall take such action as it shall deem to be in the best
interest of the Trust; including but not limited to proceeding against the
Property securing such Non-FHA Loan.

               In the event that in accordance with clauses (a)(x)(ii) and (y)
above the Master Servicer determines not to proceed against the Property or
Obligor, as applicable, on or before the Determination Date following such
determination the Master Servicer shall determine in good faith in accordance
with customary servicing practices that all amounts which it expects to receive
with respect to such Loan have been received. If the Master Servicer makes such
a determination, it shall give notice to such effect pursuant to Section
3.03(e)(xiv).

               (b) If the Claims Administrator initiates a claim for
reimbursement for loss on any FHA Loan under this Section, the Claims
Administrator shall comply with applicable provisions of Title I and diligently
pursue such claim and, in any event, shall initiate such claim no later than the
last day permitted under Title I (see 24 C.F.R. Section 201.54(b)). For purposes
of this Agreement, the term "initiate a claim for reimbursement" shall mean the
filing of the claim application pursuant to the requirements set forth in 24
C.F.R. Section 201.54, including the filing of all related assignments and
documents and materials required for file review. For the purposes of such
filing, the Claims Administrator shall request, and the Trustee within 5
calendar days of request shall deliver to the Claims Administrator, the Note and
the related Mortgage for such FHA Loan and each other item in the related File
necessary to make such claim. Each Certificateholder hereby consents to the
assignment of such FHA Loan for the sole purpose of initiating a claim under the
Contract of Insurance for reimbursement with respect to such FHA Loan. Pursuant
to Section 3.12(i), the Contract of Insurance Holder shall furnish the Claims
Administrator a power of attorney to file claims under the Contract of
Insurance. The Trustee and Contract of Insurance Holder agree to execute and
deliver to the Claims Administrator, within 5 Business Days of receipt from the
Claims Administrator, all documents, if any, necessary to initiate and file a
claim under the Contract of Insurance for such FHA Loan, which documents shall
be prepared by the Claims Administrator. If any claim to the FHA becomes a
Rejected Claim, upon receipt of the FHA's rejection notice by the Claims
Administrator directly from the FHA or from the Contract of Insurance Holder
pursuant to Section 3.12(e) and a determination by the Claims Administrator


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<PAGE>   69
that the rejection was not due to clerical error, then the Claims Administrator
shall promptly notify the Contract of Insurance Holder (if such notice has not
already been given), the Trustee and the Certificate Insurer of the notice of a
Rejected Claim.

               If the FHA indicates in writing that the claim is a Rejected
Claim due to reasons other than a failure to service the related FHA Loan in
accordance with Title I, Mego shall repurchase the FHA Loan on or before the
Monthly Cut-Off Date next following the date of such notice from the Claims
Administrator to repurchase such FHA Loan, either directly from FHA or from the
Trustee, for the Purchase Price. If FHA indicates in writing that the claim is a
Rejected Claim due to a failure to service such FHA Loan in accordance with
Title I, the Claims Administrator shall immediately notify Mego, the Contract of
Insurance Holder, the Trustee and the Certificate Insurer of such determination,
and the Master Servicer shall on or before the later to occur of (i) the next
succeeding Monthly Cut-Off Date and (ii) ten Business Days from the date on
which such rejection notice is received by the Claims Administrator, purchase
such FHA Loan either directly from FHA or from the Trustee, for the Purchase
Price. In the event that the FHA fails to indicate in writing why the claim is a
Rejected Claim, the Claims Administrator shall determine why the claim is a
Rejected Claim. If the Claims Administrator determines that the claim is a
Rejected Claim for reasons other than a servicing failure that occurred after
the Closing Date, Mego shall be obligated to repurchase such FHA Loan for the
Purchase Price. If the Claims Administrator determines that the claim is a
Rejected Claim due to a servicing failure that occurred after the Closing Date,
the Master Servicer shall be obligated to repurchase such FHA Loan for the
Purchase Price. Notwithstanding any provisions herein to the contrary, neither
Mego nor the Master Servicer shall be required to repurchase or purchase, as
applicable, any FHA Loan subject to a Rejected Claim as a result of the
depletion of the amount of the FHA Insurance Coverage Reserve Account as shown
in the Insurance Record.

               (c) In accordance with the criteria for proceeding against the
Property set forth in Section 3.12(a), with respect to an FHA Loan that is a
Mortgage Loan that has been accelerated pursuant to the requirements of Title I
following the Master Servicer's efforts to cure the default of the FHA Loan, and
with respect to Non-FHA Loans in Group I, unless otherwise prohibited by
applicable law or court or administrative order, the Master Servicer, on behalf
of the Trustee, may, at any time, institute foreclosure proceedings, exercise
any power of sale to the extent permitted by law, obtain a deed in lieu of
foreclosure, or otherwise acquire possession of or title to the related
Property, by operation of law or otherwise; provided, however, that the Master
Servicer shall not acquire any personal property pursuant to this Section 3.12
unless either:

                    (x) such personal property is incident to real property
          (within the meaning of section 856(e)(1) of the Code) so acquired by
          the Master Servicer; or

                    (y) the Trustee shall have received an Opinion of Counsel
          not employed by the Master Servicer, Mego or its affiliates (with a
          copy to the Certificate Insurer) to the effect that the holding of
          such personal property by the Trust will not cause the imposition of a
          tax on the Trust under the REMIC Provisions or cause the REMIC Pool
          portion of the Trust to fail to qualify as a REMIC at any time that
          any Certificate is outstanding.


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<PAGE>   70
               In accordance with the criteria for proceeding against the
Property set forth in Section 3.12(a), with respect to FHA Loans that are
Mortgage Loans and with respect to the Non-FHA Loans, the Master Servicer shall
institute foreclosure proceedings, repossess, exercise any power of sale to the
extent permitted by law, obtain a deed in lieu of foreclosure, or otherwise
acquire possession of or title to any Property, by operation of law or otherwise
only in the event that in the Master Servicer's reasonable judgement such action
is likely to result in a positive economic benefit to the Trust by creating net
liquidation proceeds (after reimbursement of all amounts owed with respect to
such Loan to the Master Servicer or the Servicer) and provided that, with
respect to any Property, prior to taking title thereto, the Master Servicer has
requested that the Trustee obtain, and the Trustee shall have obtained, an
environmental review to be performed on such Property by a company with
recognized expertise, the scope of which is limited to the review of public
records and documents for information regarding whether such Property has on it,
under it or is near, hazardous or toxic material or waste. If such review
reveals that such Property has on it, under it or is near hazardous or toxic
material or waste or reveals any other environmental problem, the Trustee shall
provide a copy of the related report to the Master Servicer and the Certificate
Insurer and title shall be taken to such Property only after obtaining the
written consent of the Certificate Insurer.

               In connection with any foreclosure proceeding on an FHA Loan, the
Master Servicer shall comply with the requirements under Title I, shall follow
such practices and procedures in a manner which is consistent with the Master
Servicer's procedure for foreclosure with respect to similar FHA Title I loans
held in the Master Servicer's portfolio for its own account or, if there are no
such loans, FHA Title I loans serviced by the Master Servicer for others. To the
extent required by Section 3.08, the Master Servicer shall advance all necessary
and proper Foreclosure Advances until final disposition of the Foreclosed
Property and shall manage such Foreclosed Property pursuant to Section 3.14. If,
in following such foreclosure procedures, title to the Foreclosed Property is
acquired, the deed or certificate of sale shall be issued to the Trustee.

               (d) In the event the Trust acquires any Foreclosed Property
relating to a Group I Loan, the Trustee shall elect to treat such Foreclosed
Property as "foreclosure property" within the meaning of Section 860G(a)(8) of
the Code, in accordance with such rules as are then applicable; and the Master
Servicer, pursuant to Section 3.13(b), shall sell such Foreclosed Property in
its entirety prior to the date which is two years after its Acquisition Date,
unless, in any such case, either (i) the Master Servicer on behalf of the REMIC
Pool has applied for and received an extension of such two-year period pursuant
to Code Sections 856(e)(3) and 860G(a)(8)(A) in which case the Master Servicer
shall sell such Foreclosed Property within the applicable extension period or
(ii) the Master Servicer shall have provided and the Trustee shall have received
an opinion of counsel not employed by the Master Servicer, the Depositor or
either of their affiliates to the effect that the holding of such Foreclosed
Property (subject to any conditions set forth in such Opinion) for an additional
specified period will not cause such Foreclosed Property to fail to qualify as
"foreclosure property" within the meaning of Section 860G(a)(8) of the Code
(determined without regard to the exception applicable for purposes of Section
860D(a) of the Code) at any time that any Certificate is Outstanding, in which
event such two-year period shall be extended by such additional specified
period, subject to any conditions set forth in such Opinion of Counsel.


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<PAGE>   71
               (e) With respect to any FHA Loan, each of the Trustee and the
Contract of Insurance Holder shall deposit in the Distribution Account for the
Loan Group relating to such FHA Loan on the day of receipt all amounts received
from the FHA or any other Person with respect to such FHA Loans or any other
assets of the Trust and shall transmit by facsimile, or such other method
requested by the Master Servicer, Claims Administrator or the Certificate
Insurer, to the Master Servicer, Claims Administrator and the Certificate
Insurer on each such day the letter of transmittal received from the FHA and any
other documents with respect to such receipt. Each of the Trustee and the
Contract of Insurance Holder shall also promptly deliver to the Claims
Administrator copies of any other correspondence received from the FHA or sent
to the FHA by the Trustee or the Contract of Insurance Holder, as the case may
be, including, but not limited to, any correspondence regarding the balance of
the FHA Insurance Coverage Reserve Account, premiums due and claims rejected.

               (f) If, prior to the Termination Date, the FHA rejects an
insurance claim, in whole or part, under the Contract of Insurance after
previously paying such insurance claim and the FHA demands that the Contract of
Insurance Holder repurchase such FHA Loan, the Claims Administrator shall pursue
such appeals with the FHA as are reasonable. If the FHA continues to demand that
the Contract of Insurance Holder repurchase such FHA Loan after the Claims
Administrator exhausts such administrative appeals as are reasonable, then
notwithstanding that Mego, the Master Servicer or any other person is required
to repurchase such FHA Loan under this Agreement, the Claims Administrator shall
notify the Contract of Insurance Holder of such fact and the Contract of
Insurance Holder in its capacity as Trustee shall repurchase such FHA Loan from
funds available in the related Distribution Account. The Claims Administrator
shall, to the extent possible, direct the Trustee to make all such repurchases
of FHA Loans once a month and to repurchase any and all such FHA Loans from the
FHA in that portion of the calendar month after each Distribution Date. If the
Trustee withdraws any amounts from the Trust for such purpose between the
Determination Date and Distribution Date of any month, the Master Servicer shall
prepare the Master Servicer Certificates provided under Section 4.01 for such
Distribution Date (or promptly revise the Master Servicer Certificate if already
prepared for such Distribution Date) to reflect such withdrawals as if made on
such Determination Date and the Trustee shall revise its determination pursuant
to Section 4.10 accordingly. To the extent allowed by FHA, Mego may repurchase
directly from FHA any FHA Loan for which an insurance claim has been paid and
later rejected by FHA. If the FHA indicates in writing in connection with its
rejection or refusal to pay a claim that such rejection or refusal is due to
other than (i) a failure to service the FHA Loan in accordance with Title I or
(ii) the amount in the FHA Insurance Coverage Reserve Account is insufficient to
pay such claim, or if the FHA does not indicate in writing the reason for its
rejection or refusal, Mego shall be liable to reimburse the Trust for any
amounts paid by the Trustee to the FHA in order to repurchase such FHA Loan.
Subject to Section 3.12(b), if the FHA indicates in writing, or it is agreed by
the Master Servicer, in connection with its rejection or refusal to pay a claim
that such rejection or refusal is due to a failure to service such Loan in
accordance with Title I, the Master Servicer shall be liable to reimburse the
Trust or Mego for any amounts paid by the Trust or Mego, as the case may be, to
FHA in order to repurchase FHA Loans for which the FHA has rejected an insurance
claim as a result of a failure to service such FHA Loan in accordance with Title
I.

               (g) If, after the Termination Date, the FHA rejects an insurance
claim, in whole or part, under the Contract of Insurance after previously paying
such insurance claim


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<PAGE>   72
and the FHA demands that the Contract of Insurance Holder repurchase such FHA
Loan, the Claims Administrator shall pursue such appeals with the FHA as are
reasonable. If the FHA continues to demand that the Contract of Insurance Holder
repurchase such FHA Loan after the Claims Administrator exhausts such
administrative appeals as are reasonable, then notwithstanding that Mego or any
other person is required to repurchase such FHA Loan under this Agreement, the
Claims Administrator shall notify the Contract of Insurance Holder of such fact
and the Contract of Insurance Holder shall repurchase such FHA Loan from the
FHA. If the FHA indicates in writing in connection with its rejection or refusal
to pay a claim that such rejection or refusal is due to other than (i) a failure
to service the Loan in accordance with Title I or (ii) the amount in the FHA
Insurance Coverage Reserve Account is insufficient to pay such claim, or if FHA
does not indicate in writing the reason for its rejection or refusal, Mego shall
be liable to reimburse the Contract of Insurance Holder for any amounts paid by
the Contract of Insurance Holder to the FHA in order to repurchase such FHA
Loan. Subject to Section 3.12(b), if the FHA indicates in writing, or it is
agreed by the Claims Administrator, in connection with its rejection or refusal
to pay a claim that such rejection or refusal is due to a failure to service
such FHA Loan in accordance with Title I, the Master Servicer shall be liable to
reimburse the Contract of Insurance Holder or Mego for any amounts paid by the
Contract of Insurance Holder or Mego to FHA in order to repurchase FHA Loans for
which the FHA has rejected an insurance claim as a result of a failure to
service such FHA Loan in accordance with Title I.

               (h) The Claims Administrator shall be entitled to reimbursement
of expenses associated with the filing of any FHA Insurance claim from and to
the extent that such amounts are reimbursed by HUD.

               (i) The Trustee shall furnish the Claims Administrator or the
Servicer, as applicable, within 5 days of request of the Claims Administrator or
the Servicer therefor any powers of attorney and other documents necessary and
appropriate to carry out its respective duties hereunder, including any
documents or powers of attorney necessary to foreclose or file a claim with
respect to any FHA Loan and to file claims with the FHA under the Contract of
Insurance. The forms of any such powers or documents shall be appended to such
requests. The Contract of Insurance Holder shall furnish the Claims
Administrator or the Servicer, as applicable, within 5 days of request of the
Claims Administrator or the Servicer therefor any powers of attorney and other
documents necessary and appropriate to carry out its administrative duties
pursuant to Section 3.12.

               Section 3.13. Sale of Foreclosed Properties.

               (a) The Master Servicer may offer to sell to any Person any
Foreclosed Property, if and when the Master Servicer determines consistent with
the Servicing Standard and that such a sale would be in the best interests of
the Trust, but shall, with respect to the Group I Loans, in any event, so offer
to sell any Foreclosed Property in accordance with the criteria set forth in
Section 3.12 and no later than the time determined by the Master Servicer to be
sufficient to result in the sale of such Foreclosed Property on or prior to the
date specified in Section 3.12(d). The Master Servicer shall give the Trustee
and the Certificate Insurer not less than five days' prior notice of its
intention to sell any Foreclosed Property, and shall accept the highest bid
received from any Person for any Foreclosed Property in an amount at least equal
to the sum of:


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<PAGE>   73

                    (i) the Principal Balance of the related foreclosed Loan,
          unreimbursed Foreclosure Advances plus the outstanding amount of any
          liens superior in priority, if any, to the lien of the foreclosed
          Loan; and

                    (ii) all unpaid interest accrued thereon at the related Loan
          Rate through the date of sale.

In the absence of any such bid, the Master Servicer shall accept the highest bid
received from any Person that is determined to be a fair price for such
Foreclosed Property by the Master Servicer, if the highest bidder is a Person
other than an Interested Person, or by an Independent appraiser retained by the
Master Servicer, if the highest bidder is an Interested Person. In the absence
of any bid determined to be fair as aforesaid, the Master Servicer shall offer
the affected Foreclosed Property for sale to any Person, other than an
Interested Person, in a commercially reasonable manner for a period of not less
than 10 or more than 30 days, and shall accept the highest cash bid received
therefor in excess of the highest bid previously submitted. If no such bid is
received, any Interested Person may resubmit its original bid, and the Master
Servicer shall accept the highest outstanding cash bid, regardless of from whom
received. No Interested Person shall be obligated to submit a bid to purchase
any Foreclosed Property, and notwithstanding anything to the contrary herein,
neither the Trustee, in its individual capacity, nor any of its affiliates may
bid for or purchase any Foreclosed Property pursuant hereto.

               (b) In determining whether any bid constitutes a fair price for
any Foreclosed Property, the Master Servicer shall take into account, and any
appraiser or other expert in real estate matters shall be instructed to take
into account, as applicable, among other factors, the financial standing of any
tenant of the Foreclosed Property, the physical condition of the Foreclosed
Property, the state of the local and national economies and, with respect to the
Group I Loans, the Trust's obligation to dispose of any Foreclosed Property
within the time period specified in Section 3.12(d).

               (c) Subject to the provision of Section 3.12, the Master Servicer
shall act on behalf of the Trustee in negotiating and taking any other action
necessary or appropriate in connection with the sale of any Foreclosed Property,
including the collection of all amounts payable in connection therewith. Any
sale of a Foreclosed Property shall be without recourse to the Trustee, the
Master Servicer or the Trust, and if consummated in accordance with the terms of
this Agreement, neither the Master Servicer nor the Trustee shall have any
liability to any Certificateholder with respect to the purchase price therefor
accepted by the Master Servicer or the Trustee.

               Section 3.14. Management of Real Estate Owned.

               (a) If the Trust acquires any Foreclosed Property pursuant to
Section 3.12, the Master Servicer shall have full power and authority, subject
only to the specific requirements and prohibitions of this Agreement, to do any
and all things in connection therewith as are consistent with the manner in
which the Master Servicer manages and operates similar property owned by the
Master Servicer or any of its affiliates, all on such terms and for such period
as the Master Servicer deems to be in the best interests of Certificateholders.


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<PAGE>   74
               (b) Notwithstanding the foregoing, with respect to the Group I
Loans the Master Servicer will not manage, conserve, protect and operate (or
cause to be managed, conserved, protected and operated) each Foreclosed Property
for disposition and sale in a manner that causes such Foreclosed Property to
fail to qualify as "foreclosure property" within the meaning of the REMIC
Provisions (determined without regard to the exception applicable for purposes
of Section 860D(a) of the Code) or results in the receipt by the REMIC of any
"income from nonpermitted assets" within the meaning of the REMIC Provisions or
any "net income from foreclosure property" subject to taxation under the REMIC
Provisions.

               (c) The Master Servicer may contract with any Independent
Contractor for the operation and management of any Foreclosed Property, provided
that:

                    (i) the terms and conditions of any such contract may not be
          inconsistent herewith;

                    (ii) any such contract shall require, or shall be
          administered to require, that the Independent Contractor remit all
          related Payments to the Master Servicer as soon as practicable, but in
          no event later than two Business Days following the receipt thereof by
          such Independent Contractor;

                    (iii) none of the provisions of this Section 3.14(c)
          relating to any such contract or to actions taken through any such
          Independent Contractor shall be deemed to relieve the Master Servicer
          of any of its duties and obligations to the Trustee for the benefit of
          Certificateholders with respect to the operation and management of any
          such Foreclosed Property; and

                    (iv) the Master Servicer shall be obligated with respect
          thereto to the same extent as if it alone were performing all duties
          and obligations in connection with the operation and management of
          such Foreclosed Property.

The Master Servicer shall be entitled to enter into any agreement with any
Independent Contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Master Servicer by such
Independent Contractor, and nothing in this Agreement shall be deemed to limit
or modify such indemnification. The Master Servicer shall be solely liable for
all fees owed by it to any such Independent Contractor, but shall be entitled to
be reimbursed for all such fees advanced by it pursuant to Section 3.08(b)(v) in
the manner provided in Section 3.09(b).

               Section 3.15. Inspections.

               The Master Servicer shall inspect or cause to be inspected each
Property that secures any Loan at such times and in such manner as are
consistent with the servicing standard set forth in Section 3.01.

               Section 3.16. Maintenance of Insurance.

               (a) The Master Servicer shall maintain or cause to be maintained
with respect to each Property securing an FHA Loan such insurance as is required
with respect


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<PAGE>   75
thereto by Title I. The Master Servicer shall cause to be maintained for each
Foreclosed Property acquired by the Trust such types and amounts of insurance
coverage as the Master Servicer shall deem reasonable. The Master Servicer shall
cause to be maintained for each Non-FHA Loan, fire and hazard insurance naming
Mego as loss payee thereunder providing extended coverage in an amount which is
at least equal to the least of (i) the maximum insurable value of the
improvements securing such Non-FHA Loan from time to time, (ii) the combined
principal balance owing on such Non-FHA Loan and any mortgage loan senior to
such Non-FHA Loan and (iii) the minimum amount required to compensate for damage
or loss on a replacement cost basis. In cases in which any Property securing a
Non-FHA Loan is located in a federally designated flood area, the hazard
insurance to be maintained for the related Loan shall include flood insurance to
the extent such flood insurance is available and the Master Servicer has
determined such insurance to be necessary in accordance with accepted mortgage
loan servicing standards for mortgage loans similar to the Mortgage Loans. All
such flood insurance shall be in amounts equal to the least of (A) the maximum
insurable value of the improvement securing such Non-FHA Loan, (B) the combined
principal balance owing on such Non-FHA Loan and any mortgage loan senior to
such Non-FHA Loan and (c) the maximum amount of insurance available to the
lender under the National Flood Insurance Act of 1968, as amended.

               (b) Any amounts collected by the Master Servicer under any
Insurance Policies, shall be paid over or applied by the Master Servicer as
follows:

                    (i) In the case of amounts received in respect of any Loan:

                      (A) for the restoration or repair of the affected
               Property, in which event such amounts shall be released to the
               Obligor in accordance with the terms of the related Note, or to
               the extent not so used, or

                      (B) in reduction of the Principal Balance of the related
               Loan, in which event such amounts shall be credited to the
               related Servicing Record,

unless the related instruments require a different application, in which case
such amounts shall be applied in the manner provided therein; and

                    (ii) Subject to Section 3.14, in the case of amounts
          received in respect of any Foreclosed Property, for the restoration or
          repair of such Foreclosed Property, unless the Master Servicer
          determines, consistent with the servicing standard set forth in
          Section 3.01, that such restoration or repair is not in the best
          economic interest of the Trust, in which event such amounts shall be
          credited, as of the date of receipt, to the applicable Servicing
          Record, as a Payment received from the operation of such Foreclosed
          Property.

               Section 3.17. Release of Files.

               (a) If with respect to any Loan:

                    (i) the outstanding Principal Balance of such Loan plus all
          interest accrued thereon shall have been paid;


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<PAGE>   76
                    (ii) the Master Servicer, or the Servicer shall have
          received, in escrow, payment in full of such Loan in a manner
          customary for such purposes;

                    (iii) such Loan has become a Defective Loan;

                    (iv) such Loan or the related Foreclosed Property has been
          sold in connection with the termination of the Trust pursuant to
          Section 9.01;

                    (v) the FHA has paid a claim with respect to such Loan under
          the Contract of Insurance; or

                    (vi) the related Foreclosed Property has been sold pursuant
          to Section 3.13.

               In each such case, the Servicer shall deliver a certificate to
the effect that the Servicer has complied with all of its obligations under the
Servicing Agreement with respect to such Loan and requesting that the Trustee
release to the Servicer the related File, then the Trustee shall, within three
Business Days or such shorter period as may be required by applicable law,
release, or cause the Custodian to release, the related File to the Servicer and
execute and deliver such instruments of transfer or assignment, in each case
without recourse, as shall be necessary to vest ownership of such Loan in the
Servicer or such other Person as may be specified in such certificate, the forms
of any such instrument to be appended to such certificate.

               (b) From time to time and as appropriate for the servicing or
foreclosure of any Loan, the Trustee shall, upon request of the Servicer,
release the related File (or any requested portion thereof) to the Servicer.
Such receipt shall obligate the Servicer, to return the File (or such portion
thereof) to the Trustee when the need therefor by the Servicer, no longer exists
unless any of the conditions specified in subsection (a) above, is satisfied
prior thereto. The Trustee shall release such receipt to the Servicer (i) upon
the Servicer's return of the File (or such portion thereof) to the Trustee or
(ii) if any of the conditions specified in subsection (a) has been satisfied,
and the Servicer has not yet returned the File (or such portion thereof) to the
Trustee, upon receipt of a certificate certifying that any of such condition has
been satisfied.

               Section 3.18. Certain Tax Matters.

               The Trustee shall maintain records as to investments and other
assets of the Trust sufficient to show compliance with the REMIC Provisions and
Grantor Trust Provisions, respectively, during each taxable year of the Trust.
The Master Servicer shall provide Mego with such information from the Servicing
Record as Mego shall request to prepare any Tax Returns, and any other federal,
state or local tax or information returns or reports that are required to be so
filed, or so provided to Certificateholders, by the Trust. Mego shall maintain
such records and make such information available as required by Section 8.12.


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               Section 3.19. Filing of Continuation Statements.

               On or before the fifth anniversary of the filing of any financing
statements by Mego and the Depositor, respectively, with respect to the assets
conveyed to the Trustee, Mego and the Depositor shall prepare, have executed by
the necessary parties and file in the proper jurisdictions all financing and
continuation statements necessary to maintain the liens, security interests, and
priorities of such liens and security interests that have been granted by Mego
and the Depositor, respectively, and Mego and the Depositor shall continue to
file on or before each fifth anniversary of the filing of any financing and
continuation statements such additional financing and continuation statements
until the Trust has terminated pursuant to Section 9.01. Subject to Section
8.03, the Trustee agrees to cooperate with Mego and the Depositor in preparing,
executing and filing such statements. The Trustee agrees to notify Mego and the
Depositor on the third Distribution Date prior to each such fifth anniversary of
the requirement to file such financing and continuation statements. The filing
of any such statement with respect to Mego and the Depositor shall not be
construed as any indication of an intent of any party contrary to the expressed
intent set forth in Section 10.09. If Mego or the Depositor has ceased to do
business whenever any such financing and continuation statements must be filed
or Mego or the Depositor fails to file any such financing statements or
continuation statements at least one month prior to the expiration thereof, the
Trustee shall perform the services required under this Section 3.19.

               Section 3.20. Fidelity Bond.

               The Master Servicer shall maintain a fidelity bond in such form
and amount as is customary for entities acting as custodian of funds and
documents in respect of loans on behalf of institutional investors.

               Section 3.21. Errors and Omissions Insurance.

               The Master Servicer shall obtain and maintain at all times during
the term of this Agreement errors and omissions insurance coverage covering the
Master Servicer and its employees issued by a responsible insurance company. The
issuer, policy terms and forms and amounts of coverage, including applicable
deductibles, shall be reasonably satisfactory to the Certificate Insurer and
shall be in such form and amount as is customary for entities acting as master
servicers. The Master Servicer agrees to notify the Certificate Insurer in
writing within five (5) days of the Master Servicer's receipt of notice of the
cancellation or termination of any such errors and omissions insurance coverage.
The Master Servicer shall provide to the Certificate Insurer upon request
written evidence of such insurance coverage.


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                                   ARTICLE IV

                       Distributions to Certificateholders

               Section 4.01. General Provisions Relating to Distributions to
Certificateholders.

               (a) Distributions allocable to interest and principal in respect
of each Class of the Senior Certificates shall be made, to the extent and in the
priority described in Section 4.05, to the Holders of such Class of Certificates
based on the respective Percentage Interests of the Certificateholder of such
Class, without preference or priority of any kind. Any amounts distributed to
Holders of the Senior Certificates on any Distribution Date shall not be subject
to any claim or interest of Holders of Class R Certificates.

               (b) Distributions from the Trust to Holders of Class R
Certificates shall be made on each Distribution Date in accordance with Section
4.05(a) solely from amounts available for distribution on deposit in the
Distribution Account for the Group I Certificates. Distributions to the Holders
of Class R Certificates shall be made pro rata based on the respective Residual
Interests, without preference or priority of any kind. Any amount distributed to
Holders of the Class R Certificates on any Distribution Date shall not be
subject to any claim or interest of Holders of Senior Certificates.

               (c) On each Determination Date, the Master Servicer shall deliver
to the Trustee and the Certificate Insurer, a certificate for each Loan Group
containing the items described in Exhibit E-1 and Exhibit E-2 hereto (each, a
"Master Servicer Certificate"), prepared as of the related Determination Date
and executed by a Master Servicing Officer. The Master Servicer shall revise any
Master Servicer Certificate to take into account any payments of which the
Master Servicer is notified made by the Trust to FHA after the related
Determination Date and before the related Distribution Date as provided in
Section 3.12(f). The Trustee may rely on the Master Servicer Certificate with
respect to the matters set forth therein.

               Section 4.02. Distributions to Certificateholders.

               (a) Distributions will be made by the Trustee to each
Certificateholder of record on the preceding Record Date by:

                    (i) check mailed, via first class mail, postage prepaid, to
          the address of such Holder as it appears on the Certificate Register;
          or

                    (ii) Fedwire transfer of immediately available funds, if
          such Certificateholder holds at least a $1,000,000 Denomination, Class
          S Certificates representing at least a 30% Percentage Interest or
          Class R Certificates representing at least 25% of the Residual
          Interests, if notice from such Certificateholder has been received by
          the Trustee at least five Business Days prior to any Distribution Date
          (any such notice being applicable to all subsequent Distribution Dates
          unless and until rescinded in writing) designating a deposit account
          for receipt of distributions at a bank


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<PAGE>   79
          which has Fedwire transfer capabilities, and providing such other
          information as the Trustee may reasonably require to effect an
          electronic credit entry to such account.

To the extent required by applicable law, the Trustee shall deduct and withhold
taxes due on amounts distributed to Certificateholders.

               (b) Whenever the Trustee, based on a Master Servicer Certificate,
expects that the final distribution with respect to a Class of Senior
Certificates will be made on the next Distribution Date, the Trustee shall, as
soon as practicable, mail to each Holder of such Class of Senior Certificates as
of the applicable Record Date a notice to the effect that:

                    (i) the Trustee expects that the final distribution with
          respect to such Class of Senior Certificates will be made on such
          Distribution Date, and

                    (ii) no interest shall accrue on such Class of Senior
          Certificates after such Distribution Date provided that the final
          distribution occurs on such Distribution Date.

               Section 4.03. Collection Accounts and FHA Premium Accounts and
the FHA Reserve Fund.

               (a) The Trustee has heretofore established or caused to be
established and shall hereafter maintain or cause to be maintained a separate
account for each Loan Group denominated a Collection Account, which in each case
is and shall continue to be an Eligible Account in the name of the Trustee and
shall be designated "First Trust of New York, National Association, as Trustee
of the Mego Mortgage Home Loan Trust 1996-3, Collection Account--Group I Loans"
and "First Trust of New York, National Association, as Trustee of the Mego
Mortgage Home Loan Trust 1996-3, Collection Account--Group II Loans",
respectively. The Master Servicer shall cause all Payments relating to a Loan
Group to be deposited by the Servicer in the appropriate Collection Account no
later than the second Business Day following the date of receipt thereof by the
Servicer. The Trustee shall provide to the Master Servicer and the Servicer a
monthly statement of all activity in each Collection Account.

               (b) No later than the second Business Day preceding each
Distribution Date, the Trustee shall withdraw amounts from the Collection
Account for each Loan Group in respect of Payments with respect to such
Distribution Date and deposit such amounts into the Distribution Account for the
related Certificate Group and liquidate the Eligible Investments in which such
amounts are invested and distribute all net investment earnings to the Servicer.

               (c) All amounts on deposit in a Distribution Account representing
payments by Obligors on Invoiced Loans in respect of premium on FHA Insurance
shall be withdrawn by the Trustee from such Distribution Account and deposited
in the related FHA Premium Account no later than the second Business Day
preceding each Distribution Date.

               (d) The Trustee has heretofore established or caused to be
established and shall hereafter maintain or cause to be maintained a separate
account denominated a FHA Reserve Fund, in the name of the Trustee and shall be
designated "First Trust of New York, National Association, as Trustee of the
Mego Mortgage Trusts, FHA Reserve Fund." The


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Trustee shall deposit all amounts required to be deposited therein pursuant to
Section 4.05(a)(xiv) and Section 4.05(b)(xiv). Amounts on deposit therein shall
be withdrawn by the Trustee at the direction of the Certificate Insurer and paid
or deposited to either a Distribution Account, the distribution account of a
Related Series or the Class R Certificateholders. Amounts on deposit in the FHA
Reserve Fund shall be invested by the Trustee in Permitted Investments.

               Section 4.04. Distribution Accounts.

               (a) The Trustee has heretofore established with itself in its
trust capacity at its corporate trust department for the benefit of
Certificateholders of each Certificate Group and the Certificate Insurer an
account each referred to herein as a "Distribution Account" for the Trust. The
Trustee shall at all times maintain the Distribution Accounts as an Eligible
Accounts and shall cause such accounts to be designated, in the case of the
Group I Certificates, "First Trust of New York, National Association, as Trustee
of the Mego Mortgage Home Loan Trust Series 1996-3, Distribution Account--Group
I Certificates" and in the case of the Group II Certificates, "First Trust of
New York, National Association, as Trustee of the Mego Mortgage Home Loan Trust
1996-3--Group II Certificates." Eligible Investments of amounts on deposit in
the Distribution Account shall mature no later than the Business Day immediately
preceding the Distribution Date related to the Due Period to which such amounts
relate.

               (b) Except for amounts deposited into the FHA Premium Accounts,
any and all moneys or Eligible Investments that are received by the Trustee from
any Person with respect to a Loan Group, including pursuant to Sections 2.04(c),
3.12(b), 4.03(b), 4.10(c) or 9.01(d), together with any Eligible Investments in
which such moneys are invested or reinvested prior to the termination of the
Trust, shall be held by the Trustee in the related Distribution Account, subject
to disbursement and withdrawal as herein provided.

               Section 4.05. Distributions.

               (a) On each Distribution Date, on the basis of the information
set forth in the Master Servicer Certificate for the Group I Loans with respect
to the related Determination Date, the Trustee shall distribute from amounts on
deposit in the Distribution Account for the Group I Certificates, the following
amounts in the following order of priority:

                    (i) from the Collected Amount for the Group I Loans, for
          deposit in the related FHA Premium Account, the FHA Premium Account
          Deposit for the Group I Loans for such Distribution Date;

                    (ii) from the Collected Amount for the Group I Loans,
          concurrently, to (a) the Master Servicer, the Master Servicer Fee for
          the Group I Loans and (b) the Servicer, the Servicer Fee for the Group
          I Loans for such Distribution Date;

                    (iii) from the Collected Amount for the Group I Loans, to
          the Master Servicer or Servicer, any amount in respect of
          reimbursement of Interest Advances or Foreclosure Advances for the
          Group I Loans, to which the Master Servicer or any Servicer is
          entitled pursuant to Section 3.09 with respect to such Distribution
          Date and


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<PAGE>   81
          to the Claims Administrator, amounts in reimbursement of any expenses
          for the Group I Loans, of filing of any FHA Insurance claim pursuant
          to Section 3.12(h);

                    (iv) from the Collected Amount for the Group I Loans, to the
          Trustee, the Trustee Fee and any Additional Trustee Fee for the Group
          I Loans for such Distribution Date;

                    (v) other than with respect to the Distribution Dates in
          December 1996, from the Collected Amount for the Group I Loans, to the
          Certificate Insurer, the Premium in respect of the Group I
          Certificates for such Distribution Date;

                    (vi) from the Amount Available, to the holders of the Class
          IS Certificates, an amount equal to the applicable Class Interest
          Distribution for such Distribution Date;

                    (vii) from the Amount Available, to holders of each Class of
          Group IA Certificates, an amount equal to the applicable Class
          Interest Distribution for such Distribution Date;

                    (viii) from the Collected Amount for the Group I Loans, to
          the holders of the Group IA Certificates, subject to clause (2)
          following this paragraph, the Class A Principal Distribution for the
          Group I Certificates (other than the portion constituting
          Distributable Excess Spread) for such Distribution Date;

                    (ix) from the Collected Amount for the Group I Loans, to the
          Certificate Insurer, the Reimbursement Amount;

                    (x) from the Collected Amount for the Group I Loans, to the
          holders of the Group IA Certificates, subject to clause (2) following
          this paragraph, the Distributable Excess Spread for such Distribution
          Date;

                    (xi) from the Amount Available, to the holders of the Group
          IA Certificates, subject to clause (2) following this paragraph, an
          amount equal to the Class A Guaranteed Principal Distribution Amount
          for the Group I Certificates, if any, for such Distribution Date;

                    (xii) from the Collected Amount for the Group I Loans, to
          the Certificate Insurer, any other amounts with respect to the Group I
          Certificates owing to the Certificate Insurer under the Insurance
          Agreement;

                    (xiii) from the Collected Amount for the Group I Loans, to
          any successor Master Servicer, if any, for such Distribution Date
          payable in accordance with Section 7.03(c) in addition to the Master
          Servicer Fee paid pursuant to Section 4.05(a)(ii);

                    (xiv) from the Collected Amount for the Group I Loans, to
          the FHA Reserve Fund, any unpaid Excess Claim Amount;


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<PAGE>   82
                    (xv) from the Collected Amount for the Group I Loans, to the
          Person entitled thereto, payments in respect of Other Fees related to
          the Group I Loans;

                    (xvi) from the Collected Amount for the Group I Loans, to
          the Group I Reserve Fund, any amount required to be deposited therein
          pursuant to Section 7.04 of the Insurance Agreement or after the
          occurrence and during the continuance of a Trigger Event and at the
          direction of the Certificate Insurer, to the holders of the Group IA
          Certificates, as principal, pro rata, based on the respective Class A
          Certificate Balances, until the respective Class A Certificates are
          reduced to zero.; and

                    (xvii) the balance of any Collected Amount for the Group I
          Loans, to the Class R Certificateholders;

provided, however, that any portion of the Amount Available for the Group I
Certificates that constitutes an Insured Payment for any Distribution Date shall
be applied only to payment of the amount referred to in clause (vi), clause
(vii), and clause (xi) above, and provided further, with respect to any
Distribution Date as to which (a) the Required OC Amount has been reduced below
the Overcollateralization Amount or (b) a full distribution of the amounts
referred to in clause 4.05(a)(viii) above would cause the Overcollateralization
Amount to exceed the Required OC Amount, the amounts to be distributed pursuant
to clause 4.05(a)(viii) shall be reduced by the amount of such reduction in the
case of clause (a) above and the amount of such excess in the case of (b) above.

               (1) As to each Distribution Date, any shortfall in the amount of
interest required to be distributed pursuant to Section 4.05(a)(vii) above,
shall be allocated among the Group IA Certificates, in proportion to the amount
each such Class would have been entitled to receive in the absence of such
shortfall.

               (2) As to each Distribution Date, distributions pursuant to
Section 4.05(a)(viii), (x) and (xi) shall be made to the Class A Certificates as
follows:

                    (i) prior to the occurrence and continuance of a Certificate
Insurer Default, sequentially, to the holders of the Class IA-1 Certificates,
Class IA-2 Certificates and Class IA-3 Certificates, in that order, until their
respective Class A Certificate Balances have been reduced to zero; and

                    (ii) upon the occurrence and continuance of a Certificate
Insurer Default and upon the first reduction of the Overcollateralization Amount
thereafter to zero, concurrently, to the holders of the Group IA Certificates
then outstanding, pro rata, based upon their respective Class A Certificate
Balances immediately prior to such Distribution Date.

               (b) On each Distribution Date, on the basis of the information
set forth in the Master Servicer Certificate for the Group II Loans with respect
to the related Determination Date, the Trustee shall distribute from amounts on
deposit in the Distribution Account for the Group II Certificates, the following
amounts in the following order of priority:


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<PAGE>   83
                    (i) from the Collected Amount for the Group II Loans, for
          deposit in the related FHA Premium Account, the FHA Premium Account
          Deposit for the Group II Loans for such Distribution Date;

                    (ii) from the Collected Amount for the Group II Loans,
          concurrently, to (a) the Master Servicer, the Master Servicer Fee for
          the Group II Loans and (b) the Servicer, the Servicer Fee for the
          Group II Loans for such Distribution Date;

                    (iii) from the Collected Amount for the Group II Loans, to
          the Master Servicer or Servicer, any amount in respect of
          reimbursement of Interest Advances or Foreclosure Advances for the
          Group II Loans, to which the Master Servicer or any Servicer is
          entitled pursuant to Section 3.09 with respect to such Distribution
          Date and to the Claims Administrator, amounts in reimbursement of any
          expenses for the Group II Loans, of filing of any FHA Insurance claim
          pursuant to Section 3.12(h);

                    (iv) from the Collected Amount for the Group II Loans, to
          the Trustee, the Trustee Fee and any Additional Trustee Fee for the
          Group II Loans for such Distribution Date;

                    (v) other than with respect to the Distribution Dates in
          December 1996, from the Collected Amount for the Group II Loans, to
          the Certificate Insurer, the Premium in respect of the Group II
          Certificates for such Distribution Date;

                    (vi) from the Amount Available, to the Class IIS
          Certificateholders, an amount equal to the applicable Class Interest
          Distribution for such Distribution Date;

                    (vii) from the Amount Available, to the holders of the Group
          IIA Certificates, an amount equal to the applicable Class Interest
          Distribution for such Distribution Date;

                    (viii) from the Collected Amount for the Group II Loans, to
          the holders of the Group IIA Certificates, the Class A Principal
          Distribution for the Group II Certificates for such Distribution Date;

                    (ix) from the Amount Available for the Group II Loans to the
          holders of the Group IIA Certificates, an amount equal to the Loss
          Carryforward Amount, if any, for such Distribution Date;

                    (x) from the Collected Amount for the Group II Loans, to the
          Certificate Insurer, the Reimbursement Amount;

                    (xi) from the Amount Available, to the holders of the Group
          IIA Certificates, an amount equal to the Class A Guaranteed Principal
          Distribution Amount for the Group II Certificates, if any, for such
          Distribution Date;

                    (xii) from the Collected Amount for the Group II Loans, to
          the Certificate Insurer, any other amounts with respect to the Group
          II Certificates owing to the Certificate Insurer under the Insurance
          Agreement;


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<PAGE>   84
                    (xiii) from the Collected Amount for the Group II Loans, to
          any successor Master Servicer, if any, for such Distribution Date
          payable in accordance with Section 7.03(c) in addition to the Master
          Servicer Fee paid pursuant to Section 4.05(b)(ii);

                    (xiv) from the Collected Amount for the Group II Loans, to
          the FHA Reserve Fund, any unpaid Excess Claim Amount (giving effect to
          any amounts to be distributed pursuant to Section 4.05(a)(xiv) on such
          Distribution Date);

                    (xv) from the Collected Amount for the Group II Loans, to
          the Person entitled thereto, payments in respect of Other Fees related
          to the Group II Loans;

                    (xvi) from the Collected Amount for the Group II Loans, to
          the Group II Reserve Fund, any amount required to be deposited therein
          pursuant to Section 7.04 of the Insurance Agreement; and

                    (xvii) the balance of any Collected Amount for the Group II
          Loans, to the Seller.

provided, however, that any portion of the Amount Available for the Group II
Certificates that constitutes an Insured Payment for any Distribution Date shall
be applied only to payment of the amount referred to in clause (vi), clause
(vii), and clause (xi) above.

               (c) If any amount is deposited in either Distribution Account in
error, the Master Servicer may notify the Trustee and the Certificate Insurer
(such notice to be signed by a Master Servicing Officer) of the amount of such
deposit and in connection therewith shall be required to provide such
information to the Trustee and the Certificate Insurer as may be necessary in
the opinion of the Trustee and the Certificate Insurer to verify the accuracy of
such certification. Upon verification of the accuracy of such certification to
the satisfaction of the Trustee and the Certificate Insurer, the Trustee shall
then promptly withdraw the erroneous deposit and remit the same to the Master
Servicer or to such Person as the Master Servicer shall designate.

               (d) As directed by the Master Servicer (such direction to be
signed by a Master Servicing Officer), the Trustee shall withdraw on the
Business Day, the amount, designated by the Master Servicer from the applicable
Distribution Account of funds to repurchase any FHA Loan from FHA pursuant to
Section 3.12(f). If such withdrawal is to be made between a Determination Date
and the related Distribution Date, the Master Servicer shall prepare the related
Master Servicer Certificate (or promptly revise the Master Servicer Certificate
if already prepared) for such Distribution Date to reflect such withdrawal.

               Section 4.06. FHA Premium Accounts.

               (a) FHA Premium Account. The Trustee has heretofore established
with itself in its trust capacity at its corporate trust department two
segregated trust accounts each referred to herein as a "FHA Premium Account" for
the benefit of the Trust. The Trustee shall at all times maintain each FHA
Premium Account as an Eligible Account and shall cause such accounts to be
designated as "First Trust of New York, National Association, as Trustee


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for Mego Mortgage Home Loan Trust 1996-3, FHA Premium Account--Group I Loans"
and "First Trust of New York, National Association as Trustee for Mego Mortgage
Home Loan Trust 1996-3 FHA Premium Account--Group II Loans".

               (b) Any and all moneys with respect to a Loan Group transferred
to the applicable FHA Premium Account pursuant to Section 4.03(c), Section
4.05(a)(i) or Section 4.05(b)(i) shall be held by the Trustee in the FHA Premium
Account subject to disbursement and withdrawal as herein provided.

               (c) All amounts deposited to an FHA Premium Account shall be
invested and reinvested by the Trustee pursuant to Section 4.07(a) in one or
more Eligible Investments.

               (d) Amounts on deposit in an FHA Premium Account shall be
withdrawn by the Trustee, in the amounts required, for application as follows:

                    (i) to payment to the FHA of any premiums due on the
          Contract of Insurance in respect of FHA Loans in the related Loan
          Group, in such amounts and on such dates as directed by the Master
          Servicer or Mego; the Trustee shall apply all amounts on deposit in
          the related FHA Premium Account to payment to the FHA of any premiums
          due under the Contract of Insurance as invoiced by FHA and, if, in
          connection with an FHA Loan in the related Loan Group the FHA
          Insurance with respect to which shall not yet have been transferred to
          the Contract of Insurance, Mego instructs the Trustee to pay FHA
          insurance with respect to such Loan to the related contract of
          insurance holder, the Trustee shall make such payment, and Mego and
          not the Trustee shall be liable in the event of the failure of such
          funds to be applied to payment of the premium with respect to such FHA
          Loan; and

                    (ii) on the Business Day preceding a Distribution Date that
          is also the Termination Date, the Trustee shall withdraw from each FHA
          Premium Account and deposit in the related Distribution Account all
          amounts then on deposit in such FHA Premium Account, whereupon the
          each FHA Premium Account shall terminate.

               Section 4.07. General Provisions Regarding the Accounts; Eligible
Accounts.

               (a) All investments of funds in the Accounts shall be made by the
Trustee in accordance with an Investment Order previously delivered to the
Trustee. Eligible Investments of amounts on deposit in the Accounts, unless
payable on demand or as otherwise specified herein, shall mature no later than
the second Business Day immediately preceding the Distribution Date related to
the Due Period to which such amounts relate. Amounts on deposit in each FHA
Premium Account shall be invested in Eligible Investments which are overnight
investments for the period from the Business Day immediately preceding the
Distribution Date to the date on which the Master Servicer indicates the amount
to be withdrawn therefrom pursuant to Section 4.06(d)(i). In the event amounts
on deposit in an Account are at any time invested in an Eligible Investment
payable on demand, the Trustee shall demand that payment thereon be made on the
last day such Eligible Investment may otherwise mature hereunder.


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               (b) Any investment of funds in an Account shall be made in the
name of the Trustee (in its capacity as such) or in the name of a nominee of the
Trustee. The Trustee shall have sole control over each such investment, the
income thereon and the proceeds thereof. Any certificate or other instrument
evidencing any such investment shall be delivered directly to the Trustee or its
agent, together with any document of transfer necessary to transfer title to
such investment to the Trustee or its nominee. The Trustee or its agent, as the
case may be, shall take and maintain continuous physical possession of any such
certificate or other instrument and the proceeds thereof in the State of
Minnesota. The Trustee or its agent, as the case may be, shall in the case of
Eligible Investments deposited in all Accounts, act in connection therewith
solely as agent for the Trust and not as agent for Mego, the Depositor or any
other party. Any certificated security, when so delivered in registered form,
shall be issued or endorsed to the Trustee, its nominee or in blank. Any
uncertificated security shall either (i) be registered in the name of the
Trustee or its nominee on the books of the issuer thereof or (ii) be registered
in the name of a financial intermediary which is not a clearing corporation,
provided that such financial intermediary sends the Trustee written confirmation
of such purchase which also confirms that such financial intermediary has by
book-entry or otherwise identified such uncertificated securities as belonging
to the Trustee or its nominee. The proceeds of an investment at maturity or upon
demand shall be remitted by the issuer thereof or its agent directly to the
Trustee for deposit in the Account as to which such investment was made and all
earnings on investments shall be added to the corpus of the respective Account.

               (c) The Trustee shall not be in any way liable by reason of any
insufficiency in the Accounts, except for losses on investments that are
liabilities of the Trustee in its commercial capacity. Mego shall deposit in the
Collection Account or the Distribution Account, as the case may be, the amount
of any loss incurred in respect of any Eligible Investment held therein which is
in excess of the income thereon immediately upon realization of such loss,
without any right to reimbursement therefor, from its own funds.

               (d) Any Investment Order shall be effective upon receipt thereof
by the Trustee. Any Investment Order delivered to the Trustee with respect to
funds on deposit in an Account shall be revocable only upon written notice
delivered by the Depositor to the Trustee. Revocation of any Investment Order
pursuant to any such notice shall be effective on the later of (i) the date of
receipt thereof by the Trustee, and (ii) the date specified therein. Revocation
of an Investment Order shall not affect investments already made pursuant
thereto.

               (e) In the event that any account required to be an Eligible
Account hereunder ceases to be an Eligible Account, the Trustee shall within 5
Business Days establish a new account which shall be an Eligible Account and any
cash and Eligible Investments in such original account shall be transferred to
such Eligible Account.

               Section 4.08. Statements to Certificateholders.

               (a) On or before the third Business Day following each
Distribution Date, the Trustee shall mail:


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                    (i) to each Holder of a Senior Certificate (with a copy to
          the Certificate Insurer and the Rating Agency) at its address shown on
          the Certificate Register a statement, based on information set forth
          in the Master Servicer Certificate for such Distribution Date,
          substantially in the form of Trustee's Statement to Senior
          Certificateholders of the Group I Certificates and the Group II
          Certificates attached hereto as Exhibit F-1 and F-2, respectively,
          together with a copy of such related Master Servicer Certificate;

                    (ii) to each Holder of a Class R Certificate (with a copy to
          the Certificate Insurer) at its address shown on the Certificate
          Register a statement, based on information set forth in the Master
          Servicer Certificate for such Distribution Date substantially in the
          form of Trustee's Statement to Class R Certificateholders attached
          hereto as Exhibit F-1.

               (b) Promptly following preparation by Trustee of any returns or
reports described in Section 8.12(b)(i), the Trustee shall:

                    (i) sign such returns or reports as may be required pursuant
          to the last paragraph of Section 8.12(b); and

                    (ii) mail such returns or reports as may be required by
          applicable law to each Holder of a Senior Certificate and to each
          Holder of a Class R Certificate, at their respective addresses shown
          on the Certificate Register.

               (c) The Trustee shall provide the Depositor, the Rating Agency
and the Certificate Insurer each statement called for by (a)(i) and (ii) above
and each report or return called for by (b)(i) and (ii) above at such times as
such statements, reports and returns are required to be provided to the
recipients thereof in accordance with the terms of such provisions.

               Section 4.09. [Reserved]

               Section 4.10. Claims Under the Policies.

               (a) On the Determination Date preceding each Distribution Date,
the Trustee shall determine if a Deficiency Amount exists with respect to each
Class of Senior Certificates. If a Deficiency Amount does exist with respect to
a Class of Senior Certificates, the Trustee shall promptly, but in no event
later than 12:00 noon New York City time on the second Business Day preceding
the related Distribution Date, make a claim under the related Policy for such
Class in accordance with its terms.

               (b) On any date on which the Trustee receives written notice from
the Holder of a Class of Senior Certificates that a Preference Amount is payable
pursuant to the terms of the related Policy, the Trustee shall make a claim for
the payment of such Preference Amount and shall deliver the documents required
to be delivered under such Policy to the Certificate Insurer with respect
thereto in the manner set forth in such Policy.


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               (c) The Trustee shall (i) receive as attorney-in-fact of each
Holder of a Senior Certificate with respect to which a Deficiency Amount has
been determined to exist, any Insured Payment from the Certificate Insurer under
the related Policy and deposit such Insured Payment in the Distribution Account
of the Certificate Group to which such Deficiency Amount relates on the date of
receipt and (ii) immediately disburse such Insured Payments to such Holders of
such Class of Senior Certificates as set forth in Sections 4.05(a) and 4.05(b),
as applicable. Insured Payments for a Class of Senior Certificates disbursed by
the Trustee from the Policy shall not be considered payment by the Trust with
respect to such Class of Senior Certificates, nor shall such payments discharge
the obligation of the Trust, with respect to such Class of Senior Certificates,
and the Certificate Insurer shall become the owner of such unpaid amounts due
from the Trust in respect of Insured Payments for such Class and the deemed
assignee of such Holders of such Class of Senior Certificates. The Trustee
hereby agrees on behalf of each Holder of a Class of Senior Certificates for the
benefit of the Certificate Insurer that it recognizes that to the extent the
Certificate Insurer makes Insured Payments for such Class, either directly or
indirectly (as by paying through the Trustee), to the Holders of such Class of
Senior Certificates, the Certificate Insurer will be entitled to receive the
related Reimbursement Amount pursuant to Section 4.05(a)(ix), if such Class is a
class of Group I Certificates or Section 4.05(b)(ix), if such Class is a class
of Group II Certificates.

               (d) To the extent of any Insured Payment for a Class of Senior
Certificates under the related Policy, the Certificate Insurer shall be fully
subrogated to the rights of the Holders of such Class of Senior Certificates and
the Trustee in respect of such Class of Senior Certificates, the Deficiency
Amount or Preference Amount giving rise to such Insured Payment or in any
proceedings relating thereto.


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                                    ARTICLE V

                                The Certificates

               Section 5.01. The Certificates.

               (a) Each Class A Certificate shall be substantially in the form
of Exhibit C-1 hereto, each Class S Certificate shall be substantially in the
form of Exhibit C-2 hereto and each Class R Certificate shall be substantially
in the form of Exhibit D hereto, in each case with such appropriate insertions
and substitutions as are required or permitted hereunder, and shall, on original
issue, be executed on behalf of the Trust by manual or facsimile signature of a
Responsible Officer of the Trustee having such authority under the Trustee's
seal imprinted or otherwise affixed therein and attested on behalf of the
Trustee by the manual or facsimile signature of any other Responsible Officer of
the Trustee. The maximum and initial Class A Certificate Balance of the Class A
Certificates authorized to be issued hereunder shall be equal to the Initial
Class A Certificate Balance, and each Class of Senior Certificates shall bear
interest at the applicable Certificate Rate. The Class A Certificates shall be
issued in minimum denominations of $1,000 and integral multiples of $1,000 in
excess thereof (except that one Certificate may be issued in an amount that is
not an integral multiple of $1,000). The Class S Certificates shall be issued in
minimum denominations of a Percentage Interest equal to 10% and integral
multiples of a Percentage Interest equal to 10% in excess thereof. One Class of
residual Certificates is authorized to be issued hereunder, designated as the
"Class R Certificates." The Class R Certificates shall be issued in minimum
denominations representing a one twentieth (i.e., 5%) Residual Interest. No
Certificate shall be entitled to any benefit under this Agreement, or be valid
for any purpose, unless there appears on such Certificate a execution by the
Trustee by manual or facsimile signature, and such signature upon any
Certificate shall be conclusive evidence, and the only evidence, that such
Certificate has been duly executed and delivered hereunder. Each Certificate
shall be dated the date of its signature. Certificates of each Class shall be
numbered consecutively beginning with 0001 and each number shall be preceded by
an "A" for Class A Certificates, an "S" for Class S Certificates and an "R" for
Class R Certificates. The Trustee shall cause to be executed and delivered to or
upon the order of the Depositor, in exchange for the Loans and the other Trust
Property, simultaneously with the sale, assignment and transfer to the Trustee
of Loans, Files and the other Trust Property, Certificates duly executed by the
Trustee evidencing the entire ownership of the Trust.

               (b) Any Certificate as to which the Trustee has made the final
distribution thereon shall be deemed cancelled and shall no longer be
Outstanding for any purpose of this Agreement, whether or not such Certificate
is ever returned to the Trustee.

               Section 5.02. Registration of Transfer and Exchange of 
Certificates.

               (a) The Trustee shall keep or cause to be kept at an office or
agency in the city where the Corporate Trust Office is located, a Certificate
Register for each Class of Certificates in which, subject to such reasonable
regulations as it may prescribe, the Trustee shall provide for the registration
of Certificates of such Class and of transfers and exchanges of such
Certificates as herein provided. The Trustee shall also designate and cause to
be kept in the City of New York an office at and through which Certificates may
be delivered to and


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received from the Trustee for purposes of transfers and exchanges as herein
provided. The Trustee shall initially serve as Certificate Registrar for the
purpose of registering Certificates as herein provided. The Trustee may appoint,
by a written instrument delivered to the Master Servicer, any other bank or
trust company to act as Certificate Registrar under such conditions as the
Master Servicer may prescribe. If the Trustee shall at any time not be the
Certificate Registrar, the Trustee shall have and maintain the right to inspect
the Certificate Register or to obtain a copy thereof at all reasonable times, to
afford Certificateholders access thereto for the purposes specified in Section
10.08, and to rely conclusively upon a certificate of the Certificate Registrar
as to the information set forth in the Certificate Register.

               (b) (1) No transfer of a Class S or Class R Certificate shall be
made unless such transfer is exempt from the registration requirements of the
Securities Act of 1933, as amended, and any applicable state securities laws or
is made in accordance with said Act and laws. In the event of any such transfer,
(i) unless such transfer is made in reliance upon Rule 144A under the 1933 Act,
the Trustee or the Depositor may require a written Opinion of Counsel (which may
be in-house counsel) acceptable to and in form and substance reasonably
satisfactory to the Trustee and the Depositor that such transfer may be made
pursuant to an exemption, describing the applicable exemption and the basis
therefor, from said Act and laws or is being made pursuant to said Act and laws,
which Opinion of Counsel shall not be an expense of the Trustee or the Depositor
and (ii) the Trustee shall require the transferee to execute an investment
letter (in substantially the form attached hereto as Exhibit I or Exhibit J)
acceptable to and in form and substance reasonably satisfactory to the Depositor
and the Trustee certifying to the Depositor and the Trustee the facts
surrounding such transfer, which investment letter shall not be an expense of
the Trustee or the Depositor. The Holder of a Class S or Class R Certificate
desiring to effect such transfer shall, and does hereby agree to, indemnify the
Trustee and the Depositor against any liability that may result if the transfer
is not so exempt or is not made in accordance with such federal and state laws.

               (2) Except as provided below, the Book-Entry Certificates shall
at all times remain registered in the name of the Depository or its nominee and
at all times: (i) registration of the Book-Entry Certificates may not be
transferred by the Trustee except to another Depository; (ii) the Depository
shall maintain book-entry records with respect to the Certificate Owners and
with respect to ownership and transfers of such Book-Entry Certificates; (iii)
ownership and transfers of registration of the Book-Entry Certificates on the
books of the Depository shall be governed by applicable rules established by the
Depository; (iv) the Depository may collect its usual and customary fees,
charges and expenses from its Depository Participants; (v) the Trustee shall
deal with the Depository, Depository Participants and indirect participating
firms as representatives of the Certificate Owners of the Book-Entry
Certificates for purposes of exercising the rights of Holders under this
Agreement, and requests and directions for and votes of such representatives
shall not be deemed to be inconsistent if they are made with respect to
different Certificate Owners; and (vi) the Trustee may rely and shall be fully
protected in relying upon information furnished by the Depository with respect
to its Depository Participants and furnished by the Depository Participants with
respect to indirect participating firms and persons shown on the books of such
indirect participating firms as direct or indirect Certificate Owners.

               All transfers by Certificate Owners of Book-Entry Certificates
shall be made in accordance with the procedures established by the Depository
Participant or brokerage firm


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representing such Certificate Owner. Each Depository Participant shall only
transfer Book-Entry Certificates of Certificate Owners it represents or of
brokerage firms for which it acts as agent in accordance with the Depository's
normal procedures.

               If (x) (i) the Depository or the Depositor advises the Trustee in
writing that the Depository is no longer willing or able to properly discharge
its responsibilities as Depository, and (ii) the Trustee or the Depositor is
unable to locate a qualified successor, (y) the Depositor at its option, with
the consent of the Certificate Insurer, advises the Trustee in writing that it
elects to terminate the book-entry system through the Depository or (z) after
the occurrence of an Event of Master Servicing Termination, the Certificate
Insurer or Certificate Owners representing at least 51% of the Voting Rights
evidenced by the Class A Certificates, with the consent of the Certificate
Insurer, advise the Trustee and the Depository through the Depository
Participants in writing that the continuation of a book-entry system through the
Depository is no longer in the best interests of the Certificate Owners, the
Trustee shall notify all Certificate Owners, through the Depository, of the
occurrence of any such event and of the availability of definitive,
fully-registered Class A Certificates (the "Definitive Certificates") to
Certificate Owners requesting the same. Upon surrender to the Trustee of such
Book-Entry Certificates by the Depository, accompanied by the instructions from
the Depository for registration, the Trustee shall issue the Definitive
Certificates. None of the Seller, the Master Servicer, the Depositor, the
Certificate Insurer or the Trustee shall be liable for any delay in delivery of
such instruction and each may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of Definitive Certificates all
references herein to obligations imposed upon or to be performed by the
Depository shall be deemed to be imposed upon and performed by the Trustee, to
the extent applicable with respect to such Definitive Certificates and the
Trustee shall recognize the Holders of the Definitive Certificates as
Certificateholders hereunder; provided that the Trustee shall not by virtue of
its assumption of such obligations become liable to any party for any act or
failure to act of the Depository.

               Neither the Trustee nor the Certificate Registrar shall have any
responsibility to monitor or restrict the transfer of beneficial ownership in
any Certificate an interest in which is transferable through the facilities of
the Depository.

               (3) No Transfer of a Class IS, Group II Certificate or Class R
Certificate shall be made unless the Trustee shall have received either (i) a
representation letter from the transferee of such Certificate acceptable to and
in form and substance satisfactory to the Trustee, to the effect that such
transferee is not an employee benefit plan or arrangement subject to Section 406
of ERISA or a plan subject to Section 4975 of the Code, nor a person acting on
behalf of any such plan or arrangement nor using the assets of any such plan or
arrangement to effect such Transfer, (ii) if the purchaser is an insurance
company, a representation that the purchaser is an insurance company which is
purchasing such Certificates with funds contained in an "insurance company
general account" (as such term is defined in Section V(e) of Prohibited
Transaction Class Exemption 95-60 ("PTCE 95-60")) and that the purchase and
holding of such Certificates are covered under PTCE 95-60 or (iii) in the case
of any Class R Certificate presented for registration in the name of an employee
benefit plan subject to ERISA, or a plan or arrangement subject to Section 4975
of the Code (or comparable provisions of any subsequent enactments), or a
trustee of any such plan or any other person acting on behalf of any such plan
or arrangement or using such plan's or arrangement's assets, an Opinion of
Counsel satisfactory to the Trustee, which Opinion of


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<PAGE>   92
Counsel shall not be an expense of either the Trustee or the Trust, addressed to
the Trustee, to the effect that the purchase or holding of such Class S or Class
R Certificate will not result in the assets of the Trust being deemed to be
"plan assets" and subject to the prohibited transaction provisions of ERISA and
the Code and will not subject the Trustee to any obligation in addition to those
expressly undertaken in this Agreement or to any liability. Notwithstanding the
foregoing, the Trustee shall waive the transfer restrictions imposed by this
Section 5.02(b)(3) with respect to the Class IS Certificates, if the initial
transferee of the Class S Certificates certifies in writing to the Trustee that
such transferee has a valid Exemption and all requirements for transfer of the
Class S Certificates pursuant to such Exemption are satisfied.

               (c) Subject to subsection (b) of this Section and subject to
Article XI, upon surrender for registration of transfer of a Certificate of any
Class at the office or agency of the Trustee maintained for such purpose
pursuant to Section 5.02(a), the Trustee shall execute, authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Certificates of the same Class in authorized denominations of the same
Percentage Interest.

               (d) At the option of Certificateholders, Certificates of any
Class may be exchanged for other Certificates of the same Class and aggregate
Percentage Interests, upon surrender of the Certificates to be exchanged at any
such office or agency. Whenever any Certificates are so surrendered for
exchange, the Trustee shall execute, authenticate and deliver the Certificates
which the Certificateholder making the exchange is entitled to receive. Every
Certificate presented or surrendered for transfer or exchange shall be duly
endorsed by, or be accompanied by a written instrument of transfer in form
satisfactory to the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing.

               (e) No service charge shall be made for any transfer or exchange
of Certificates, but the Trustee may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer or exchange of Certificates.

               (f) All Certificates surrendered for transfer, exchange or
payment shall be disposed of by the Certificate Registrar in accordance with its
standard procedures.

               (g) Transfers of Class R Certificates shall be subject to the
provisions of Article XI.

               Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.

               If (a) any mutilated Certificate is surrendered to the
Certificate Registrar or the Trustee, or the Certificate Registrar and the
Trustee, the Depositor and the Certificate Insurer receive evidence to their
satisfaction of the destruction, loss or theft of any Certificate, and (b) there
is delivered to the Certificate Registrar, the Certificate Insurer and the
Trustee, the Depositor and the Certificate Insurer such security or indemnity as
may be required by them to save each of them harmless (which in the case of a
Certificateholder that is an institutional investor with a minimum net worth of
$250,000,000, will be deemed to be satisfied by a written agreement of indemnity
from such Certificateholder, then, in the absence of notice


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to the Certificate Registrar or the Trustee that such Certificate has been
acquired by a bona fide purchaser, the Trustee shall execute on behalf of the
Trust and the Trustee shall countersign and deliver, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate
of the same Class and Percentage Interest, as such mutilated, destroyed, lost or
stolen Certificate, in each case bearing a number not borne by any then
Outstanding Certificate of any Class. Upon the issuance of any new Certificate
under this Section 5.03, the Trustee may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the
Certificate Registrar) connected therewith. Any Certificate issued pursuant to
this Section 5.03 shall constitute complete and indefeasible evidence of the
same interest in the Trust, and shall be entitled to the same benefits under
this Agreement, as if originally issued, whether or not the lost, stolen or
destroyed Certificate shall be found at any time.

               Section 5.04. Persons Deemed Owners.

               Prior to due presentation of a Certificate for registration of
transfer, the Trustee, the Certificate Insurer, the Certificate Registrar and
any agent of the Trustee, the Certificate Insurer or the Certificate Registrar
may treat the Person in whose name any Certificate is registered (i) on any
Record Date for purposes of making distributions on the following Distribution
Date, whether or not any distribution required to be made on such Certificate
shall have been made when scheduled, and (ii) on any date for any other purpose,
as the owner of such Certificate, and neither the Trustee, the Certificate
Insurer, the Certificate Registrar nor any agent of the Trustee, the Certificate
Insurer or the Certificate Registrar shall be affected by notice to the
contrary, except, with respect to a Class R Certificate, for notice by the
Master Servicer pursuant to Section 11.02 that the record holder is not a
Permitted Transferee, and in such case the provisions of Section 11.02 shall
apply.

               Section 5.05. Trustee to Make Payments From Trust Only.

               All distributions to be made by the Trustee in respect of the
Certificates or under this Agreement shall be made only from the Trust Property.
Each Certificateholder, by its acceptance of a Certificate, agrees that it will
look solely to the Trust Property to the extent available for distribution to it
as herein provided and that the Trustee is not personally liable to it for any
amount distributable in respect of any Certificate or for any other liability in
respect of any Certificate. This Section is intended solely to limit the
liability of the Trustee and shall have no effect on the obligations of the
Depositor, Mego or the Master Servicer under this Agreement. This Section 5.05
does not limit the liability of the Trustee set forth elsewhere in this
Agreement for violations of its representations, warranties and covenants
contained herein.


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                                   ARTICLE VI

                               The Master Servicer

               Section 6.01. Liability of the Master Servicer.

               (a) The Master Servicer shall be liable in accordance herewith
only to the extent of the obligations specifically imposed upon and undertaken
by the Master Servicer herein and the representations made by the Master
Servicer.

               (b) The Master Servicer shall indemnify, defend and hold harmless
the Trust, the Trustee, Mego, the Depositor and the Certificate Insurer, their
respective officers, directors, agents and employees and the Certificateholders
from and against any and all costs, expenses, losses, claims, damages, and
liabilities to the extent that such cost, expense, loss, claim, damage or
liability arose out of, or was imposed upon the Trustee, the Trust, Mego, the
Depositor, the Certificate Insurer or the Certificateholders through the breach
of this Agreement by the Master Servicer, the negligence, willful misfeasance,
or bad faith of the Master Servicer in the performance of its duties under this
Agreement or by reason of reckless disregard of its obligations and duties under
this Agreement. Such indemnification shall include, without limitation,
reasonable fees and expenses of counsel and expenses of litigation.

               Section 6.02. Merger or Consolidation of, or Assumption of, the
Master Servicer.

               The Master Servicer shall not merge or consolidate with any other
person, convey, transfer or lease substantially all its assets as an entirety to
another Person, or permit any other Person to become the successor to the Master
Servicer's business unless, after the merger, consolidation, conveyance,
transfer, lease or succession, the successor or surviving entity (i) shall be an
Eligible Servicer, (ii) shall be capable of fulfilling the duties of the Master
Servicer contained in this Agreement and (iii) shall have a long-term debt
rating which is BBB and Baa2 by Standard & Poor's and Moody's respectively. Any
corporation (i) into which the Master Servicer may be merged or consolidated,
(ii) resulting from any merger or consolidation to which the Master Servicer
shall be a party, (iii) which acquires by conveyance, transfer or lease
substantially all of the assets of the Master Servicer, or (iv) succeeding to
the business of the Master Servicer, in any of the foregoing cases shall execute
an agreement of assumption to perform every obligation of the Master Servicer
under this Agreement and, whether or not such assumption agreement is executed,
shall be the successor to the Master Servicer under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties to this Agreement, anything in this Agreement to the contrary
notwithstanding; provided, however, that nothing contained herein shall be
deemed to release the Master Servicer from any obligation. The Master Servicer
shall provide notice of any merger, consolidation or succession pursuant to this
Section 6.02 to the Trustee, the Certificate Insurer and each Rating Agency.
Notwithstanding the foregoing, as a condition to the consummation of the
transactions referred to in clauses (i) through (iv) above, (x) immediately
after giving effect to such transaction, no representation or warranty made
pursuant to Section 6.06 shall have been breached (for purposes hereof, such
representations and warranties shall speak as of the date of the consummation of
such transaction), (y) the


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Master Servicer shall have delivered to the Trustee and the Certificate Insurer
an Officer's Certificate and an Opinion of Counsel each stating that such
consolidation, merger or succession and such agreement of assumption comply with
this Section 6.02 and that all conditions precedent, if any, provided for in
this Agreement relating to such transaction have been complied with, and (z) the
Master Servicer shall have delivered to the Trustee and the Certificate Insurer
an Opinion of Counsel, stating, in the opinion of such counsel, either (A) all
financing statements and continuation statements and amendments thereto have
been executed and filed that are necessary to preserve and protect the interest
of the Trustee in the Trust Property and reciting the details of the filings or
(B) no such action shall be necessary to preserve and protect such interest.

               Section 6.03. Limitation on Liability of the Master Servicer and
Others.

               Neither the Master Servicer nor any of its directors, officers,
employees or agents shall be under any liability to the Trust or to the
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Master Servicer or
any such Person against any breach of warranties, representations or covenants
made herein or any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in performing or failing to perform
duties hereunder or by reason of reckless disregard of obligations and duties
hereunder. The Master Servicer and any of its directors, officers, employees or
agents may rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising hereunder.

               Section 6.04. Master Servicer Not to Resign; Expenses;
Assignment.

               (a) The Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (i) with the consent of the Certificate
Insurer and the Rating Agencies or (ii) upon determination that by reason of a
change in legal requirements the performance of its duties under this Agreement
would cause it to be in violation of such legal requirements in a manner which
would result in a material adverse effect on the Master Servicer and the
Certificate Insurer (so long as an Certificate Insurer Default shall not have
occurred and be continuing) does not elect to waive the obligations of the
Master Servicer to perform the duties which render it legally unable to act or
to delegate those duties to another Person. Any such determination permitting
the resignation of the Master Servicer shall be evidenced by an Opinion of
Counsel to such effect delivered and acceptable to the Trustee and the
Certificate Insurer (unless a Certificate Insurer Default shall have occurred
and be continuing). No resignation of the Master Servicer shall become effective
until the Trustee or a successor servicer acceptable to the Certificate Insurer
shall have assumed the Master Servicer's servicing responsibilities and
obligations in accordance with Section 7.02.

               (b) Notwithstanding anything to the contrary herein, the Master
Servicer shall remain liable for all liabilities and obligations incurred by it
as Master Servicer hereunder prior to the time that any resignation or
assignment referred to in subsection (a) above or termination under Section 7.01
becomes effective, including the obligation to indemnify the Trustee pursuant to
Section 8.05(b) hereof in connection with the Trustee's administration of the
trusts created by this Agreement prior to such resignation, assignment or
termination.


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               (c) The Master Servicer agrees to cooperate with any successor
Master Servicer in effecting the transfer of the Master Servicer's servicing
responsibilities and rights hereunder pursuant to subsection (a), including,
without limitation, the transfer to such successor of all relevant records and
documents (including any Files in the possession of the Master Servicer and the
Servicing Record) and all amounts credited to the Servicing Record or thereafter
received with respect to the Loans and not otherwise permitted to be retained by
the Master Servicer pursuant to this Agreement. In addition, the Master
Servicer, at its sole cost and expense, shall prepare, execute and deliver any
and all documents and instruments, deliver to the successor Master Servicer all
Files and do or accomplish all other acts necessary or appropriate to effect
such termination and transfer of servicing responsibilities, including, without
limitation, assisting in obtaining any necessary approval under Title I from the
FHA.

               Section 6.05. Master Servicer May Own Certificates.

               Each of the Master Servicer and any affiliate of the Master
Servicer may in its individual or any other capacity become the owner or pledgee
of Certificates with the same rights as it would have if it were not the Master
Servicer or an affiliate thereof except as otherwise specifically provided
herein. Certificates so owned by or pledged to the Master Servicer or such
affiliate shall have an equal and proportionate benefit under the provisions of
this Agreement, without preference, priority, or distinction as among all of the
Certificates, provided that any Certificates owned by the Master Servicer or any
Affiliate thereof, during the time such Certificates are owned by them, shall be
without voting rights for any purpose set forth in this Agreement. The Master
Servicer shall notify the Trustee and the Certificate Insurer promptly after it
or any of its affiliates becomes the owner or pledgee of a Certificate.

               Section 6.06. Representations and Warranties of the Master
Servicer.

               The Master Servicer hereby represents and warrants to the
Depositor, Mego, the Certificate Insurer and the Trustee, for the benefit of the
Certificateholders as of the Closing Date:

               (a) The Master Servicer is a national banking association duly
organized and validly existing under the laws of the United States of America,
with full power and authority to own its properties and conduct its business as
such properties are presently owned and such business is presently conducted;

               (b) The Master Servicer has the full power and authority to
execute, deliver and perform, and to enter into and consummate all transactions
contemplated by this Agreement and each other Transaction Document to which it
is a party, has duly authorized the execution, delivery and performance of this
Agreement and each other Transaction Document to which it is a party, has duly
executed and delivered this Agreement and each other Transaction Document to
which it is a party, and this Agreement and each other Transaction Document to
which it is a party, when duly authorized, executed and delivered by the other
parties thereto, will constitute a legal, valid and binding obligation of the
Master Servicer, enforceable against it in accordance with its terms;


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               (c) Neither the execution and delivery of this Agreement or any
other Transaction Document to which the Master Servicer is a party, the
consummation of the transactions required of the Master Servicer herein or
therein, nor the fulfillment of or compliance with the terms and conditions of
this Agreement or any other Transaction Document to which the Master Servicer is
a party will conflict with or result in a breach of any of the terms, conditions
or provisions of the Master Servicer's charter or bylaws or any legal
restriction or any material agreement or instrument to which the Master Servicer
is now a party or by which it is bound, or which would adversely affect the
creation or administration of the Trust as contemplated hereby, or constitute a
material default or result in an acceleration under any of the foregoing, or
result in the violation of any law, rule, regulation, order, judgment or decree
to which the Master Servicer or its property is subject;

               (d) The Master Servicer is not in default, and the execution and
delivery of this Agreement and each other Transaction Document to which it is a
party and its performance of and compliance with the terms hereof and thereof
will not constitute a violation of, any law, any order or decree of any court,
or any order, regulation or demand of any federal, state or local governmental
or regulatory authority;

               (e) No action, suit or other proceeding or investigation is
pending or, to the Master Servicer's knowledge, threatened before any court or
any federal, state or local governmental or regulatory authority (A) asserting
the invalidity of this Agreement or any other Transaction Document to which the
Master Servicer is a party, (B) seeking to prevent the consummation of any of
the transactions contemplated by this Agreement or any other Transaction
Document to which the Master Servicer is a party, or (C) seeking any
determination or ruling that would materially and adversely affect the ability
of the Master Servicer to perform its obligations under this Agreement or any
other Transaction Document to which the Master Servicer is a party (including
any threatened or pending action, suit, proceeding or investigation which might
result in the suspension, revocation or modification of the Contract of
Insurance);

               (f) No consent, approval, authorization or order of, registration
or filing with or notice to, any court or any federal, state or local government
or regulatory authority is required for the execution, delivery and performance
by the Master Servicer of this Agreement or any other Transaction Document to
which the Master Servicer is a party (other than those that have been obtained
or will be obtained prior to the Closing Date);

               (g) Neither this Agreement nor any other Transaction Document to
which the Master Servicer is a party nor any statement, report or other document
furnished or to be furnished by the Master Servicer pursuant to this Agreement
or any other Transaction Document to which the Master Servicer is a party or in
connection with the transactions contemplated hereby and thereby contains any
untrue statement of material fact or omits to state a material fact necessary to
make the statements contained herein or therein not misleading;

               (h) The statements contained in the section of the Prospectus
Supplement entitled "The Master Servicer" which describe the Master Servicer are
true and correct in all material respects, and such section of the Prospectus
Supplement does not contain any untrue statement of a material fact with respect
to the Master Servicer and does not omit to state


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a material fact necessary to make the statements contained therein with respect
to the Master Servicer not misleading;

               (i) The Master Servicer is solvent, and the Master Servicer will
not be rendered insolvent as a result of the performance of its obligations
pursuant to this Agreement and any other Transaction Document to which the
Master Servicer is a party;

               (j) The Servicing Agreement conforms to the requirements for a
Servicing Agreement contained in this Agreement;

               (k) Each FHA Loan will be serviced by the Master Servicer and the
Servicer in compliance with Title I and all other applicable laws;

               (l) The Servicer is an Eligible Servicer, and the Master Servicer
possesses all state and federal licenses necessary for servicing the Loans in
accordance with this Agreement;

               (m) The Master Servicer has not waived any default, breach,
violation or event of acceleration existing under any Note or the related
Mortgage; and

               (n) The Master Servicer has caused and will cause to be performed
any and all acts required to be performed by the Master Servicer or Servicer to
preserve the rights and remedies of the Trustee in any Insurance Policies
applicable to the Loans including, without limitation, in each case, any
necessary notifications of insurers, assignments of policies or interests
therein, and establishments of co-insured, joint loss payee and mortgagee rights
in favor of the Trustee.

               It is understood and agreed that the representations and
warranties set forth in this Section 6.06 shall survive the issuance and
delivery of the Certificates and shall be continuing as long as any Certificate
shall be outstanding or this Agreement has not been terminated.

               Section 6.07. General Covenants of the Master Servicer.

               The Master Servicer covenants and agrees for the benefit of the
Depositor, Mego, the Certificate Insurer and the Trustee for the benefit of the
Certificateholders that until the Termination Date:

               (a) The Master Servicer shall comply with, and shall service, or
cause to be serviced, each Loan, in accordance with all applicable laws, and, in
particular, in accordance with the National Housing Act, as amended and
supplemented, all rules and regulations issued thereunder, and all
administrative publications published pursuant thereto including, in the case of
the FHA Loans, all FHA requirements of FHA Title I loans.

               (b) The Master Servicer agrees that, so long as it shall continue
to serve in the capacity contemplated under the terms of this Agreement, it
shall remain in good standing under the laws governing its creation and
existence and qualified under the laws of each state in which it is necessary to
perform its obligations under this Agreement or in which the nature


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of its business requires such qualification, it shall maintain all licenses,
permits and other approvals required by any law or regulations, including,
without limitation Title I, as may be necessary to perform its obligations under
this Agreement and to retain all rights to service the Loans, and it shall not
dissolve or otherwise dispose of all or substantially all of its assets.


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                                   ARTICLE VII

                       Master Servicer Termination Events

               Section 7.01. Master Servicer Termination Events; Waiver.

               For purposes of this Agreement, each of the following shall
constitute a "Master Servicer Termination Event":

               (a) (i) failure by the Master Servicer to deposit or cause the
Servicer to deposit all Payments in the related Collection Account no later than
the second Business Day following receipt thereof by the Master Servicer or
Servicer, which failure continues unremedied for two Business Days; (ii) failure
by the Master Servicer to make any required Interest Advance pursuant to Section
3.08; (iii) failure of the Master Servicer to pay when due any amount payable by
it under the Insurance Agreement, which failure continues unremedied for two
Business Days; or (iv) failure of the Master Servicer to pay when due any amount
payable by it under this Agreement and such failure results in a drawing under
the related Policy; or

               (b) failure on the part of the Master Servicer duly to observe or
perform in any material respect any of its other covenants or agreements
contained in this Agreement that continues unremedied for a period of 30 days
after the earlier of (x) the date on which the Master Servicer gives notice of
such failure to the Trustee or the Certificate Insurer pursuant to Section
3.04(b) and (y) the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to the Master Servicer by the Trustee
or the Certificate Insurer, or to the Master Servicer and the Trustee pursuant
to a Class Vote; or

               (c) failure by the Master Servicer to deliver to the Trustee and
(so long as a Certificate Insurer Default shall not have occurred and be
continuing) the Certificate Insurer the Master Servicer Certificate by the
fourth Business Day prior to each Distribution Date, or failure on the part of
the Master Servicer to observe its covenants and agreements set forth in Section
6.07(a); or

               (d) the entry of a decree or order for relief by a court or
regulatory authority having jurisdiction in respect of the Master Servicer in an
involuntary case under the federal bankruptcy laws, as now or hereafter in
effect, or another present or future, federal or state, bankruptcy, insolvency
or similar law, or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Master Servicer or of
any substantial part of their respective properties or ordering the winding up
or liquidation of the affairs of the Master Servicer and the continuance of any
such decree or order unstayed and in effect for a period of 60 consecutive days
or the commencement of an involuntary case under the federal bankruptcy laws, as
now or hereinafter in effect, or another present or future federal or state
bankruptcy, insolvency or similar law and such case is not dismissed within 60
days; or

               (e) the commencement by the Master Servicer of a voluntary case
under the federal bankruptcy laws, as now or hereinafter in effect, or any other
present or future, federal or state bankruptcy, insolvency or similar law, or
the consent by the Master Servicer


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to the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Master
Servicer or of any substantial part of its property or the making by the Master
Servicer of an assignment for the benefit of creditors or the failure by the
Master Servicer generally to pay its debts as such debts become due or the
taking of corporate action by the Master Servicer in furtherance of any of the
foregoing or the admission in writing by the Master Servicer of an inability to
pay its debts as they become due; or

               (f) any representation, warranty or statement of the Master
Servicer made in this Agreement or any certificate, report or other writing
delivered pursuant hereto shall prove to be incorrect in any material respect as
of the time when the same shall have been made, and the incorrectness of such
representation, warranty or statement has a material adverse effect on the Trust
and, within 30 days of the earlier of (x) the date on which the Master Servicer
gives notice of such failure to the Trustee or the Certificate Insurer pursuant
to Section 3.04(b) and (y) the date on which written notice thereof shall have
been given to the Master Servicer by the Trustee or the Certificate Insurer (or,
if a Certificate Insurer Default shall have occurred and be continuing, written
notice thereof shall have been given by a Class Vote), the circumstances or
condition in respect of which such representation, warranty or statement was
incorrect shall not have been eliminated or otherwise cured; or

               (g) failure on the part of the Master Servicer to deposit into
the applicable Distribution Account within 3 Business Days following the related
Determination Date any Interest Advance pursuant to Section 3.08; or

               (h) the Certificate Insurer determines that the performance by
the Master Servicer of its servicing duties hereunder with respect to the Loans
is not, in the reasonable opinion of the Certificate Insurer after consultation
with the Master Servicer, in conformity with acceptable standards after
considering the following factors: (A) the terms and conditions of this
Agreement, (B) conformity with the Servicing Standards, (C) the Master
Servicer's practices as of the Closing Date, provided that such practices are
either (i) consistent with industry standards for the servicing of loans similar
to the Loans or (ii) the Master Servicer's historical practices and procedures;
or

               (i) the Master Servicer shall dissolve or liquidate, in whole or
in part, in any material respects except to the extent that any resulting
successor entity is acceptable to the Certificate Insurer; or

               (j) the long-term debt rating of the Master Servicer shall be
reduced below BBB and Baa2 by Standard & Poor's and Moody's, respectively; or

               (k) the Pool Annual Default Percentage (Three Month Average)
exceeds 6.5% or the Pool 60+ Delinquency Percentage (Rolling Three Month)
exceeds 6.0%.

               Section 7.02. Consequences of a Master Servicer Termination
Event.

               If a Master Servicer Termination Event shall occur and be
continuing, the Certificate Insurer (or, if a Certificate Insurer Default shall
have occurred and be continuing, the Trustee at the direction of the Holders
pursuant to a Class Vote), by notice given in


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<PAGE>   102
writing to the Master Servicer (and to the Trustee if given by the Certificate
Insurer or the Certificateholders) may terminate all of the rights and
obligations of the Master Servicer under this Agreement. On or after the receipt
by the Master Servicer of such written notice, and the appointment of and
acceptance by a successor Master Servicer, all authority, power, obligations and
responsibilities of the Master Servicer under this Agreement, whether with
respect to the Certificates or the Trust or otherwise, shall pass to, be vested
in and become obligations and responsibilities of the successor Master Servicer;
provided, however, that the successor Master Servicer shall have no liability
with respect to any obligation which was required to be performed by the prior
Master Servicer prior to the date that the successor Master Servicer becomes the
Master Servicer or any claim of a third party based on any alleged action or
inaction of the prior Master Servicer. The successor Master Servicer is
authorized and empowered by this Agreement to execute and deliver, on behalf of
the prior Master Servicer, as attorney-in-fact or otherwise, any and all
documents and other instruments and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such notice of termination.
The prior Master Servicer agrees to cooperate with the successor Master Servicer
in effecting the termination of the responsibilities and rights of the prior
Master Servicer under this Agreement, including, without limitation, the
transfer to the successor Master Servicer for administration by it of all cash
amounts that shall at the time be held by the prior Master Servicer for deposit,
or have been deposited by the prior Master Servicer, in the Collection Accounts
or thereafter received with respect to the Loans and the delivery to the
successor Master Servicer of all Files and a computer tape in readable form
containing the Servicing Record and any other information necessary to enable
the successor Master Servicer to service the Loans and the other Trust Property.
If requested by the Certificate Insurer (unless a Certificate Insurer Default
shall have occurred and be continuing), the successor Master Servicer shall
direct the Obligors to make all payments under the Loans directly to the
successor Master Servicer, or to a lockbox established by the Master Servicer at
the direction of the Certificate Insurer (unless a Certificate Insurer Default
shall have occurred and be continuing), at the prior Master Servicer's expense.
In addition to any other amounts that are then payable to the terminated Master
Servicer under this Agreement, the terminated Master Servicer shall then be
entitled to receive (to the extent provided by Section 3.08) out of the
Collected Amount for the related Loan Group, reimbursements for any outstanding
Interest Advances made during the period prior to the notice pursuant to this
Section 7.02 which terminates the obligation and rights of the terminated Master
Servicer under this Agreement. The Trustee and the successor Master Servicer may
set off and deduct any amounts owed by the terminated Master Servicer from any
amounts payable to the terminated Master Servicer. The terminated Master
Servicer shall grant the Trustee, the successor Master Servicer and the
Certificate Insurer reasonable access to the terminated Master Servicer's
premises at the terminated Master Servicer's expense.

               Section 7.03. Appointment of Successor.

               (a) On or after the time the Master Servicer receives a notice of
termination pursuant to Section 7.02 or upon the resignation of the Master
Servicer pursuant to Section 6.04, the Trustee shall be the successor in all
respects to the Master Servicer in its capacity as master servicer under this
Agreement and the transactions set forth or provided for in this Agreement, and
shall be subject to all the responsibilities, restrictions, duties, liabilities
and termination provisions relating thereto placed on the Master Servicer by the
terms and provisions of this Agreement. The Trustee shall take such action,
consistent with this


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<PAGE>   103
Agreement, as shall be necessary to effectuate any such succession. If the
Trustee or any other successor Master Servicer is acting as Master Servicer
hereunder, it shall be subject to termination under Section 7.02 upon the
occurrence of a Master Servicer Termination Event applicable to it as Master
Servicer.

               (b) Any successor Master Servicer appointed pursuant to the
provisions of the Agreement must be approved by the Certificate Insurer
(provided no Certificate Insurer Default is then occurring and continuing) and
shall execute, acknowledge and deliver to the Trustee, the Certificate Insurer
and its predecessor Master Servicer an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor Master
Servicer shall become effective.

               (c) Any successor Master Servicer shall be entitled to such
compensation (whether payable out of the Collected Amount or otherwise) as the
Master Servicer would have been entitled to under the Agreement if the Master
Servicer had not resigned or been terminated hereunder. The Certificate Insurer
and a successor Master Servicer may agree on additional compensation to be paid
to such successor Master Servicer in accordance with Section 4.05(a)(xiii) and
Section 4.05(b)(xiii), as applicable. In addition, any successor Master Servicer
shall be entitled, to reasonable transition expenses incurred in acting as
successor Master Servicer pursuant to Section 4.05(a)(xiii) and Section
4.05(b)(xiii), as applicable.

               Section 7.04. Notification to Certificateholders.

               Upon any termination of the Master Servicer or appointment of a
successor to the Master Servicer, the Trustee shall give prompt written notice
thereof to Certificateholders at their respective addresses appearing in the
Certificate Register.

               Section 7.05. Waiver of Past Defaults.

               The Certificate Insurer (or, if a Certificate Insurer Default
shall have occurred and be continuing, the Certificateholders pursuant to a
Class Vote) may, on behalf of all Holders of Certificates, waive any default by
the Master Servicer in the performance of its obligations hereunder and its
consequences. Upon any such waiver of a past default, such default shall cease
to exist, and any Master Servicer Termination Event arising therefrom shall be
deemed to have been remedied for every purpose of this Agreement. No such waiver
shall extend to any subsequent or other default or impair any right consequent
thereon.


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                                  ARTICLE VIII

                             Concerning the Trustee

               Section 8.01. Duties of the Trustee and Contract of Insurance
Holder.

               (a) The Trustee, prior to the occurrence of a Master Servicer
Termination Event and after the curing of all Master Servicer Termination Events
which may have occurred, undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement. In case a Master Servicer
Termination Event has occurred and not been cured (the appointment of a
successor servicer (including the Trustee) shall for purposes of this Article be
deemed such a cure), the Trustee shall exercise such of the rights and powers
vested in it by this Agreement, and use the same degree of care and skill in its
exercise as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs. The Trustee shall not, except as
otherwise provided in this Agreement, sell or otherwise transfer any of the
Trust Property.

               (b) The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, notices, orders or other instruments
furnished to the Trustee that are specifically required to be furnished pursuant
to any provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement; provided, however, that the
Trustee, in its capacity as such, shall not be responsible for the accuracy or
content of any such resolution, certificate, statement, opinion, report,
document, notice, order or other instrument furnished to the Trustee pursuant to
this Agreement. The Trustee shall promptly mail each such resolution,
certificate, statement, opinion, report, document, notice, order or other
instrument to each Certificateholder.

               (c) No provision of this Agreement shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act or its own bad faith or willful misconduct; provided, however,
that:

                    (i) Prior to the occurrence of a Master Servicer Termination
          Event, and after the curing of all such Master Servicer Termination
          Events which may have occurred, the duties and obligations of the
          Trustee shall be determined solely by the express provisions of this
          Agreement, the Trustee shall not be liable except for the performance
          of such duties and obligations as are specifically set forth in this
          Agreement, no implied covenants or obligations shall be read into this
          Agreement against the Trustee and, in the absence of bad faith,
          willful misconduct, or negligence on the part of the Trustee or actual
          knowledge to the contrary of a Responsible Officer of the Trustee
          assigned to and working in the Trustee's Corporate Trustee
          Administration Department, the Trustee may conclusively rely, as to
          the truth of the statements and the correctness of the opinions
          expressed therein, upon any certificates or opinions furnished to the
          Trustee that conform to the requirements of this Agreement;

                    (ii) The Trustee shall not be personally liable for an error
          of judgment made in good faith by a Responsible Officer or Responsible
          Officers of the Trustee,


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<PAGE>   105
          unless it shall be proved that the Trustee was negligent in
          ascertaining the pertinent facts;

                    (iii) The Trustee shall not be personally liable with
          respect to any action taken, suffered or omitted to be taken by it in
          good faith in accordance with the direction given pursuant to a Class
          Vote, relating to the time, method and place of conducting any
          proceeding for any remedy available to the Trustee, or exercising any
          trust or power conferred upon the Trustee, with respect to such Class
          of Certificates under this Agreement;

                    (iv) The Trustee shall not be personally liable for any
          failure to ascertain whether a Certificateholder is an affiliate of
          the Master Servicer or the Depositor for purposes of obtaining
          Certificateholder consent pursuant to the terms of this Agreement;

                    (v) For all purposes of this Agreement, the Trustee shall
          not be deemed to have knowledge of any Master Servicer Termination
          Event unless a Responsible Officer of the Trustee assigned to and
          working in the Trustee's Corporate Trustee Administration Department
          shall have actual knowledge thereof or if written notice thereof is
          received by the Trustee in accordance herewith, and in the absence of
          such knowledge no provision hereof requiring the taking of any action
          or the assumption of any duties or responsibility by the Trustee
          following the occurrence of any Master Servicer Termination Event
          shall be effective as to the Trustee; and

                    (vi) None of the provisions contained in this Agreement
          shall in any event require the Trustee to perform, or to be
          responsible for the manner of performance of, any of the obligations
          of the Master Servicer or the Servicer under this Agreement or to
          supervise or monitor the performance of such obligations (other than
          to determine that any notices, reports or statements required to be
          delivered to it by the Master Servicer hereunder comply with the
          provisions of this Agreement), except during such time, if any, as the
          Trustee shall be the successor to, and be vested with the rights,
          duties, powers and privileges of the Master Servicer in accordance
          with the provisions of this Agreement.

               (d) If the Trustee receives any funds from the FHA or any other
Person with respect to the Loans or any other assets of the Trust, the
provisions of Section 3.12(e) shall apply.

               (e) In the event that any conservator or receiver shall be
appointed for Mego, the Trustee shall cause the Master Servicer to notify the
Obligors of the sale of the Loans to the Trust.

               Section 8.02. Certain Matters Affecting the Trustee.

               Except as otherwise provided in Section 8.01:

                    (i) The Trustee may rely and shall be protected in acting or
          refraining from acting upon any resolution, Officer's Certificate,
          certificate of auditors or any


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<PAGE>   106
          other certificate, statement, instrument, opinion, report, notice,
          request, consent, order, approval, bond or other paper or document
          believed by it to be genuine and to have been signed or presented by
          the proper party or parties;

                    (ii) The Trustee shall be under no obligation to exercise
          any of the trusts or powers vested in it by this Agreement or to
          institute, conduct or defend any litigation hereunder or in relation
          hereto at the request, order or direction of the Certificate Insurer
          or any of the Certificateholders, pursuant to the provisions of this
          Agreement, expend or use its own funds or otherwise incur any
          financial liability in the performance of any of its duties as Trustee
          hereunder, or in the exercise of any of its rights or powers as such,
          unless either (A) payment within a reasonable time to the Trustee of
          the costs, expenses or liabilities likely to be incurred by it in
          taking such action is, in the opinion of the Trustee, reasonably
          assured to the Trustee by the security afforded to it by the terms of
          this Agreement, or (B) the Certificate Insurer or such
          Certificateholders as the case may be shall have offered to the
          Trustee reasonable security or indemnity against the costs, expenses
          and liabilities which may be incurred therein or thereby (which, in
          the case of a Certificateholder which is an institutional investor,
          will be deemed satisfied by a written agreement of indemnity from such
          Certificateholder); the right of the Trustee to perform any
          discretionary act enumerated in this Agreement shall not be construed
          as a duty, and the Trustee shall not be answerable for other than its
          negligence, bad faith or willful misconduct in the performance of any
          such act; nothing contained herein shall, however, relieve the Trustee
          of the obligation, upon the occurrence of a Master Servicer
          Termination Event which has not been cured, to exercise such of the
          rights and powers vested in it by this Agreement, and to use the same
          degree of care and skill in their exercise as a prudent man would
          exercise or use under the circumstances in the conduct of his own
          affairs;

                    (iii) The Trustee shall not be personally liable for any
          action taken, suffered or omitted by it in good faith and believed by
          it to be authorized or within the discretion or rights or powers
          conferred upon it by this Agreement;

                    (iv) The Trustee may consult with counsel and any Opinion of
          Counsel or written advice of counsel shall be full and complete
          authorization and protection in respect of any action taken or
          suffered or omitted by it hereunder in good faith and in accordance
          with such Opinion of Counsel or written advice;

                    (v) Prior to the occurrence of a Master Servicer Termination
          Event hereunder and after the curing of all such Master Servicer
          Termination Events which may have occurred, the Trustee shall not be
          bound to make any investigation into the facts or matters stated in
          any resolution, certificate, statement, instrument, opinion, report,
          notice, request, consent, order, approval, bond or other paper or
          document, unless requested in writing to do so by the Certificate
          Insurer or pursuant to a Class Vote; provided, however, that if the
          payment within a reasonable time to the Trustee of the costs, expenses
          or liabilities likely to be incurred by it in the making of such
          investigation is, in the opinion of the Trustee, not reasonably
          assured to the Trustee by the security afforded to it by the terms of
          this Agreement, the Trustee may require reasonable indemnity from the
          Certificate Insurer or the Certificateholders, as the case


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<PAGE>   107
          may be, giving such direction against such expense or liability as a
          condition to so proceeding (which, in the case of a Certificateholder
          which is an institutional investor, will be deemed satisfied by a
          written agreement of indemnity from such Certificateholder), except
          that, if a Master Servicer Termination Event has occurred and is
          continuing, the expenses of any such investigation shall be paid by
          the Master Servicer or, if paid by the Trustee, shall be repaid by the
          Master Servicer upon demand, and the Trustee shall not have any lien,
          claim or demand upon the Trust for the payment thereof;

                    (vi) The Trustee may execute any of the trusts or powers
          hereunder or perform any duties hereunder either directly or through
          agents or attorneys; and

                    (vii) The Trustee shall not be required to give any bond or
          surety in respect of the trust created hereby or the powers created
          hereunder.

               Section 8.03. Trustee Not Liable for Certificates or Loans.

               The recitals contained herein and in the Certificates (other than
the countersignature of the Trustee on such Certificates) shall not be taken as
the statements of the Trustee, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations as to the validity or
sufficiency of this Agreement (other than as to the execution and delivery of
this Agreement by the Trustee) or of the Certificates (other than the
countersignature of the Trustee on such Certificates) or of any Loan or related
document. The Trustee shall not be accountable for the use or application by the
Depositor of any of the Certificates or of the proceeds of such Certificates, or
for the use or application of any funds paid to the Master Servicer (unless the
Trustee is acting as such) in respect of the Loans or deposited in or withdrawn
by the Master Servicer from the Collection Accounts, other than funds so
withdrawn and thereafter deposited in a Distribution Account. Except as
otherwise expressly provided herein, the Trustee shall have no obligation to
inspect, insure or pay taxes on any Property, to investigate the state of title
with respect to any Property, to ensure the priority or perfection of any
Mortgage or security interest or to file or record any assignment, lien,
financing statement, continuation statement or security interest in relation to
any Loan or Property or to ensure the priority or perfection of any security
referred to in this Agreement or to prepare, file or record any assignment,
lien, financing statement or continuation statement with respect thereto or to
prepare or file any Securities and Exchange Commission filings for the Trust or
to record this Agreement.

               Section 8.04. Trustee May Own Certificates.

               The Trustee in its individual or any other capacity may become
the owner or pledgee of Certificates of any Class with the same rights as it
would have if it were not Trustee, except that no determination, vote or request
as Holder of such Certificates shall be included in the determination of a Class
Vote. The Trustee, in its individual capacity, may deal with either the
Depositor, the Certificate Insurer and the Master Servicer, each in their
individual capacities, with the same rights it would have if it were not
Trustee.


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               Section 8.05. Trustee's Fees and Expenses;
Indemnification.

               (a) The Trustee will disburse to itself pursuant to Section
4.05(a)(iv) and Section 4.05(b)(iv), to the extent funds are available therefor,
the Trustee Fee for all services rendered by it in the execution of the trusts
hereby created and in the exercise and performance of any of the powers and
duties hereunder of the Trustee.

               (b) Mego shall indemnify the Trustee and its agent for, and hold
them harmless against, any loss, liability or expense (including reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any of the provisions of this Agreement (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all Persons not regularly in its employ and the fees and expenses of any
co-trustee appointed hereunder)) incurred by the Trustee or such agent without
negligence, willful misfeasance or bad faith on the part of the Trustee or any
such agent and arising out of or in connection with the acceptance or
administration of the trusts created hereby, including without limitation the
costs and expenses of defending the Trustee or any such agent against any claim
or liability incurred by them in connection with the exercise or performance of
any of their powers or duties hereunder, including the signing of any document
pursuant to this Agreement, and including without limitation any liability
incurred by the Trustee arising from the Depositor's bad faith, willful
misfeasance or negligence. The obligations set forth in this Section 8.05(b)
shall survive the termination of this Agreement.

               Section 8.06. Eligibility Requirements for Trustee.

               The Trustee hereunder shall at all times be a corporation or
national banking association organized and doing business under the laws of the
United States or of any state, authorized under such laws to exercise corporate
trust powers, subject to supervision or examination by federal or state
authority and either (i) having a combined capital and surplus of at least
$50,000,000 or (ii) being the wholly-owned subsidiary of a bank holding company
having such a capital and surplus. If such corporation or national banking
association publishes reports of condition at least annually, pursuant to law or
the requirements of the aforesaid supervising or examining authority, then for
the purpose of this Section 8.06 the combined capital and surplus of such
corporation or national banking association shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. By executing and delivering this Agreement, the Trustee represents
and warrants that it meets such requirements as of the date hereof. In case at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 8.06, the Trustee shall resign immediately in the
manner and with the effect specified in Section 8.07. Neither the Master
Servicer nor any affiliate thereof shall be eligible to serve as Trustee at any
time, except that the Trustee may serve as successor master servicer pursuant to
Section 7.02.

               Section 8.07. Resignation and Removal of the Trustee.

               (a) The Trustee may resign and be discharged from the trust
hereby created by giving not less than 60 days' written notice thereof to the
Master Servicer and the Certificate Insurer. Upon receiving such notice of
resignation, the Depositor with the prior


                                      103
<PAGE>   109
written consent of the Certificate Insurer or, if a Certificate Insurer Default
is then occurring and continuing, the Depositor shall promptly appoint a
successor trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Trustee and one copy to the
successor trustee. If no successor trustee shall have been so appointed and have
accepted appointment within sixty days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee.

               (b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.06, or if the Trustee has failed to
perform any obligation hereunder and such failure materially and adversely
affects Certificateholders of any Class or the Certificate Insurer, and, in
either such case, the Trustee shall fail to resign after written request
therefor by the Depositor, with the consent of the Certificate Insurer, if a
Certificate Insurer Default is not then occurring and continuing, or the
Certificate Insurer, if a Certificate Insurer Default is not then occurring and
continuing or if at any time the Trustee shall become incapable of acting, or
shall be adjudged as bankrupt or insolvent, or a receiver or other conservator
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then, in any such
case the Depositor may with the prior written consent of the Certificate Insurer
or at the written request of the Certificate Insurer shall remove the Trustee
and appoint a successor trustee acceptable to the Certificate Insurer by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee.

               (c) Any resignation or removal of the Trustee and appointment of
a successor trustee pursuant to any of the provisions of this Section 8.07 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 8.08.

               Section 8.08. Successor Trustee.

               (a) Any successor trustee appointed as provided in Section 8.07
shall execute, acknowledge and deliver to the Depositor and to its predecessor
trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor trustee shall become effective and the
acceptance of such successor trustee shall become effective, and such successor
trustee, without any further act, deed or conveyance, shall become fully vested
with all rights, powers, duties and obligations of its predecessor hereunder,
with like effect as if originally named as Trustee herein. The predecessor
trustee shall upon payment of any unpaid Trustee Fees deliver to the successor
trustee all Files, related documents, statements and funds held by it hereunder,
including, without limitation, the monies held in the Distribution Accounts and
the FHA Premium Accounts and the Depositor and the predecessor trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required more fully and certainly to vest and confirm in the successor
trustee all such rights, powers, duties and obligations, provided, however, that
the Trust shall remain liable to the predecessor trustee for any unpaid
outstanding fees and expenses of such predecessor trustee.


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               (b) No successor trustee shall accept appointment as provided in
this Section 8.08 unless at the time of such acceptance such successor trustee
shall be eligible under the provisions of Section 8.06. In addition, no
appointment of a successor trustee shall be effective until such entity holds a
contract of insurance that covers the Loans or First Trust of New York, National
Association, as Contract of Insurance Holder is appointed co-trustee under this
Pooling and Servicing Agreement.

               (c) Upon acceptance of appointment by a successor trustee as
provided in this Section 8.08, the Master Servicer shall mail notice of the
succession of such trustee hereunder to all Certificateholders at their
respective addresses appearing in the Certificate Register and be entitled to
reimbursement of expenses for such mailing from Mego.

               Section 8.09. Merger or Consolidation of the Trustee.

               Any corporation or national banking association into which the
Trustee may be merged or converted or with which it may be consolidated or any
corporation or national banking association resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation or national banking association succeeding to all or substantially
all of the corporate trust business of the Trustee, shall be the successor of
the Trustee hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding, provided that such corporation or national banking
association shall be eligible under the provisions of Section 8.06. The Trustee
or its successor hereunder shall provide the Depositor and the Certificate
Insurer with prompt notice of any such transaction.

               Section 8.10. Appointment of Co-Trustee or Separate Trustee.

               (a) Notwithstanding any other provisions hereof at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust or property securing the same may at the time be located, the
Depositor and the Trustee acting jointly with the prior written consent of the
Certificate Insurer shall have the power and shall execute and deliver all
instruments to appoint one or more Persons approved by the Trustee to act as
co-trustee or co-trustees, jointly with the Trustee, or separate trustee or
separate trustees, of all or any part of the Trust, and to vest in such Person
or Persons, in such capacity, such title to the Trust, or any part thereof, and,
subject to the other provisions of this Section 8.10, such powers, duties,
obligations, rights and trusts as the Master Servicer and the Trustee may
consider necessary or desirable. If the Master Servicer shall not have joined in
such appointment within fifteen days after the receipt by it of a request so to
do, or in case a Master Servicer Termination Event shall have occurred and be
continuing, the Trustee shall have the power to make such appointment with the
prior written consent of the Certificate Insurer. No co-trustee or separate
trustee hereunder shall be required to meet the terms of eligibility as a
successor trustee under Section 8.06, and no notice to Certificateholders of the
appointment of co-trustee(s) or separate trustee(s) shall be required under
Section 8.08.

               (b) In the case of any appointment of a co-trustee or separate
trustee pursuant to this Section 8.10, all rights, powers, duties and
obligations conferred or imposed upon the Trustee shall be conferred or imposed
upon and exercised or performed by the Trustee and such separate trustee or
co-trustee jointly, except to the extent that under any


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law of any jurisdiction in which any particular act or acts are to be performed
(whether as Trustee hereunder or as successor to the Master Servicer hereunder),
the Trustee shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations (including the holding
of title to the Trust or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee, but
solely at the direction of the Trustee.

               (c) Any notice, request or other writing given to the Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument of
appointment of any separate trustee or co-trustee shall refer to this Agreement
and the conditions of this Article VIII. Each separate trustee, and co-trustee,
upon its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Trustee. Every such instrument shall be filed with the Trustee.

               (d) Any separate trustee or co-trustee may, at any time,
constitute the Trustee, its agent or attorney-in-fact, with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.

               (e) No trustee hereunder shall be held personally liable by
reason of any act or omission of any other trustee hereunder.

               (f) The Trustee may at any time accept the resignation of or
remove any separate trustee or co-trustee.

               Section 8.11. Appointment of Custodians.

               (a) Any provision of this Agreement notwithstanding, the Trustee
may, with the consent of the Master Servicer and the prior written consent of
the Certificate Insurer, appoint, as agents for the Trustee, one or more
Custodians to hold all or a portion of the Files, and to take such other action
with respect thereto as shall be consistent with the terms of this Agreement, by
entering into a Custodial Agreement in form and substance satisfactory to the
Certificate Insurer, provided that none of the provisions of this Section 8.11
relating to agreements or arrangements between the Trustee and any Custodian or
to actions taken through any such Custodian or otherwise shall be deemed to
relieve the Trustee of any of its duties and obligations hereunder, and the
Trustee shall be obligated with respect thereto to the same extent and under the
same terms and conditions as if it alone were performing all such duties and
obligations. Any Custodian shall have a combined capital and surplus of at least
$10,000,000. The Trustee shall be entitled to enter into any agreement with any
Custodian performing services on behalf of the Trustee related to its duties and
obligations


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hereunder for indemnification of the Trustee by such Custodian, and nothing
contained in this Agreement shall be deemed to limit or modify such
indemnification.

               (b) The Custodian in its individual or any other capacity may
become the owner or pledgee of Certificates of any Class with the same rights it
would have if it were not Custodian.

               (c) Subject to the provisions of this Article VIII, the Trustee
agrees to comply with the terms of each such Custodial Agreement and to enforce
the terms and provisions thereof against the Custodian for the benefit of
Certificateholders and the Certificate Insurer. The Trustee shall be solely
liable for all fees owed by it to any Custodian performing services on behalf of
the Trustee, irrespective of whether the Trustee's compensation pursuant to this
Agreement is sufficient to pay such fees. Any Custodial Agreement shall require
that the Custodian thereunder maintain continuous custody of each File in the
State of Minnesota, unless the Trustee shall obtain an Opinion of Counsel
acceptable to the Certificate Insurer from a firm of attorneys licensed to
practice law in the State in which custody of the Files will be maintained to
the effect that, in the event that the intended transfer and sale to the Trustee
by the Depositor of the Loans is deemed to be the grant of a security interest
in the Trust rather than a sale, the Trustee will have a perfected first
priority security interest in the Notes despite the fact that custody of the
Files no longer is maintained in the State of Minnesota.

               Section 8.12. Certain Tax Matters.

               (a) The Trustee is hereby authorized and directed by Mego and to
elect to treat the REMIC Pool, including the Collection Account, the
Distribution Account and the FHA Premium Account for the Group I Loans, as a
REMIC in accordance with the REMIC Provisions. In connection with such election,
(i) the Class R Certificates are hereby designated as the sole class of
"residual interests" in the REMIC Pool, (ii) the Group IA Certificates are
hereby designated as classes of "regular interests" in the REMIC Pool, (iii) the
latest possible maturity date of the Group I Certificates is the Final Scheduled
Distribution Date, and (iv) the Closing Date is hereby designated as the
"Start-Up Day" of the REMIC Pool, all within the meaning of the REMIC
Provisions. The taxable year of the REMIC Pool shall be the calendar year and
the first taxable year shall begin on the Closing Date. The books of the REMIC
Pool shall be maintained on an accrual basis for federal income tax purposes.

               (b) The Trustee as agent for Mego, so long as it shall be a
Holder of a Class R Certificate, and otherwise the Residual Holder appointed in
accordance with the provisions of the Code, shall, with respect to the REMIC
Pool:

                    (i) in a timely manner, prepare, file with the Internal
          Revenue Service or other appropriate authorities, and cause the
          Trustee to mail to Group I Certificateholders, as required, any Tax
          Returns, and any other federal, state or local tax or information
          returns or reports that are required to be so filed, or provided to
          Group I Certificateholders, with respect to the REMIC Pool;

                    (ii) in the first Tax Return, elect to treat the REMIC Pool
          as a REMIC;


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                    (iii) in the Tax Return for each taxable year of the REMIC
          Pool, designate as the tax matters person for the REMIC Pool (x) Mego
          or an affiliate thereof, if Mego or such affiliate, as the case may
          be, owned a Class R Certificate at any time during such taxable year,
          or (y) if neither Mego nor an affiliate thereof owned a Class R
          Certificate at any time during such taxable year, (A) the Holder of a
          Class R Certificate designated in a notice delivered to the Trustee
          prior to the date of completion of such Tax Return by Holders of Class
          R Certificates representing a majority of the Residual Interests, or
          (B) if no such notice is received, the Person holding, at the end of
          such taxable year, Class R Certificates representing, in the
          aggregate, a greater percentage of the Residual Interests than Class R
          Certificates then held by any other Person;

                    (iv) maintain or instruct the Trustee to maintain records as
          to investments and other assets of the REMIC Pool sufficient to show
          compliance with the REMIC Provisions during each taxable year of the
          REMIC Pool; and

                    (v) take all actions necessary to ensure that the Tax Return
          and such other returns or reports are signed by a Person that is both
          authorized to sign such returns or reports hereunder and is an
          appropriate Person to sign such returns or reports under the law
          applicable to such returns or reports (including in the case of the
          Tax Return, the Code, Treasury Regulations, and any official
          pronouncements of the Internal Revenue Service).

The Trustee is hereby authorized under this Agreement to sign on behalf of the
REMIC Pool the Tax Return and any such other returns and reports. Each Holder of
a Class R Certificate hereby irrevocably appoints and authorizes the Trustee to
be its attorney-in-fact for purposes of signing any such returns and reports.
The Trustee shall (i) give notice to the Internal Revenue Service on Internal
Revenue Service Form 56 that it is acting in a fiduciary capacity on behalf of
the REMIC Pool in accordance with Treasury Regulation Section 1.860F-4(c), and
(ii) sign such return or report, provided that the Trustee shall be protected in
signing such return or report to the extent provided in Section 8.05(b). The
Trustee shall cause the REMIC Pool accountants to include in the first federal
income tax return the information required by Treasury Regulation Section
1.860D-1(d)(2) and Treasury Regulation Section 1.860F-4(b)(2).

               (c) The Trustee shall, with respect to the Grantor Trust Pool:

                    (i) in a timely manner, prepare, sign, and file with the
          Internal Revenue Service or other appropriate authorities, and mail to
          Certificateholders of the Group II Certificates as required, any Tax
          Returns, and any other federal, state or local tax or information
          returns or reports that are required to be so filed, or provided to
          such Certificateholders, with respect to the Grantor Trust Pool; and

                   (ii) maintain or instruct the Trustee to maintain records as
        to investments and other assets of the Grantor Trust Pool sufficient to
        show compliance with the Grantor Trust Provisions during each taxable
        year of the Grantor Trust Pool.

               (d) This Agreement shall be construed so as to carry out the
intention of the parties that the REMIC Pool be a REMIC and the Grantor Trust
Pool be a Grantor Trust at all


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times from the Start-up Day to the Termination Date. Neither the Master Servicer
nor the Trustee shall knowingly or intentionally take any action or omit to take
any action that would cause the imposition of a tax on the REMIC Pool, Grantor
Trust Pool or Trust under any provisions of the Code or cause the REMIC or cause
the Grantor Trust Pool to fail to qualify as a Grantor Trust Pool to fail to
qualify as a REMIC at any time that any Certificate is outstanding. Without
limiting the generality of the foregoing, after the Start-up Day the Trustee
shall not accept any contribution of assets to the Trust unless the Trustee
shall have received an Opinion of Counsel to the effect that such contribution
will not cause the imposition of a tax on the Trust under the Code or cause the
REMIC Pool to fail to qualify as a REMIC or cause the Grantor Trust Pool to fail
to qualify as a Grantor Trust at any time that any Certificate is outstanding.
There is no requirement for any holder of a Residual Interest to contribute any
amount to the Trust.

               (e) The Trustee is hereby authorized and directed to make
information available to the Internal Revenue Service and to any Holder or
transferor of a Class R Certificate necessary for compliance with Section
860E(e) of the Code. The Master Servicer shall maintain records and information
related to the Loans and Monthly Payments sufficient to make any calculations
that may be required pursuant to such section and shall provide such information
to the Trustee; provided, however, that any calculations necessary to provide
such information to any Holder or the Internal Revenue Service shall be
performed by the accountants for the REMIC Pool. The provisions of Section
11.02(vi) shall also apply.

               (f) The Trustee shall apply promptly to the Internal Revenue
Service for a Taxpayer Identification Number for the REMIC Pool and, promptly
upon receipt thereof, shall forward to the Master Servicer a copy of the "Notice
of New Employer Identification Number Assigned."

               (g) In connection with assisting Mego (or such other Residual
Holder as is referred to in Section 8.12(a) above) in the preparation of, and in
filing of, any Tax Returns or other returns or reports pursuant to this Section,
the Trustee may rely on information provided by Mego and the Master Servicer and
Mego or the Master Servicer, as appropriate, shall indemnify and hold harmless
the Trustee for any loss, liability or expense incurred in connection with such
preparation and filing arising by reason of such person's bad faith, willful
misfeasance or negligence in providing or failing to provide such information.
The Trustee shall be entitled to reimbursement from Mego for its reasonable
out-of-pocket expenses and disbursements except any such expenses or
disbursements as may arise from its negligence, willful misfeasance or bad faith
and except as provided in the following sentence.

               (h) With respect to the REMIC Pool, the Trustee shall file IRS
Form 8811 within the time prescribed by law and make available on a timely basis
all information required to be provided pursuant to Temporary Treasury
Regulation Section 1.6049-7T(e) (or any successor provision) to persons entitled
to receive information pursuant thereto.

               Section 8.13. Representations and Warranties of the Trustee.

               The Trustee represents and warrants to, and agrees with, the
parties hereto, the Certificate Insurer and Certificateholders that:


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               (a) The Trustee is duly organized as a national banking
association under the laws of the United States of America, is validly existing
and in good standing in such state and has the corporate power and authority
under United States law to conduct its corporate trust business as now
conducted.

               (b) The Trustee has full corporate power and authority under
United States law to enter into and perform all transactions contemplated herein
and no consent, approval, authorization or order of any federal court or
governmental agency or body governing or having jurisdiction with respect to the
Trustee's trust powers is required for the Trustee to enter into this Agreement
and to perform its obligations hereunder.

               (c) The Certificates when countersigned by the Trustee shall have
been duly and validly countersigned in accordance with this Agreement.

               (d) The execution, delivery and performance by it of this
Agreement (a) do not violate any provision of any law or regulation governing
the banking and trust powers of the Trustee or any order, writ, judgment, or
decree of any court, arbitrator, or governmental authority applicable to the
Trustee or any of its assets, (b) do not violate any provision of its corporate
charter or by-laws, (c) do not violate any provision of, or constitute, with or
without notice or lapse of time, a default under, or result in the creation or
imposition of any lien on any of the Trust Property pursuant to the provisions
of any mortgage, indenture, contract, agreement or other undertaking other than
this Agreement to which it is a party and (d) have been duly authorized by the
Trustee.

               (e) This Agreement has been duly executed and delivered by the
Trustee and constitutes the legal, valid and binding agreement of the Trustee,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by equitable
limitations on the availability of specific remedies, regardless of whether such
enforceability is considered in a proceeding in equity or at law.

               (f) The Trustee has taken actual possession of the Notes,
Mortgages and any other related documents delivered pursuant to Section 2.01(b)
in good faith, and without notice or knowledge: (i) of any adverse claims, lien,
or encumbrance against any of the same; (ii) that any Note was overdue (except
for those Loans referred to in Section 2.03(b)(ii) that are delinquent as of the
Closing Date) or had been dishonored or subject to the circumstances described
in Section 3.304 of the Uniform Commercial Code as in effect in the State of New
York; or, (iii) of any other defense against or claim to the Notes by any other
person or entity. For purposes of this subsection (g), the Trustee shall not be
deemed to have had notice or knowledge of the foregoing matters unless a
Responsible Officer assigned to and working in the Trustee's Corporate Trustee
Administration Department shall have actual knowledge thereof or written notice
thereof is received by the Trustee in accordance herewith.

               (g) The Trustee has taken actual possession of the Notes,
Mortgages and other items in the Files in the ordinary course of its business.

               (h) The Trustee is authorized and approved by FHA for
participation in the FHA Title I loan program and holds the Contract of
Insurance, which is a valid contract of insurance


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from FHA for such purpose; and no contract of insurance held by the Trustee has
ever been revoked or terminated by FHA.

               Section 8.14. Streit Act.

        Any provisions required to be contained in this Agreement by Section 126
Article 4-A of the New York Real Property law are hereby incorporated, and such
provisions shall be in addition to those conferred or imposed by this Agreement;
provided, however, that to the extent that such Section 126 shall not apply to
this Agreement, said Section 126 shall not have any effect, and if said Section
126 should at any time be repealed or cease to apply to this Agreement, or be
construed by judicial decision to be inapplicable, said Section 126 shall cease
to have any further effect upon the provisions of this Agreement. In case of a
conflict between the provisions of this Agreement and any mandatory provisions
of Article 4-A of the New York Real Property law, such mandatory provisions of
said Article 4-A shall prevail, provided that if said Article 4-A shall not
apply to this Agreement, should at any time be repealed, or cease to apply to
this Agreement, or be construed by judicial decision to be inapplicable, such
mandatory provision of such Article 4-A shall cease to have any further effect
upon the provisions of this Agreement; provided, however, that the Trustee
agrees to act in good faith in the exercise of its rights and powers hereunder.

               Section 8.15. Rights to Direct Trustee.

        Subject to Section 8.02(ii), the Certificate Insurer (or, if an
Certificate Insurer Default shall have occurred and be continuing, the
Certificateholders pursuant to a Class Vote) shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee;
provided, however, that subject to Section 8.01, the Trustee shall have the
right to decline to follow any such direction if the Trustee being advised by
counsel determines that the action so directed may not lawfully be taken, or if
the Trustee in good faith shall, by a Responsible Officer, determine that the
proceedings so directed would be in violation of this Agreement or any other
Transaction Document or would subject it to personal liability against which it
has not been provided reasonable indemnity (which, in the case of a
Certificateholder which is an institutional investor, will be deemed satisfied
by a written agreement of indemnity from such Certificateholder) or (in the case
of directions provided by a Class Vote) be unduly prejudicial to the rights of
Certificateholders not parties to such direction; and provided further that
nothing in this Agreement shall impair the right of the Trustee to take any
action deemed proper by the Trustee and which is not inconsistent with such
direction by the Certificate Insurer or the Certificateholders.

               Section 8.16. Reports to the Securities and Exchange Commission.

        The Trustee shall, on behalf of the Trust, cause to be filed with the
Securities and Exchange Commission any periodic reports required to be filed
under the provisions of the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder. Upon
the request of the Trustee, each of the Seller, the Servicer, the Depositor and
the Master Servicer shall cooperate with the Trustee in the preparation of any
such report and shall provide to the Trustee in a timely manner all such


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information or documentation as the Trustee may reasonable request in connection
with the performance of its duties and obligations under this Section.


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                                   ARTICLE IX

                                   Termination

               Section 9.01. Termination.

               (a) The respective obligations and responsibilities of Mego, the
Master Servicer, the Depositor and the Trustee created hereby with respect to
the Certificates (other than the obligation to make certain payments and to send
certain notices to Certificateholders as hereinafter set forth) shall terminate
immediately following the occurrence of the last action required to be taken by
the Trustee pursuant to this Article IX on the Termination Date; provided,
however, that in no event shall the trust created hereby, i.e., the Trust,
continue beyond the expiration of twenty-one years from the death of the last
survivor of the descendants of Joseph P. Kennedy, the late ambassador of the
United States to the Court of St. James's, living on the Closing Date; and
provided, further, that the respective obligations and responsibilities of Mego
and the Master Servicer with respect to reimbursing the Trustee for claims of
the FHA shall continue until the Final Date pursuant to Section 3.12(g). As soon
as practicable after the termination of the Trust, the Trustee shall surrender
the Policies to the Certificate Insurer for cancellation.

               (b) The REMIC Pool and the Grantor Trust Pool shall each be
terminated with the consent of the Certificate Insurer, and the assets of the
REMIC Pool and the Grantor Trust Pool shall be sold or otherwise disposed of in
connection therewith, only pursuant to a Plan of Complete Liquidation adopted by
the Trustee at the direction of the Depositor and having the terms set forth in
Section 9.01(c). Each Holder of a Certificate hereby irrevocably approves and
appoints the Trustee, acting at the direction of the Depositor as its
attorney-in-fact for the purposes of the adoption of the Plan of Complete
Liquidation. The Trustee, acting at the direction of the Depositor, shall adopt
a Plan of Complete Liquidation promptly following the Trustee's receipt of a
Notice of Termination.

               (c) The Plan of Complete Liquidation shall be adopted on the
earliest practicable date occurring not more than 90 days prior to the
Anticipated Termination Date specified in the Notice of Termination, and shall
provide:

                    (i) for the actions contemplated by the provisions hereof
          pursuant to which the applicable Notice of Termination is given;

                    (ii) With respect to a Plan of Complete Liquidation of the
          REMIC Pool, that the REMIC Pool shall terminate as a REMIC as required
          by Section 860F(a)(4) of the Code on a Distribution Date occurring not
          more than 90 days following the date of adoption of the Plan of
          Complete Liquidation; and

                    (iii) With respect to a Plan of Complete Liquidation of the
          REMIC Pool, that all assets of the REMIC Pool required to be sold
          pursuant to the Plan of Complete Liquidation shall be sold after the
          date of adoption thereof, such sale to be conducted by the Master
          Servicer on behalf of the Trustee;


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provided that the Plan of Complete Liquidation may be adopted prior to the
ninetieth day prior to the Anticipated Termination Date and, to the extent
consistent with the actions contemplated by the provisions hereof pursuant to
which the applicable Notice of Termination is given, may provide for actions
different from those set forth in clauses (ii) or (iii) if an Opinion of Counsel
shall have been previously delivered to the Trustee to the effect that the
adoption of a Plan of Complete Liquidation that provides for such alternative
actions as are set forth in such Opinion of Counsel will not result in the
imposition of a tax on the REMIC Pool or pursuant to the REMIC Provisions cause
the REMIC Pool to fail to qualify as a REMIC at any time that any Certificate is
Outstanding. The Trustee shall deliver to the Master Servicer and the
Certificate Insurer a copy of the Plan of Complete Liquidation promptly
following its adoption.

               (d) Subject to the provisions of the following sentence, Mego or,
if such option is not exercised by Mego, the Master Servicer may, at its option
(with the prior written consent of the Certificate Insurer if such purchase
would result in a claim under the related Policy), upon not less than thirty
days' prior notice given to the Trustee at any time on or after the applicable
Early Termination Notice Date, purchase on the Monthly Cut-Off Date specified in
such notice, all, but not less than all, the Loans, all claims made under the
Contract of Insurance with respect to Loans that are pending with FHA ("FHA
Pending Claims") and Foreclosed Properties then included in the Trust, at a
purchase price, payable in cash, equal to the sum of:

                    (i) the Principal Balance of each Loan included in the Trust
          as of such Monthly Cut-Off Date;

                    (ii) all unpaid interest accrued on the Principal Balance of
          each such Loan at the related Net Loan Rate to such Monthly Cut-Off
          Date;

                    (iii) the aggregate fair market value of the FHA Pending
          Claims for which a claim has been filed with the FHA included in the
          Trust on such Monthly CutOff Date, as determined by an Independent
          appraiser acceptable to the Trustee as of a date not more than thirty
          days prior to such Monthly Cut-Off Date;

                    (iv) the aggregate fair market value of each Foreclosed
          Property included in the Trust on such Monthly Cut-Off Date, as
          determined by an Independent appraiser acceptable to the Trustee as of
          a date not more than thirty days prior to such Monthly Cut-Off Date;
          and

                    (v) any unreimbursed amounts due to the Certificate Insurer
          under this Agreement or the Insurance Agreement.

Any amount received from such sale with respect to FHA Pending Claims shall be
considered FHA Insurance Payment Amounts. The expense of any Independent
appraiser required under this Section 9.01(d) shall be a nonreimbursable expense
of Mego. Mego or the Master Servicer shall effect the purchase referred to in
this Section 9.01(d) by deposit of the purchase price allocable to each of the
Loan Groups into the applicable Distribution Account. The Trustee shall give
written notice of the Early Termination Notice Date to the Certificate Insurer
promptly upon the occurrence thereof.


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               (e) If the Trust has not been previously terminated pursuant to
subsection (d) of this Section 9.01, the Master Servicer shall give the Trustee
and the Certificate Insurer notice as soon as practicable (at least 45 days
before the Distribution Date) of the Distribution Date which is the earlier of
(i) the Final Scheduled Distribution Date and (ii) the Distribution Date on
which the Master Servicer anticipates the latest of the maturity or other
liquidation of the last Loan.

               (f) Notice of any termination of the Trust pursuant to this
Section 9.01 shall be mailed, via first class mail, postage prepaid, by the
Trustee to affected Certificateholders at their addresses shown in the
Certificate Register as soon as practicable after the Trustee shall have
received a Notice of Termination, but in any event, not more than thirty days,
and not less than five days, prior to the Anticipated Termination Date except
that notice to Holders of Class R Certificates shall be made within two Business
Days after the Trustee shall have received a Notice of Termination. The notice
mailed by the Trustee to affected Certificateholders shall:

                    (i) specify the Anticipated Termination Date on which the
          final distribution is anticipated to be made to Holders of
          Certificates of the Classes specified therein; and

                    (ii) specify the amount of any such final distribution, if
          known.

If the Trust is not terminated on any Anticipated Termination Date for any
reason, the Trustee shall promptly mail, via first class mail, postage prepaid,
notice thereof to each affected Certificateholder.

               (g) On the Termination Date, amounts on deposit in each
Distribution Account will be withdrawn and applied in the manner set forth in
Section 4.05.


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                                    ARTICLE X

                            Miscellaneous Provisions

               Section 10.01. Amendment.

               (a) This Agreement may be amended from time to time by the
parties hereto as specified in this Section, with the prior written consent of
the Certificate Insurer if a Certificate Insurer Default is not then occurring
and continuing (unless such amendment materially and adversely affects the
interests of the Certificate Insurer), provided that any amendment be
accompanied by an Opinion of Counsel to the Trustee and the Certificate Insurer
to the effect that such amendment complies with the provisions of this Section.

               (b) If the purpose of the amendment (as detailed therein) is to
correct any mistake, eliminate any inconsistency, cure any ambiguity or deal
with any matter not covered (i.e., to give effect to the intent of the parties
and, if applicable, to the expectations of the Certificateholders), it shall not
be necessary to obtain the consent of any Certificateholder, but the Trustee
shall be furnished with a letter from the Rating Agency that the amendment will
not result in the downgrading or withdrawal of the rating then assigned to any
Certificate.

               (c) If the purpose of the amendment is to prevent the imposition
of any federal or state taxes at any time that any Certificates are outstanding
(i.e., technical in nature), it shall not be necessary to obtain the consent of
any Certificateholder, but the Trustee shall be furnished with an Opinion of
Counsel that such amendment is necessary or helpful to prevent the imposition of
such taxes and is not materially adverse to any Certificateholder.

               (d) If the purpose of the amendment is to add or eliminate or
change any provision of the Agreement other than as contemplated in (b) and (c)
above, the amendment shall require the consent of Holders of Certificates
evidencing 51% of the Percentage Interests of each Class affected thereby;
provided, however, that no such amendment shall (i) reduce in any manner the
amount of, or delay the timing of, payments received that are required to be
distributed on any Certificate without the consent of the related
Certificateholder, or (ii) reduce the aforesaid percentage of Certificates the
Holders of which are required to consent to any such amendment, without the
consent of the Holders of all such Certificates then Outstanding.

               (e) The Trustee or the Depositor may amend this Agreement to
effect a FASIT election for all or a portion of the Trust; provided, that the
Trustee and the Certificate Insurer shall be furnished with an Opinion of
Counsel to the effect that such election will not adversely affect the Federal
or applicable state income tax characterization of any outstanding Certificates
or the taxability of the Trust under Federal or applicable state income tax
laws.

               (f) Promptly after the execution of any amendment hereof, the
Trustee shall furnish written notification of the substance of such amendment to
each Holder of the affected Certificates.


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               (g) It shall not be necessary for the consent of
Certificateholders under this Section 10.01 to approve the particular form of
any proposed amendment, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders and of any
other consents, directions, waivers or other acts of Certificateholders
hereunder shall be subject to such reasonable regulations as to the Trustee may
prescribe.

               (h) The Trustee may, but shall not be obligated to, enter into
any amendment hereto which affects the Trustee's own rights, duties, liabilities
and immunities under this Agreement or otherwise, except to the extent necessary
to maintain the qualification of the REMIC Pool as a REMIC and the Grantor Trust
Pool as a Grantor Trust.

               Section 10.02. Recordation of Agreement.

               (a) To the extent permitted by applicable law, this Agreement or
a memorandum hereof (in a form mutually agreed upon by the Master Servicer, the
Depositor, Mego, the Certificate Insurer and the Trustee) may be recorded in all
appropriate public offices for real property records in all the counties or
other comparable jurisdictions in which any or all of the Properties are
situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Master Servicer at the expense of the
Trust, if the Master Servicer determines that such recordation materially and
beneficially affects the interests of the affected Certificateholders.

               (b) For the purpose of facilitating the recordation of this
Agreement as herein provided and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and such counterparts shall
constitute but one and the same instrument.

               Section 10.03. Rights of Certificateholders.

               (a) The death, incapacity or bankruptcy of any Certificateholder
shall not operate to terminate this Agreement or the Trust, nor entitle such
Certificateholder's legal representatives, heirs or successors to claim an
accounting or to take any action or proceeding in any court for a partition or
winding-up of the Trust, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.

               (b) No Certificateholder shall have any right to vote (except as
expressly provided herein) or in any manner otherwise control the operation and
management of the Trust, or the obligations of the parties hereto, nor shall
anything herein set forth, or contained in the terms of the Certificates, be
construed as to constitute the Certificateholders of any Class or of all Classes
from time to time as partners or members of an association; nor, to the extent
permitted by applicable law, shall any Certificateholder be under any liability
to any third person by reason of any action taken by the parties to this
Agreement pursuant to any provision hereof.

               (c) No Holder of a Certificate of any Class shall have any right
by virtue of any provision of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Agreement,
unless, with the prior written consent of the


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Certificate Insurer, if a Certificate Insurer Default is not then occurring and
continuing the Holders shall have made written request pursuant to a Class Vote
(wherein such request is only made by each such affected Class of Certificates)
upon the Trustee to institute such action, suit or proceeding in its own name as
Trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby (which, in the case of a Certificateholder which is
an institutional investor, will be deemed satisfied by a written agreement of
indemnity from such Certificateholder), and the Trustee, for sixty days after
its receipt of such notice, request and offer of indemnity, shall have neglected
or refused to institute any such action, suit or proceeding; it being understood
and intended, and being expressly covenanted by each Certificateholder with
every other Certificateholder and the Trustee, that no one or more Holders of
Certificates of any Class shall have any right in any manner whatever by virtue
of any provision of this Agreement to affect, disturb or prejudice the rights of
any other Holders of such Certificates, or to obtain or seek to obtain priority
over or preference to any other such Holder, or to enforce any right under this
Agreement, except in the manner herein provided and for the equal, ratable and
common benefit of all Certificateholders of such Class. For the protection and
enforcement of the provisions of this Section 10.03, each and every
Certificateholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity. Nothing in this Agreement shall be construed
as giving the Certificateholders any right to make a claim under the Policy.

               SECTION 10.04. GOVERNING LAW.

               THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF AND THE PROVISIONS OF THE CERTIFICATES, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

               Section 10.05. Notices.

               (a) All demands, notices, statements and reports hereunder shall
be in writing (unless otherwise specified) and shall be deemed to have been duly
given, if personally delivered, mailed by registered mail postage prepaid, or
delivered by overnight courier or if telecopied (with confirmation by another
prior specified method):

                    (i) in the case of the Master Servicer, to:

                    Norwest Bank Minnesota, N.A.
                    11000 Broken Land Parkway
                    Columbia, Maryland  21044-3562
                    Attention:     Master Servicing Department
                                   Mego Mortgage Home Loan
                                   Trust 1996-3

          or such other address as may hereafter be furnished to the other
          parties hereto in writing by the Master Servicer;


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                    (ii) in the case of Depositor to:

                         Financial Asset Securities Corp.
                         600 Steamboat Road
                         Greenwich, Connecticut 06830
                         Attention:  Charles A. Forbes

          or such other address as may hereafter be furnished to the other
          parties hereto in writing by the Depositor;

                   (iii) in the case of Mego

                         Mego Mortgage Corporation
                         1000 Parkwood Circle
                         Suite 500
                         Atlanta, Georgia 30339
                         Attention:  Jeff S. Moore, President

                    (iv) in the case of the Trustee, to:

                         First Trust of New York, N.A.
                         First Trust Center
                         180 East Fifth Street
                         St. Paul, Minnesota  55101
                         Attention:  Structured Finance

          or such other address as may hereafter be furnished to the other
          parties hereto in writing by the Trustee;

                    (v)  in the case of the FHA, to:

                         Maurice D. Gulledge
                         Chief, Home Improvement Insurance Branch
                         U.S. Department of Housing and Urban
                         Development
                         451 Seventh Street SW
                         Room 9272
                         Washington, D.C. 20410-8000

                    (vi) in the case of Standard & Poor's, to:

                         Standard & Poor's Rating Services
                         25 Broadway, 15th Floor
                         New York, New York  10004
                         Attention:  Loan Surveillance


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                   (vii) in the case of Moody's, to:
 
                         Moody's Investors Service, Inc.
                         99 Church Street
                         New York, New York  10007
                         Attention: Home Equity Monitoring Department

                  (viii) in the case of the Certificate Insurer, to:

                         MBIA Insurance Corporation
                         113 King Street
                         Armonk, NY  10504
                         Attention: Insured Portfolio Management
                                    Structured Finance (IPM-SF)
                                    (Mego Home Loan Asset-Backed
                                    Certificates, Series 1996-3)
                         Confirmation:  (914) 273-4545
                         Telecopy No.:  (914) 765-3164

               (b) Any notice required or permitted to be mailed to a Holder of
any Class of Certificates (except for any notice required to be given to a
Holder of Senior Certificate in connection with a Class Vote) and any
information to be mailed by the Trustee to the Certificateholders pursuant to
Section 8.01(b) shall be mailed by first class mail, postage prepaid, or
delivered by overnight courier, to the address of such Holder appearing in the
Certificate Register, with a copy thereof to each Person designated by such
Holder in a written notice provided by such Holder to the Trustee. Any notice
required or permitted to be given to a Holder of any Senior Certificate in
connection with a Class Vote shall specify the consent sought and the
circumstances relating thereto and shall state that if the Class Vote does not
occur within 30 days after the date of such notice, such Class Vote shall be
determined by the Certificate Insurer, which notice shall be delivered by
overnight courier to the address of such Holder appearing in the Certificate
Register, with a copy thereof to each Person designated by such Holder in a
written notice provided by such Holder to the Trustee. Any notice or information
so mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not such notice is received.

               Section 10.06. Severability of Provisions.

               If any one or more of the covenants, agreements, provisions or
terms of this Agreement shall be for any reason whatsoever held invalid, illegal
or unenforceable, then such covenants, agreements, provisions or terms shall be
deemed to be modified to the extent necessary to render them valid, legal and
enforceable, and if no such modification shall render them valid, legal and
enforceable, then such covenants, agreements, provisions or terms shall be
severable from the remaining covenants, agreements, provisions or terms of this
Agreement and shall in no way affect the validity or enforceability of the other
provisions of this Agreement or of any Class of Certificates or the rights of
the Holders thereof.


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               Section 10.07. Waiver of Notice.

               Notwithstanding anything to the contrary contained herein, any
Holder of a Class R Certificate shall be entitled to:

                    (i) waive any provision hereof that requires the Trustee to
          give any notice, or mail any report, statement or request for consent,
          to such Holder; and

                    (ii) appoint the Master Servicer (with notice to the
          Trustee) as its attorney-in-fact for the purposes of providing any
          consent or giving any instruction required to be provided or given by
          such Holder hereunder.

Any such waiver or appointment shall be in writing, shall be effective as of the
later of the date specified therein and the date of receipt by the Master
Servicer and/or the Trustee, as the case may be, and shall be revocable at any
time by such Holder upon receipt of written notice thereof by the Trustee and/or
the Master Servicer, as the case may be.

               Section 10.08. Access to List of Holders.

               Upon the written applications of Holders of Certificates
representing greater than $2,000,000 in aggregate Denomination (hereinafter
referred to as "applicants") to the Trustee, which application states that the
applicants desire to communicate with other Holders with respect to their rights
under this Agreement or under the Certificates, the Trustee shall, within five
Business Days after the receipt of such application, afford such applicants
access during normal business hours to the most recent Certificate Register.
Every Holder agrees with the Trustee that neither the Trustee nor the
Certificate Registrar shall be held accountable by reason of disclosure pursuant
hereto of any information included in the Certificate Registrar, regardless of
the source from which such information was derived.

               Section 10.09. Third-Party Beneficiaries.

               This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and permitted assigns. Except
as otherwise provided in this Article X, no other Person shall have the right or
obligation hereunder. Upon issuance of the Policies, this Agreement shall also
inure to the benefit of the Certificate Insurer. Without limiting the generality
of the foregoing, all covenants and agreements in this Agreement which expressly
confer rights upon the Certificate Insurer shall be for the benefit of and run
directly to the Certificate Insurer, and the Certificate Insurer shall be
entitled to rely on and enforce such covenants to the same extent as if it were
a party to this Agreement. The Certificate Insurer may disclaim any of its
rights and powers under this Agreement (but not its duties and obligations under
the Policies) upon delivery of a written notice to the Trustee.

               Section 10.10. The Certificate Insurer.

               (a) Except as set forth in Section 10.01, any right conferred to
the Certificate Insurer shall be suspended and shall run to the benefit of the
Certificateholders during any


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period in which an Certificate Insurer Default shall have occurred and be
continuing and shall be exercisable by Class Vote.

               (b) For so long as no Certificate Insurer Default shall have
occurred and be continuing, the Trustee shall agree to accept any moneys due
hereunder from the Certificate Insurer.

               Section 10.11. Consent to Jurisdiction.

               TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES
THERETO HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE
OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK, AND ANY APPELLATE COURT
FROM ANY THEREOF, IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND TO OR
IN CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTION OR FOR
RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING MAY BE HEARD OR DETERMINED IN SUCH NEW YORK STATE COURT OR
IN SUCH FEDERAL COURT. THE PARTIES HERETO AGREE THAT A FINAL JUDGMENT IN ANY
SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. TO
THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO HEREBY WAIVE AND
AGREE NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH
SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN
AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER OR THAT THE TRANSACTION DOCUMENTS OR THE SUBJECT MATTER THEREOF MAY NOT
BE LITIGATED IN OR BY SUCH COURTS.

               Section 10.12. Trial by Jury Waived.

               EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING
DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION WITH ANY OF THE
TRANSACTION DOCUMENTS OR THE TRANSACTION. EACH PARTY HERETO (A) CERTIFIES THAT
NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO
ENTER INTO THE TRANSACTION DOCUMENTS TO WHICH IT IS A PARTY BY, AMONG OTHER
THINGS, THIS WAIVER.

               Section 10.13. Separate Counterparts.

               THIS AGREEMENT MAY BE EXECUTED BY THE PARTIES HERETO IN SEPARATE
COUNTERPARTS, EACH OF WHICH WHEN SO EXECUTED AND DELIVERED SHALL BE AN ORIGINAL,
BUT ALL SUCH COUNTERPARTS SHALL TOGETHER CONSTITUTE BUT ONE AND THE SAME
INSTRUMENT.


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                                   ARTICLE XI

                    Class R Certificate Transfer Restrictions

               Section 11.01. Restrictions on Transfer. Each Person who has or
who acquires any Ownership Interest in a Class R Certificate shall be deemed by
the acceptance or acquisition of such Ownership Interest to have agreed to be
bound by the following provisions and to have irrevocably appointed the Trustee
or its designee as its attorney-in-fact to direct under clause (iv) below the
delivery of payments to a Person other than such Person and to negotiate the
terms of any mandatory sale under clause (v) below and to execute all
instruments of transfer and to do all other things necessary in connection with
any such sale, and the rights of each Person acquiring any Ownership Interest in
a Class R Certificate are expressly subject to the following provisions:

                    (i) Only a Permitted Transferee may hold or acquire any
          Ownership Interest in a Class R Certificate. Each Person holding or
          acquiring any Ownership Interest in a Class R Certificate shall
          promptly notify the Trustee, the Certificate Insurer and the Master
          Servicer of any change or impending change in its status as a
          Permitted Transferee.

                    (ii) In connection with any proposed Transfer of any
          Ownership Interest in a Class R Certificate, the Trustee shall, as a
          condition to such consent, require delivery to the Trustee of a
          properly completed, sworn, executed and acknowledged affidavit from
          the Transferee (the "Transfer Affidavit") in the form attached hereto
          as Exhibit L and from the transferor (the "Transferor
          Representation"), in the form attached hereto as Exhibit K.

                    (iii) Notwithstanding the delivery of a Transfer Affidavit
          by a proposed Transferee under clause (ii) above, if the Responsible
          Officer or Responsible Officers of the Trustee has or have actual
          knowledge that the proposed Transferee is not a Permitted Transferee,
          the Trustee shall not register and, if the Trustee is not the
          Certificate Registrar, shall direct to the Certificate Registrar not
          to register a Class R Certificate in the name of the proposed
          Transferee, no Transfer of an Ownership Interest in the Residual
          Interest to such proposed Transferee shall be effected and the
          Trustee, and Certificate Registrar, shall have no liability for
          failing to effect the proposed registration.

                    (iv) Any attempted or purported Transfer of any Ownership
          Interest in a Class R Certificate in violation of the provisions of
          this Section 11.01 shall be absolutely null and void and shall vest no
          rights in the purported Transferee. If any purported Transferee shall,
          in violation of the provisions of this Section 11.01, become a Holder
          of a Class R Certificate, then the prior Holder of such Class R
          Certificate shall, upon discovery that the registration of Transfer of
          such Class R Certificate was not in fact permitted by this Section
          11.01, notify the Trustee and the Trustee, upon receipt of such notice
          and upon verification of the facts set forth in such notice or upon
          discovery by other means that the registration of Transfer of such
          Class R Certificate was not in fact permitted by this Section 11.01,
          shall notify the Master Servicer and the Certificate Registrar of such
          improper Transfer (such notice to be accompanied by


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<PAGE>   129
          an Opinion of Counsel to the effect that such Transfer was improper
          and the retroactive restoration of the rights of the last preceding
          Permitted Transferee as described in this clause (iv) shall not be
          invalid, illegal or unenforceable) and, subject to clause (v) below,
          shall make payments due on such Class R Certificate to the last
          preceding Holder that is a Permitted Transferee (as described in such
          written notice) and the last Holder that is a Permitted Transferee
          shall be restored to all rights as Holder thereof retroactive to the
          date of registration of Transfer of such Class R Certificate. The
          Trustee shall be entitled, but shall not be obligated, to recover from
          any Holder of a Class R Certificate that was in fact not a Permitted
          Transferee at the time it became a Holder all payments made on such
          Class R Certificate. Any such payments so recovered by the Trustee
          shall be paid and delivered by the Trustee to the last preceding
          Holder that is a Permitted Transferee who was a Holder of such Class R
          Certificate.

                    (v) If any Person that is not a Permitted Transferee
          acquires any Ownership Interest in a Class R Certificate in violation
          of the restrictions in this Section 11.02, and (A) to the extent that
          the retroactive restoration of the rights of the last preceding Holder
          that is a Permitted Transferee as described in clause (iv) above shall
          be invalid, illegal or unenforceable or (B) if the Trustee is unable
          within a reasonable period to obtain the Opinion of Counsel required
          by clause (iv) above then the Trustee shall have the right, without
          notice to the Holder of such Class R Certificate or any other Person
          having an Ownership Interest therein, to sell such Class R Certificate
          to a purchaser selected by the Trustee on such terms as the Trustee
          may choose. The proceeds of such sale, net of commissions, expenses
          and taxes due, if any, will be remitted to the Holder of such Class R
          Certificate by the Trustee, except that in the event that the Trustee
          determines that the Holder of such Class R Certificate may be liable
          for any amount due under this Section 11.01 or any other provisions of
          this Agreement, the Trustee may withhold a corresponding amount from
          such remittance as security for such claim. The terms and conditions
          of any sale under this clause (v) shall be determined in the sole
          discretion of the Trustee, and it shall not be liable to any Person
          having an Ownership Interest in a Class R Certificate as a result of
          its exercise of such discretion.

                    (vi) The Trustee shall make available, upon receipt of
          written requests, all information necessary to compute any tax imposed
          (A) as a result of the Transfer of an Ownership Interest in Class R
          Certificates to any Person who is not a Permitted Transferee, and (B)
          as a result of any regulated investment company, real estate
          investment trust, common trust fund, partnership, trust, estate or
          organizations described in Code section 1381 that holds an Ownership
          Interest in a Class R Certificate and having as among its record
          holders at any time any Person who is not a Permitted Transferee.
          Reasonable compensation for providing such information may be charged
          by the Trustee. The information furnished must be sufficient to
          compute the present value of the anticipated excess inclusions as
          required by Treasury Department regulations. The information must be
          furnished to the requesting party or such later time period as allowed
          by Treasury Department regulations or the Internal Revenue Service.


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                    (vii) No undivided interest of the Residual Interest may be
          transferred to any Person unless the entire interest and rights
          relating to such undivided interest in the Residual Interest under
          this Agreement are transferred to such Person.

                    (viii) The provisions of this Section 11.01 set forth prior
          to this clause (viii) may be eliminated upon execution by the Trustee
          of a certificate stating that the Trustee has received an Opinion of
          Counsel, in form and substance satisfactory to the Trustee, to the
          effect that the absence of such provisions will not cause the REMIC
          Pool to cease to qualify as a REMIC and will not create a risk that
          (A) the Trust or the REMIC Pool may be subject to an entity-level tax
          caused by the Transfer of any Ownership Interest in a Class R
          Certificate to a Person which is not a Permitted Transferee or (B) a
          Holder of a Senior Certificate or another Person will be subject to a
          REMIC-related tax caused by the Transfer of any Ownership Interest in
          a Class R Certificate to a Person which is not a Permitted Transferee.


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                                   ARTICLE XII

                   Concerning the Contract of Insurance Holder

               Section 12.01. Compliance with Title I and Filing of FHA Claims.

               (a) The Contract of Insurance Holder shall at all times while any
Senior Certificates are outstanding have a valid Contract of Insurance with the
FHA covering the FHA Loans. To the extent applicable to the duties of the
Contract of Insurance Holder hereunder, the Contract of Insurance Holder shall
comply with the requirements of Title I and shall take or refrain from taking
such actions as are necessary or appropriate to maintain a valid Contract of
Insurance for the Trust with the FHA covering the FHA Loans.

               (b) If and for so long as the Contract of Insurance covers any
loans other than the FHA Loans, and if HUD shall not have earmarked the coverage
of the Contract of Insurance with respect to the FHA Loans, the Contract of
Insurance Holder covenants and agrees not to submit any claim to FHA with
respect to an FHA Loan if the effect of approval of such claim would result in
the amount of claims paid by the FHA in respect of the FHA Loans to exceed the
Trust Designated Insurance Amount. Notwithstanding the foregoing, the Claims
Administrator shall promptly notify the Trustee, the Master Servicer and the
Certificate Insurer if the amount of claims submitted to FHA in respect of the
FHA Loans under the Contract of Insurance exceeds the Trust Designated Insurance
Amount. As of the Closing Date and at all times thereafter until the Termination
Date, the Contract of Insurance Holder covenants and agrees that the Contract of
Insurance will only apply to the FHA Loans and Related Series Loans,
exclusively, or HUD shall have agreed pursuant to 24 C.F.R. Section 201.32(d)(1)
to "earmark" the FHA insurance relating to the FHA Loans and Related Series
Loans, in a manner satisfactory to the Certificate Insurer, in its sole and
absolute discretion. Mego, as Claims Administrator and Servicer, covenants and
agrees that it shall not take any action that would result in the Contract of
Insurance applying to loans other than the FHA Loans and the Related Series
Loans, exclusively, unless HUD shall have agreed pursuant to 24 C.F.R.
Section201.32(d)(1) to "earmark" the FHA insurance relating to the Loans and
Related Series Loans in a manner satisfactory to the Certificate Insurer, in its
sole and absolute discretion.

               (c) The Trustee hereby appoints Mego Mortgage Corporation as
Claims Administrator. Mego Mortgage Corporation, as Claims Administrator, shall
perform on behalf of the Contract of Insurance Holder the duties associated with
the submission of claims under Title I in connection with the Contract of
Insurance, except to the extent that certain documents must be signed by the
Contract of Insurance Holder (in which case the Contract of Insurance Holder
shall only sign such documents at the direction of the Claims Administrator) and
shall not, in its capacity as Claims Administrator, take any action or omit to
take any action that would cause the Contract of Insurance Holder to violate
this Section 12.01 or otherwise fail to maintain a valid Contract of Insurance
or cause any denial by FHA of an insurance claim under Title I.

               (d) The Contract of Insurance Holder shall not be deemed to have
violated this Section 12.01 and shall otherwise incur no liability hereunder if
any failure to maintain a valid Contract of Insurance or to comply with the
requirements of Title I or any denial by


                                      126
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FHA of an insurance claim under Title I shall have been caused by any act or
omission of the Master Servicer or Claims Administrator in the performance of
its duties hereunder. The Contract of Insurance Holder shall be permitted to,
or, if directed by the Certificate Insurer, so long as no Certificate Insurer
Default exists, shall replace the Claims Administrator for any failure of the
Claims Administrator to perform its duties hereunder. Any successor Claims
Administrator shall be subject to the prior approval of the Certificate Insurer,
provided no Certificate Insurer Default is then occurring.

               (e) The Contract of Insurance Holder hereby represents and
warrants to the Depositor, the Master Servicer, the Seller, the Trustee for the
benefit of the Certificateholders and the Certificate Insurer that First Trust
of New York, National Association is an investing lender in good standing with
HUD having authority to purchase, hold, and sell loans insured under 24 CFR Part
201, pursuant to a valid Contract of Insurance, Number 71400 0000 6.

               (f) The Seller shall forward to the Trustee a fully executed
Transfer of Note Report for each FHA Loan within 20 days of the receipt by the
Seller of such FHA Loan's case number under the Contract of Insurance. The
Trustee shall execute each Transfer of Note Report, as buying lender, and submit
such Transfer of Note Report to HUD within 31 days of the transfer of the FHA
Loans to the Trust.

               Section 12.02. Regarding the Contract of Insurance Holder.

               (a) The Contract of Insurance Holder shall not resign from the
obligations and duties imposed on it by this Agreement as Contract of Insurance
Holder except (i) upon a determination that by reason of a change in legal
requirements or requirements imposed by the FHA the performance of its duties
under this Agreement would cause it to be in violation of such legal
requirements or FHA imposed requirements in a manner which would result in a
material adverse effect on the Contract of Insurance Holder or cause it to
become ineligible to hold the Contract of Insurance and (ii) the Certificate
Insurer (so long as a Certificate Insurer Default shall not have occurred and be
continuing) or the Certificateholders by Class Vote (if a Certificate Insurer
Default shall have occurred and be continuing) does not elect to waive the
obligations of the Contract of Insurance Holder to perform the duties which
render it legally unable to act or to delegate those duties to another Person or
if the circumstances giving rise to such illegality cannot be waived or
delegated. Any such determination permitting the resignation of the Contract of
Insurance Holder shall be evidenced by an Opinion of Counsel to such effect
delivered and acceptable to the Trustee and the Certificate Insurer. Upon
receiving such notice of resignation, the Contract of Insurance shall be
transferred to a qualified successor with the consent of the Certificate Insurer
by written instrument, in duplicate, one copy of which instrument shall be
delivered to the resigning Contract of Insurance Holder and one copy to the
successor contract of insurance holder. Notwithstanding the foregoing, the
Contract of Insurance Holder may resign, with the prior written consent of the
Certificate Insurer (so long as a Certificate Insurer Default shall not have
occurred and be continuing) or the Certificateholders by Class Vote (if a
Certificate Insurer Default shall have occurred and be continuing), which may be
withheld in its sole and absolute discretion, upon transfer of the FHA insurance
and related reserves with respect to the FHA Loans and any Related Series Loans
to a contract of insurance held by a successor Contract of Insurance Holder
provided, however, that any Contract of Insurance held by such successor
Contract of Insurance Holder shall satisfy the criteria set forth in Section
12.01(b),


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and, at the time of succession, shall have an FHA insurance coverage reserve
account balance not less than that of the FHA Insurance Coverage Reserve Account
at the time of succession.

               (b) If at any time (i) the Contract of Insurance shall be
revoked, suspended or otherwise terminated, or (ii) the Contract of Insurance
Holder shall become incapable of acting, or shall be adjudged as bankrupt or
insolvent, or a receiver of the Contract of Insurance Holder or of its property
shall be appointed, or any public officer shall take charge or control of the
Contract of Insurance Holder or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then, in any such case the
Certificate Insurer (so long as a Certificate Insurer Default shall not have
occurred and be continuing) or the Certificate-holders by Class Vote (if a
Certificate Insurer Default shall have occurred and be continuing) may remove
the Contract of Insurance Holder and appoint a successor contract of insurance
holder by written instrument, in duplicate, one copy of which instrument shall
be delivered to the Contract of Insurance Holder so removed and one copy to the
successor contract of insurance holder. Upon removal of the Contract of
Insurance Holder, the outgoing Contract of Insurance Holder shall take any
action required to transfer the benefits of the FHA Insurance Coverage Reserve
Account to the successor contract of insurance holder.

               (c) Any resignation or removal of the Contract of Insurance
Holder and appointment of a successor contract of insurance holder pursuant to
any of the provisions of this Section 12.02 shall become effective upon
acceptance of appointment by the successor contract of insurance holder.

               (d) On or prior to the Closing Date, the Contract of Insurance
Holder shall have instructed FHA to forward all payments in respect of claims
under the Contract of Insurance made to the Contract of Insurance Holder to
First Trust of New York, National Association, as Trustee. The Contact of
Insurance Holder shall provide no further notification with respect to which
such payments shall be directed unless directed by First Trust of New York,
National Association, as Trustee.


                                      128
<PAGE>   134
               IN WITNESS WHEREOF, the Depositor, Mego, the Master Servicer, the
Claims Administrator, the Trustee and the Contract of Insurance Holder have
caused their names to be signed to this Pooling and Servicing Agreement by their
respective officers thereunto duly authorized as of the date first written
above.

                                MEGO MORTGAGE CORPORATION,
                                  as Seller,    Servicer and Claims
                                  Administrator



                                By:__________________________________________
                                     Name:
                                     Title:

                                FINANCIAL ASSET SECURITIES CORP.,
                                  as Depositor



                                By:__________________________________________
                                     Name:
                                     Title:

                                NORWEST BANK MINNESOTA, N.A.,
                                  as Master Servicer



                                By:__________________________________________
                                     Name:
                                     Title:

                                FIRST TRUST OF NEW YORK, NATIONAL
                                ASSOCIATION,
                                  as Trustee and Contract of
                                  Insurance Holder



                                By:__________________________________________
                                     Name:
                                     Title:


<PAGE>   135
STATE OF NEW YORK      )
                       ) ss.:
COUNTY OF NEW YORK     )

               On the __th day of December, 1996 before me, a notary public in
and for said State, personally appeared James L. Belter, known to me to be the
Executive Vice President of MEGO MORTGAGE CORPORATION, one of the parties that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said party, and acknowledged to me that such party
executed the within instrument.

               IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.



                                  ------------------------------
                                  Notary Public

[Notarial Seal]



STATE OF NEW YORK      )
                       ) ss.:
COUNTY OF NEW YORK     )

               On the ___th day of December, 1996 before me, a notary public in
and for said State, personally appeared Kari Skilbred, known to me to be the
Vice President of FINANCIAL ASSET SECURITIES CORP., one of the parties that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said party, and acknowledged to me that such party
executed the within instrument.

               IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.



                                  ------------------------------
                                  Notary Public

[Notarial Seal]


<PAGE>   136
STATE OF NEW YORK      )
                       ) ss.:
COUNTY OF NEW YORK     )

               On the ___th day of December, 1996 before me, a notary public in
and for said State, personally appeared Michael L. Mayer, known to me to be the
Vice President of NORWEST BANK MINNESOTA, N.A., one of the parties that executed
the within instrument, and also known to me to be the person who executed it on
behalf of said party, and acknowledged to me that such party executed the within
instrument.

               IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.



                                  ------------------------------
                                  Notary Public

[Notarial Seal]



STATE OF NEW YORK      )
                       ) ss.:
COUNTY OF NEW YORK     )

               On the ___th day of December, 1996 before me, a notary public in
and for said State, personally appeared Lynn Steiner, known to me to be the Vice
President of FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, one of the parties
that executed the within instrument, and also known to me to be the person who
executed it on behalf of said party, and acknowledged to me that such party
executed the within instrument.

               IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.



                                  ------------------------------
                                  Notary Public

[Notarial Seal]