Exhibit 4.3

                               SERVICING AGREEMENT

                                Dated [_____], 20

                                      among

                              MID-STATE TRUST [__]

                                     Issuer

                                       and

                             MID-STATE HOMES, INC.,

                                    Servicer

                                      and

                             [____________________]

                               Indenture Trustee

            Relating to the Accounts Pledged to [__________________],
              as Indenture Trustee, as Collateral for the Issuer's
        $[___________] [___]% Asset-Backed Notes, Class A $[___________]
           [___]% Asset-Backed Notes, Class M-1 $[___________] [___]%
                          Asset-Backed Notes, Class M-2
       $[___________] [___]% Asset-Backed Notes, Class B in the Aggregate
                            Initial Principal Amount
                         of $[__________] (Approximate)

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                                Table of Contents

                                                                            Page

                                   ARTICLE ONE

                                   DEFINITIONS

Section 1.01  Defined Terms..................................................1
Section 1.02  Terms Defined in the Indenture.................................3

                                   ARTICLE TWO

                    ADMINISTRATION AND SERVICING OF ACCOUNTS

Section 2.01  The Servicer to Act as Servicer................................3
Section 2.02  Sub-Servicing Agreements Between Servicer and
               Sub-Servicer..................................................6
Section 2.03  Successor Sub-Servicers........................................7
Section 2.04  Liability of the Servicer......................................7
Section 2.05  No Contractual Relationship Between Sub-Servicer and
               Indenture Trustee or Issuer...................................7
Section 2.06  Assumption of Sub-Servicing Agreement by Successor
               Servicer......................................................7
Section 2.07  Collection of Account Payments; Holding Account................8
Section 2.08  Collection Account; Servicing Account..........................9
Section 2.09  Records and Servicing Account Moneys..........................11
Section 2.10  Assumption Agreements.........................................12
Section 2.11  Permitted Withdrawals from the Collection Account.............12
Section 2.12  Advances for Delinquent Taxes.................................13
Section 2.13  Maintenance of Insurance; Collection Thereunder...............13
Section 2.14  Realization upon Defaulted Accounts...........................14
Section 2.15  Release of Accounts...........................................14
Section 2.16  Servicing Compensation........................................15

                                  ARTICLE THREE

                         STATEMENTS, REPORTS AND NOTICES

Section 3.01  Reporting by the Servicer.....................................16
Section 3.02  Annual Certificate; Account Statement.........................16
Section 3.03  Annual Accountants' Reports...................................16
Section 3.04  Notices.......................................................17

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                                  ARTICLE FOUR

                                  THE SERVICER

Section 4.01  Representations and Warranties of the Servicer................17
Section 4.02  Merger or Consolidation of the Servicer.......................18
Section 4.03  Performance of Obligations....................................18
Section 4.04  Servicer Not to Resign........................................19
Section 4.05  Fidelity Bond.................................................19

                                  ARTICLE FIVE

                                     DEFAULT

Section 5.01  Events of Default.............................................20
Section 5.02  No Effect on Other Parties....................................21
Section 5.03  Rights Cumulative.............................................21

                                   ARTICLE SIX

                                   [RESERVED]

                                  ARTICLE SEVEN

                            MISCELLANEOUS PROVISIONS

Section 7.01  Termination...................................................22
Section 7.02  Amendment.....................................................22
Section 7.03  Governing Law.................................................23
Section 7.04  Notices.......................................................23
Section 7.05  Severability of Provisions....................................23
Section 7.06  Inspection and Audit Rights...................................24
Section 7.07  Binding Effect................................................24
Section 7.08  Article and Section Headings..................................24
Section 7.09  The Owner Trustee.............................................24
Section 7.10  Distribution of Servicing Procedures and Standards............25
Section 7.11  Property Address..............................................25
Section 7.12  Power of Attorney.............................................25
Section 7.13  Rights Upon Discharge of Indenture............................25
Section 7.14  Non-Petition..................................................25

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                                    EXHIBITS

Exhibit A   Mid-State Trust [__] Servicer's Certificate
Exhibit B   Historical Servicing Standards

                                      -iii-

<PAGE>


      THIS SERVICING AGREEMENT is dated [________], 20 , among Mid-State Trust
[__], a Delaware statutory trust (such trust being herein called, the "Issuer"),
Mid-State Homes, Inc., a Florida corporation (herein, together with its
successors and assigns, called the "Servicer") and [_______________], as
Indenture Trustee under the Indenture referred to below.

                             PRELIMINARY STATEMENT

      The Issuer is a statutory trust created by a trust agreement dated
[______], 20 (as amended, restated, supplemented or otherwise modified from time
to time, the "Trust Agreement"), between [_______________] (in its capacity as
Trustee thereunder, the "Owner Trustee") and Mid-State Capital Corporation, as
Grantor. The Issuer will act at all times through the Owner Trustee. The Issuer
has entered into an indenture (the "Indenture"), dated as of the date of this
Agreement, with [_____________________], as Indenture Trustee (the "Indenture
Trustee"), pursuant to which the Issuer intends to issue its $[__________]
[____]% Asset-Backed Notes, Class A, $[__________] [____]% Asset-Backed Notes,
Class M-1, $[__________] [___]% Asset-Backed Notes, Class M-2, and
$[___________] [___]% Asset-Backed Notes, Class B (the "Notes"). Pursuant to the
Indenture, as security for the Notes, the Issuer is Granting to the Indenture
Trustee a security interest in, among other things, certain Mortgage Assets, its
rights under this Agreement, the Walter Servicing Agreement, the Collection
Account, the Holding Account and the Hazard Insurance Policies (as such terms
are hereinafter defined).

      The parties desire to enter into this Agreement to provide, among other
things, for the servicing of the Accounts by the Servicer. The Servicer
acknowledges that, in order further to secure the Notes, the Issuer is Granting
to the Indenture Trustee a security interest in, among other things, its rights
under this Agreement, and the Servicer agrees that all covenants and agreements
made by the Servicer herein with respect to the Accounts shall also be for the
benefit and security of the Indenture Trustee and Holders of the Notes. For its
services hereunder, the Servicer will receive a Servicing Fee with respect to
each Account serviced hereunder as provided herein.

                                  ARTICLE ONE

                                  DEFINITIONS

      Section 1.01 Defined Terms.

      Except as otherwise specified or as the context may otherwise require, the
following terms have the respective meanings set forth below for all purposes of
this Agreement, and the definitions of such terms are applicable to the singular
as well as to the plural forms of such terms and to the masculine as well as to
the feminine and neuter genders of such terms:

      "Acquired Property": Property acquired by the Issuer by foreclosure, deed
in lieu of foreclosure, or otherwise in respect of a defaulted Account.

<PAGE>


      "Agreement": This Servicing Agreement as originally executed and as
amended or supplemented from time to time in accordance with the terms hereof
and of the Indenture.

      "Bankruptcy Code": Title 11 of the United States Code.

      "Collection Period": With respect to any Payment Date, the one-month
period ending on the close of business on the last day of the month preceding
the month in which the related Payment Date occurs.

      "Custodian": As defined in the Holding Account Agreement, dated [_______],
20 , among the Servicer, Walter Mortgage Company and [____________________], as
Indenture Trustee.

      "Default": Any occurrence or circumstance that, with notice or lapse of
time or both, would be an Event of Default.

      "Event of Default": Any of the occurrences or circumstances enumerated in
Section 5.01.

      "Holding Account": A custodial account established by the Servicer and
Walter Mortgage Company pursuant to the Holding Account Agreement, dated
[______], 20 , in the name of [_______________], as Custodian for
[______________], as Indenture Trustee under the Indenture, Walter Mortgage
Company and the Servicer, maintained at a depository institution (i) the
deposits in which are fully insured by the Federal Deposit Insurance Corporation
through either the Bank Insurance Fund or the Savings Association Insurance Fund
and (ii) the commercial paper or other short term obligations of which (or, in
the case of a depository institution which is the principal subsidiary of a
holding company the commercial paper or other short-term debt obligations of
such holding company) have a credit rating of at least "[__]" and "[__]" from
[_____] and [______], respectively.

      "Homes": Jim Walter Homes, Inc., a Florida corporation.

      "Indenture": The Indenture, dated [_________], 20 , between the Issuer and
[_______________________], as Indenture Trustee, as such Indenture may be
amended or supplemented from time to time in accordance with its terms.

      "Monthly Cut-Off Date": The last day of any Collection Period.

      "Realized Loss": With respect to an Account that is liquidated, the amount
by which the sum of the remaining unpaid Principal Balance of the Account and
the related Liquidation Expenses exceed the amount of Liquidation Proceeds
applied to the Principal Balance of the related Account. With respect to any
Account, a valuation of the related Mortgaged Property by a court of competent
jurisdiction in an amount less than the then outstanding Principal Balance of
the Account, which valuation results from a proceeding initiated under the
Bankruptcy Code or a reduction in the Principal Balance thereof resulting from a
modification by the Servicer.


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      "Remittance Date": The first Business Day of each week (beginning
[________], 20 ) following the end of each Collection Period.

      "Reporting Date": With respect to any Collection Period, the 10th day of
the month following such Collection Period or if such day is not a Business Day
the next preceding Business Day.

      "Servicer Termination": As defined in Section 5.01.

      "Servicing Account": As defined in Section 2.08(b).

      "Servicing Fee": As defined in the Indenture.

      "Sub-Servicer": As defined in Section 2.02.

      "Sub-Servicing Agreement": An agreement between the Servicer and a
Sub-Servicer as described in Section 2.02.

      "Successor Servicer": As defined in the Indenture.

      "Uninsured Cause": Any cause of damage to property subject to a Mortgage
such that the property cannot be completely restored out of the proceeds of the
Hazard Insurance Policies required to be maintained pursuant to Section 2.13.

      "Walter Servicing Agreement": The servicing agreement among Walter
Mortgage Company, Mid-State Trust [__] and [____________], dated [____________],
20 , as amended or supplemented from time to time in accordance with the terms
thereof and of the Indenture, providing for the servicing of the Mortgage Loans.

      Section 1.02 Terms Defined in the Indenture.

      For purposes of this Agreement, all capitalized terms used herein that are
defined in the Indenture (other than terms defined in Section 1.01 of this
Agreement) shall have the respective meanings assigned to such terms in the
Indenture.

                                  ARTICLE TWO

                    ADMINISTRATION AND SERVICING OF ACCOUNTS

      Section 2.01 The Servicer to Act as Servicer.

      The Servicer shall service and administer the Accounts, in accordance with
the express terms of this Agreement, applicable state and federal law, and with
the standards and procedures employed by a prudent servicer with respect to the
servicing of similar accounts held in its own portfolio and in accordance with
the Servicer's historical servicing standards set forth on Exhibit B, and the
Servicer shall have full power and authority, acting alone, to do any and all
things in connection with such servicing and administration that it may deem
necessary or desirable and, subject to the foregoing and the provisions of the
Indenture to execute and deliver


                                      -3-
<PAGE>


in the Servicer's own name, on behalf of the Issuer, any and all deeds,
sale contracts, instruments of satisfaction or cancellation, or of partial or
full release or discharge, and all other comparable instruments, with respect to
the Accounts and with respect to the Mortgaged Properties; provided, however,
any Successor Servicer shall not be bound by the Servicer's historical servicing
standards.

      Notwithstanding the preceding paragraph, the Servicer shall at all times
follow the procedures set forth below:

      1. The Servicer shall use its reasonable best efforts to contact, either
by telephone, mail, in person, or in such other manner as the Servicer deems
appropriate under the circumstances, each Obligor on any Account that is
delinquent 30 days or more in any payments called for under the terms and
provisions of the Accounts (including outstanding advances for taxes, insurance
and other amounts) as of the most recent Monthly Cut-Off Date, in order to
ascertain the reason for the delinquency and the likelihood that the Account
will become current. Thereafter, the Servicer shall diligently pursue collection
efforts in order to bring the Account current with respect to all outstanding
amounts (including outstanding taxes, insurance and other amounts) unless the
Servicer in its good faith judgment believes it is most appropriate, under the
circumstances, and not as a general matter, not to pursue the outstanding
amounts for taxes, insurance and other amounts.

      2. The Servicer shall use its reasonable best efforts to physically
inspect or visit the Mortgaged Property securing any Account that is 60 or more
days delinquent as of the most recent Monthly Cut-Off Date, unless the Servicer
otherwise determines to its reasonable satisfaction that the value of the
Mortgaged Property securing such Account has not been materially impaired and
that such property has not been abandoned.

      3. The Servicer shall use its reasonable best efforts to diligently
pursue, foreclose upon, sell the underlying note, or otherwise comparably
convert the ownership of properties securing an Account that continues in
default (including default in payment of taxes and insurance) for more than 90
days, unless the Servicer, in its best judgment, believes that the Account can
be returned to current status within a reasonable period of time or, solely with
respect to defaults due solely to default in payment of taxes and insurance and
other amounts, unless the Servicer in its good faith judgment believes it is
most appropriate, under the circumstances, and not as a general matter, not to
pursue the outstanding amounts for taxes, insurance and other amounts.

      4. With respect to Mortgaged Properties that are known by the Servicer to
be abandoned or in foreclosure, or properties with respect to which title has
been acquired, the Servicer shall take such action as it deems necessary in its
good faith judgment and not in violation of law to protect such property from
vandalism or damage by the elements.

      5. The deed to any Acquired Property delivered as a result of any
foreclosure or similar proceeding or deed in lieu thereof shall name the Issuer
as grantee unless the Servicer deems it necessary to foreclose or otherwise
comparably convert title to any Mortgaged Property in the name of a party other
than the Issuer. In that event, the Servicer may designate such a party to hold
title to the Acquired Property. The party designated to hold such title shall
sign a


                                      -4-
<PAGE>


written acknowledgment that it is holding title on behalf of the Issuer
and any such acknowledgment shall be delivered to the Indenture Trustee together
with the deed to such Acquired Property.

      6. Upon acquisition of an Acquired Property by the Issuer, the Servicer
shall prepare a Trust Mortgage in form appropriate to the state in which such
Acquired Property is located and furnish such Trust Mortgage to the Indenture
Trustee within two Business Days of acquiring a deed in respect of such Acquired
Property for execution by the Issuer and recordation in accordance with the
terms of the Indenture. The Servicer or Sub-Servicer in order to facilitate the
sale of the Acquired Property, at its option, may execute and record as agent
and attorney in fact for the Issuer a deed granting to the Servicer or
Sub-Servicer a ten percent interest in the Acquired Property as a tenant in
common, which interest shall be subject to the Trust Mortgage. As consideration
for that interest, the Servicer or Sub-Servicer shall convey and hereby agrees
to convey to the Issuer all of its share of the proceeds of disposition of any
such Acquired Property (including any interest in any new Account with respect
to such Acquired Property). No other consideration shall be payable by the
Servicer or Sub-Servicer to the Issuer for that interest.

      If an Acquired Property is resold in exchange for a new Account within two
Business Days of acquisition of such Acquired Property, the mortgage or deed of
trust executed by the Issuer need not be executed and delivered to the Indenture
Trustee, provided the Mortgage Asset Documents for such new Account and all
assignments and endorsements with respect to such new Account required by the
Indenture are delivered to the Indenture Trustee within five Business Days of
acquisition.

      7. Upon the acquisition of an Acquired Property, the Servicer shall (i)
deliver the deed or certificate of sale to the Indenture Trustee, (ii) advance
all taxes and standard hazard insurance premiums relating to the Acquired
Property, (iii) process any claims for redemption and otherwise comply with any
redemption procedures required by law, (iv) use its reasonable best efforts to
promptly sell or otherwise dispose of such Acquired Property at a price which in
its best judgment represents reasonable value and remit the proceeds to the
Indenture Trustee, and (v) if, in order to sell the property at what it
reasonably determines to be the best price available, the Servicer deems it
reasonably necessary for the Issuer to provide mortgage financing to the
prospective buyer, the Servicer shall undertake, as agent for the Issuer, to
apply substantially the same underwriting standards as the Servicer applies to
similar transactions originated by it for its own account provided however that
the Maturity Date of any such Account shall not exceed [________].

      8. If the Servicer deems it reasonably necessary to convey an Acquired
Property in exchange for a new Account, such new Account may be originated on
documents naming the Servicer or Sub-Servicer as payee; provided, however, that
the Maturity Date of any such new Account shall not exceed [________]. The
Sub-Servicer's or Servicer's rights under any such documents shall be subject to
its obligation to convey proceeds of the disposition of Acquired Property.

      In connection with the sale of an Acquired Property, any contract of sale
or deed shall be executed by the Servicer or Sub-Servicer in its individual
capacity and as agent and attorney in fact for the Issuer. The Servicer shall
request release of the Trust Mortgage by the


                                      -5-
<PAGE>


Indenture Trustee. Immediately upon consummation of the sale, the Servicer
or Sub-Servicer shall assign all of its right, title and interest in the new
Account to the Issuer and the Issuer shall assign all of its right, title and
interest in the new Account to the Indenture Trustee. The Servicer shall record
the release, the deed, the Mortgage, the assignment of the Servicer's or
Sub-Servicer's interest to the Issuer and an assignment of the Mortgage by the
Issuer to the Indenture Trustee immediately.

      9. The Servicer shall segregate and hold all funds collected and received
in connection with the rental or sale of any Acquired Property separate and
apart from its own funds and general assets and shall deposit such moneys in the
Holding Account in accordance with Section 2.07(b).

      10. Except as expressly permitted by Section 2.10 or as otherwise provided
in Exhibit B, the Servicer shall not alter, change or modify, or permit the
alteration, change or modification of, any Account without the prior consent of
the Indenture Trustee; provided, however, that the Servicer may charge-off or
write-off Accounts when the Servicer determines in its best judgment that it is
prudent to do so and that the costs and expenses of continued servicing of such
Accounts (including foreclosure proceedings) exceeds the expected revenues
therefrom, and such determination is evidenced by a certification signed by a
duly authorized officer of the Servicer setting forth such conclusions and the
basis therefor.

      Promptly after the execution and delivery of this Agreement, the Servicer
shall deliver to the Issuer and the Indenture Trustee a list of officers of the
Servicer involved in, or responsible for, the administration and servicing of
the Accounts, which list shall from time to time be updated by the Servicer
after each change in servicing officers.

      At all times while the Servicer is servicing the Accounts pursuant to this
Agreement, the Servicer shall employ field servicing personnel for each state in
which Mortgaged Properties are located who are assigned to service the related
outstanding Accounts of that state; provided, however, that if the Servicer does
not employ field servicing personnel in any such state or does not employ
sufficient field servicing personnel in any such state to service the related
outstanding Accounts of that state in accordance with the terms and provisions
of this Agreement, the Servicer shall enter into one or more Sub-Servicing
Agreements as described in Section 2.02 with a Sub-Servicer that employs field
servicing personnel or agents for that state providing for the servicing of the
effected outstanding Accounts of that state.

      Section 2.02 Sub-Servicing Agreements Between Servicer and Sub-Servicer.

      The Servicer may enter into sub-servicing agreements (each, a
"Sub-Servicing Agreement") with sub-servicers (each, a "Sub-Servicer") which may
include affiliates of the Servicer, for the servicing and administration of any
or all of the Accounts. In the event that any such Sub-Servicing Agreement
exists, the Sub-Servicer will represent and warrant that it is duly organized
and existing under the applicable laws of the United States or any state and is
duly qualified and licensed to do business in each state in which the Mortgaged
Property relating to an Account to be serviced under such Sub-Servicing
Agreement is located. Any such Sub-Servicing Agreement entered into by the
Successor Servicer shall not be less favorable to the Issuer in its reasonable
judgment. For purposes of this Agreement (except as otherwise provided herein),
the


                                      -6-
<PAGE>


Servicer shall be deemed to have received payments on Accounts referred to
in Sections 2.07 and 2.15 when the Sub-Servicer has received such payments. The
Servicer and any Sub-Servicer may enter into amendments of a Sub-Servicing
Agreement; provided, however, that any such amendments shall be consistent with
and not violate the provisions of this Agreement. Copies of all amendments shall
promptly be sent as provided in Section 7.04 hereof to the Indenture Trustee.

      Section 2.03 Successor Sub-Servicers.

      The Servicer shall be entitled to terminate any Sub-Servicing Agreement
that may exist from time to time in accordance with the terms and conditions of
such Sub-Servicing Agreement and, except as hereinafter provided in this Section
2.03, without any limitation by virtue of this Agreement; provided, however,
that in the event of termination of any Sub-Servicing Agreement by the Servicer
or the Sub-Servicer the Servicer shall either act as primary servicer of the
related Accounts or enter into a Sub-Servicing Agreement in accordance with the
provisions of Section 2.02 with a successor Sub-Servicer.

      Section 2.04 Liability of the Servicer.

      Notwithstanding any Sub-Servicing Agreement, any of the provisions of this
Agreement relating to agreements or arrangements between the Servicer and a
Sub-Servicer or reference to actions taken through a Sub-Servicer or otherwise,
the Servicer shall remain primarily obligated and liable to the Issuer and the
Indenture Trustee for the servicing and administering of the Accounts in
accordance with the provisions of this Agreement without diminution of such
obligation or liability by virtue of such Sub-Servicing Agreement or
arrangements or by virtue of indemnification from the Sub-Servicer and to the
same extent and under the same terms and conditions as if the Servicer alone
were servicing and administering the Accounts. The Servicer shall be entitled to
enter into any agreement with a Sub-Servicer for indemnification of the Servicer
by such Sub-Servicer, and nothing contained in this Agreement shall be deemed to
limit or modify such indemnification.

      Section 2.05 No Contractual Relationship Between Sub-Servicer and
Indenture Trustee or Issuer.

      Any Sub-Servicing Agreement that may be entered into and any other
transactions or services relating to the Accounts involving a Sub-Servicer in
its capacity as such shall be deemed to be between the Sub-Servicer and the
Servicer alone and the Sub-Servicer shall have no claim against the Indenture
Trustee or the Issuer except to the extent set forth in Section 2.06 arising
from any Sub-Servicing Agreement; provided, however, that the Indenture Trustee
and the Issuer may upon the happening of a default thereunder enforce the
Servicer's rights under any Sub-Servicing Agreement as third party beneficiaries
thereof.

      Section 2.06 Assumption of Sub-Servicing Agreement by Successor Servicer.

      In the event the Servicer shall for any reason no longer be the Servicer
(including by reason of an Event of Default or Trigger Event), the Successor
Servicer may, at its


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<PAGE>


election, assume all of the rights and obligations of the Servicer under
each Sub-Servicing Agreement that may have been entered into. The Indenture
provides that the Successor Servicer may, at its election, assume all of the
Servicer's interest therein and replace the Servicer as a party to the
Sub-Servicing Agreement to the same extent as if the Sub-Servicing Agreement had
been assigned to the assuming party, except that the Servicer shall not thereby
be relieved of any liability or obligation under the Sub-Servicing Agreement.

      The Servicer shall, upon request of the Indenture Trustee or the Successor
Servicer but at the expense of the Servicer, deliver to the Successor Servicer
all documents and records pursuant to Section 2.09 relating to the Sub-Servicing
Agreement and the Accounts then being serviced and an accounting of amounts
collected and held by it and otherwise use its best efforts to effect the
orderly and efficient transfer of the Sub-Servicing Agreement to the assuming
party.

      Section 2.07 Collection of Account Payments; Holding Account.

      (a) In accordance with the servicing standards set forth in Section 2.01,
the Servicer shall use its reasonable best efforts to cause each Obligor to make
all payments in respect of his or her Account to the Servicer and to collect all
payments (including amounts for taxes and insurance) called for under the terms
and provisions of the Accounts (other than any fees and charges the
collectability of which is not legally enforceable). Consistent with the
foregoing, the Servicer may in its discretion (i) waive any late payment charge,
assumption fee, prepayment charge, or penalty interest in connection with the
prepayment of an Account and (ii) arrange a schedule for liquidation of
delinquent payments due on an Account, running for a period as the Servicer
reasonably believes prudent under the circumstances.

      (b) On or before the Closing Date the Servicer, with Walter Mortgage
Company, shall establish the Holding Account and shall cause all payments
received with respect to the Accounts to be deposited in the Holding Account.
The deposit of substantially all such amounts shall be made as soon as
reasonably practicable after such payment is actually received by it but in no
event later than two Business Days after receipt by the Servicer, and in the
case of all payments received by Sub-Servicers with respect to the Accounts,
such amounts shall be remitted as soon as reasonably practicable to the Servicer
but in no event later than two Business Days after collection by the
Sub-Servicer and deposited by the Servicer in the Holding Account as described
above. The Servicer shall hold in escrow all moneys received in respect of taxes
and insurance to be disbursed in accordance with the applicable Mortgage. The
Sub-Servicer shall not deposit any amounts received by it in any deposit, trust,
or similar account prior to remitting such amounts to the Servicer. On each
Remittance Date the Servicer shall submit to the Custodian, with a copy to the
Indenture Trustee, a report substantially in the form provided in the Holding
Account Agreement relating to funds deposited in the Holding Account during the
immediately preceding calendar week which specifies the amount of such funds
referred to in Section 2.08(a) to be transferred from the Holding Account by the
Custodian to the Collection Account.

      (c) The Servicer may, by written request delivered to the Custodian, with
a copy to the Indenture Trustee, receive funds from the Holding Account for the
following purposes:


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<PAGE>


            (i) to repay to the Servicer moneys in the Holding Account upon
      certification by the Servicer reasonably acceptable to the Indenture
      Trustee that such funds are not part of the Trust Estate;

            (ii) to clear the Holding Account pursuant to Section 7.01(a);

            (iii) to deposit Insurance Proceeds in the Servicing Account for
      application to restoration or repair of a Mortgaged Property in the
      future, to the extent such proceeds were deposited in the Holding Account;

            (iv) to pay the Servicer the Servicing Fee pursuant to Section 2.16;

            (v) to pay the Servicer amounts represented by any late payment
      charges, interest charged on advances of taxes and insurance premiums,
      assumption fees and other such additional charges with respect to the
      Accounts as additional servicing compensation;

            (vi) to reimburse the Servicer for advances of taxes, insurance
      premiums and other amounts in accordance with Sections 2.12 and 2.13,
      respectively; provided, however, that with respect to advances of taxes
      and insurance premiums and other amounts made on the Accounts on or prior
      to the Cut-Off Date the extent of reimbursement for such advances shall be
      limited to the related amounts collected by the Servicer or, in the case
      of a liquidation, the amount by which the related Liquidation Proceeds, if
      any, for each such Account exceeds the sum of the Principal Balance of the
      related Account and the related Liquidation Expenses other than such
      advances;

            (vii) to reimburse the Servicer from the related Insurance Proceeds
      and Liquidation Proceeds with respect to a Mortgaged Property for any
      expenses incurred by it in good faith pursuant to Section 2.14 for
      restoration of such Mortgaged Property damaged by an Uninsured Cause;

            (viii) to reimburse the Servicer from the Holding Account for any
      unreimbursed usual and customary Liquidation Expenses subject to the
      limitations set forth in Sections 2.12 and 2.13 with respect to advances
      for taxes and insurance;

            (ix) to reimburse the Servicer for expenses reasonably incurred by
      the Servicer pursuant to Section 6.01; and

            (x) to reimburse the Servicer for reasonable and necessary expenses
      incurred in connection with the preservation and management of Acquired
      Properties.

      Section 2.08 Collection Account; Servicing Account.

      (a) On or before the Closing Date the Issuer shall open the Collection
Account as provided in Section 8.02 of the Indenture. On the Closing Date, the
Servicer shall on behalf of the Issuer remit to the Indenture Trustee for
deposit in the Collection Account all Monthly Payments and all prepayments (net
of the applicable Servicing Fee) collected on the Accounts after the Cut-Off
Date and received by the Servicer not less than five Business Days


                                      -9-
<PAGE>


before the Closing Date. All funds collected in respect of the Accounts
prior to the Closing Date not deposited in the Collection Account pursuant to
the preceding sentence on the Closing Date shall be deposited in the Holding
Account on the Closing Date and transferred to the Collection Account on the
first Remittance Date following the Closing Date. Thereafter, the Servicer shall
submit to the Custodian, with a copy to the Indenture Trustee, the report
required by Section 2.07(b) directing the deposit into the Collection Account
or, with respect to certain Insurance Proceeds, the Servicing Account of all
payments and collections in respect of the Accounts then on deposit in the
Holding Account (other than withdrawals simultaneously requested pursuant to
Section 2.07(c) and amounts in respect of payments by Obligors made by checks
subsequently returned for insufficient funds or other reason for non-payment)
including the following:

            (i) all Obligor payments on account of principal, including Full
      Prepayments, of the Accounts;

            (ii) all Obligor payments on account of finance charges on the
      Accounts; and

            (iii) all net Insurance Proceeds (other than proceeds to be applied
      to the restoration or repair of the related Mortgaged Property which shall
      be deposited to the Servicing Account) and Net Liquidation Proceeds with
      respect to the Accounts.

The Servicer may request withdrawals from the Collection Account as permitted by
Section 2.11 hereof.

      (b) The Servicer shall open, at the Corporate Trust Office or at any other
financial institution the deposits of which are fully insured by the Federal
Deposit Insurance Corporation ("FDIC") (through either the Bank Insurance Fund
or the Savings Association Insurance Fund), one or more accounts (collectively,
the "Servicing Account"), which such accounts shall be Eligible Accounts,
designated as follows: "Mid-State Homes, Inc., as Servicer for Mid-State Trust
[__]." There shall be deposited in the Servicing Account on the Closing Date all
Insurance Proceeds which are to be applied to the restoration or repair of the
related Mortgaged Property received after the Cut-Off Date and still in the
custody of the Servicer on the Closing Date; thereafter all Insurance Proceeds
shall be deposited into the Servicing Account. Obligors' funds in a Servicing
Account shall be segregated, and the Servicer shall instruct the financial
institution in which such account is maintained accordingly. The Servicing
Account shall be an interest bearing account fully insured as to amounts
deposited therein by the FDIC. In addition, moneys in the Servicing Account may
be invested as provided in Section 2.08(c). The Servicer shall make withdrawals
from a Servicing Account only (i) for the purpose of applying proceeds of a
Hazard Insurance Policy or other insurance policy to the restoration or repair
of a Mortgaged Property, to the extent such proceeds were deposited in such
Servicing Account; (ii) to the extent required by applicable law or regulation
or by the related Accounts and to the extent of earnings on the Servicing
Account then on deposit in the Servicing Account to pay interest on funds in
such Servicing Account to the Obligors entitled thereto; (iii) to pay to the
Obligors Insurance Proceeds required to be paid to them pursuant to the terms of
the related Account Note; (iv) to clear and terminate such Servicing Account at
the termination of this Agreement in accordance with Section 7.01; (v) to pay to
the Servicer net earnings on amounts in the Servicing Account to the extent
permitted by Section 2.08(c) below; or (vi) to transfer to


                                      -10-
<PAGE>


the Holding Account any funds then on deposit in the Servicing Account
upon a determination by the Servicer that such funds will not be applied in the
manner described in (i) through (v) above.

      (c) Monies in any Servicing Account from time to time may be invested and
reinvested by the Servicer, but only in one or more Eligible Investments and
obligations on which the Indenture Trustee in its commercial capacity is the
obligor. No such investment shall mature later than one Business Day prior to
the next Remittance Date (or on such Remittance Date, in the case of Eligible
Investments of which the Indenture Trustee is the obligor). All net income or
gain from such investment of moneys shall be paid to the Servicer as it is
earned and received, provided that all interest required to be paid to Obligors
shall be paid to them as required or shall be held for the Obligors entitled
thereto. If any loss results from such investments, the Servicer shall promptly
reimburse the Servicing Account for the amount of any such loss from its own
funds. Whenever any amounts invested as aforesaid shall be needed for
disbursement from a Servicing Account, the Servicer shall cause a sufficient
amount of such investments to be sold or otherwise converted to cash for such
purpose.

      (d) Notwithstanding Section 2.08(c), all funds in the Servicing Account
are held by the Servicer as agent and bailee of the Indenture Trustee for the
benefit of the Indenture Trustee, the Noteholders and the Obligors.

      Section 2.09 Records and Servicing Account Moneys.

      (a) The Servicer agrees to act as agent and bailee of the Indenture
Trustee in holding any Mortgage Asset Documents released to the Servicer
pursuant to Section 3.13(c) of the Indenture, and any other items constituting a
part of the Trust Estate that from time to time come into the possession of the
Servicer. The Servicer agrees, for the benefit of the Indenture Trustee and the
Noteholders, to act as such agent and bailee, and to hold and deal with such
Accounts and such items, as agent and bailee for the Indenture Trustee, in
accordance with the provisions of this Agreement and the Indenture.

      (b) The Servicer shall for a period of four years following termination of
this Agreement or from the time an Account is paid in full, with respect to such
Account, retain all data relating directly to or maintained in connection with
the servicing of the Accounts at the Servicer's principal service office in
Tampa, Florida, or at such other place where the servicing offices of the
Servicer are located, and shall give the Indenture Trustee access to all data at
all reasonable times, and, while an Event of Default shall be continuing, the
Servicer shall, on demand of the Indenture Trustee or the Successor Servicer,
deliver to the Indenture Trustee or the Successor Servicer, as the case may be,
all data necessary for the servicing of the Accounts, provide the Indenture
Trustee and the Successor Servicer with the information called for by Section
2.07(b) concerning all moneys in the Holding Account and deliver to the
Indenture Trustee all moneys in each Servicing Account and all other moneys
collected by it from Obligors and not previously deposited in the Holding
Account or the Servicing Account. If the rights of the Servicer shall have been
terminated in accordance with Section 5.01 or if this Agreement shall have been
terminated pursuant to Section 7.01(b), the Servicer shall, upon demand of the
Indenture Trustee, the Successor Servicer or the Noteholders in the case of
Section 5.01, or of the successor to the rights of the Issuer in the case of
Section 7.01(b), deliver to the Successor


                                      -11-
<PAGE>


Servicer all data necessary for the servicing of the Accounts, provide the
Indenture Trustee and the Successor Servicer with the information called for by
Section 2.07(b) concerning all moneys in the Holding Account and deliver to the
Indenture Trustee all moneys in each Servicing Account and all other moneys
collected by it from obligors and not previously deposited in the Holding
Account or the Servicing Account. In addition to delivering such data and moneys
the Servicer shall use its reasonable best efforts to effect the orderly and
efficient transfer of the servicing of the Accounts to the party which will be
assuming responsibility for such servicing.

      Section 2.10 Assumption Agreements.

      (a) When a Mortgaged Property has been or is about to be conveyed by the
Obligor, the Servicer is authorized to take or enter into an assumption
agreement or other similar agreement from or with the person to whom such
Mortgaged Property has been or is about to be conveyed, provided that (i) the
interest rate on, Monthly Payment and balance of such Account shall not be
reduced, (ii) the term of the Account shall not be extended, (iii) there are
either no unreimbursed advances for taxes and insurance on such Account
following assumption or such advances are assumed and (iv) the Servicer shall
not agree to any other modification unless in the best judgment of the Servicer
such modification would not materially adversely affect the collectability or
enforceability of the Accounts or the interests of the Noteholders. The Servicer
shall notify the Indenture Trustee that any such assumption agreement or similar
agreement has been completed by forwarding to the Indenture Trustee the original
copy of such assumption agreement or similar agreement for addition to the
related Mortgage Asset Documents. Any fee collected by the Servicer for entering
into an assumption agreement or similar agreement shall be retained by the
Servicer as additional servicing compensation. The Servicer shall use its
reasonable best efforts to enter into an assumption agreement or other similar
agreement; however, if, in connection with the conveyance of such Mortgaged
Property, the continuation of liability of the original Obligor shall be
impracticable, or if, in the opinion of the Servicer, the release of the
liability of the original Obligor would not substantially impair the ability of
the holder of the related Account to realize the full repayment of such Account,
the Servicer may release the original Obligor from liability on such Account so
long as the new Obligor meets the underwriting standards which the Servicer is
applying to similar transactions originated for its own account. The Servicer
shall notify the Indenture Trustee if the original Obligor is released from
liability on such Account.

      (b) The Servicer shall not be deemed to be in default, breach or any other
violation of its obligations under this Agreement by reason of any assumption of
an Account by operation of law or any assumption or transfer of property subject
to an Account which the Servicer may be restricted by law from preventing, for
any reason whatever.

      Section 2.11 Permitted Withdrawals from the Collection Account.

      If at any time funds on deposit in the Holding Account are insufficient to
satisfy the Servicer withdrawal requests referred to in Section 2.07(c) hereof,
and so long as no Event of Default or Trigger Event shall have occurred and be
continuing, the Servicer may request withdrawal of such deficiency from the
Collection Account, and upon receipt of such written request, the Indenture
Trustee shall withdraw the amount of such deficiency from the Collection Account
and make the requested payments to the Servicer, provided that such payments
shall not


                                      -12-
<PAGE>


be made within six Business Days of a Payment Date. In addition, the
Indenture Trustee shall make withdrawals from the Collection Account to repay to
the Servicer moneys in the Collection Account upon certification by the Servicer
reasonably acceptable to the Indenture Trustee that such funds are not part of
the Trust Estate.

      Section 2.12 Advances for Delinquent Taxes.

      (a) If the Servicer shall have knowledge that real property taxes or other
taxes, charges or assessments relating to any Mortgaged Property have not been
paid when due, the Servicer shall make such payment prior to the time by which
failure to make such payment would give rise to a lien on the related Mortgaged
Property. Any costs so incurred by the Servicer shall be recoverable by the
Servicer pursuant to Section 2.07(c), or to the extent recoverable from any
Sub-Servicer servicing such Account, or from the related Obligor or from other
funds on deposit in the Holding Account to the extent that the Servicer
certifies that such advances are not otherwise recoverable due to insufficient
Net Liquidation Proceeds.

      (b) The Servicer shall indemnify the Issuer for any losses resulting from
a failure to make the payments referred to in Paragraph (a) above and the
Servicer shall deposit the amount of such loss in the Collection Account on the
next Remittance Date following the determination of such loss.

      Section 2.13 Maintenance of Insurance; Collection Thereunder.

      (a) Except as otherwise provided in subsection (b) of this Section 2.13,
the Servicer shall cause to be maintained with respect to each Mortgaged
Property and Acquired Property one or more Hazard Insurance Policies that
provide at least the same coverage as a standard form fire and extended coverage
insurance policy issued by a company regulated under applicable state law and
authorized by such state to issue such policies in the state in which the
Mortgaged Property or Acquired Property is located and in an amount that is not
less than an amount that would satisfy the definition of Full Prepayment with
respect to the related Account; provided, however, that the amount of coverage
provided by each Hazard Insurance Policy shall be sufficient to avoid the
application of any co-insurance clause contained therein. Any individual Hazard
Insurance Policies shall name the Servicer as additional loss payee and run to
the benefit of the Servicer's successors and assigns as their interests may
appear. Any amounts received under any such policies shall be transferred to or
deposited in the Holding Account or Servicing Account (or paid over to the
related Obligor if the Servicer reasonably does not deem it necessary to deposit
such amounts in the Servicing Account) pursuant to Sections 2.07 and 2.08. If
any Obligor is in default in the payment of such premiums, the Servicer shall
pay such premiums out of its own funds, and any costs so incurred by the
Servicer shall be recoverable by the Servicer to the extent such costs
constitute Liquidation Expenses pursuant to Section 2.14, or to the extent
recoverable from any Sub-Servicer servicing such Account, or from the related
Obligor or from other funds on deposit in the Holding Account to the extent that
the Servicer certifies that such advances are not otherwise recoverable due to
insufficient Net Liquidation Proceeds.

      (b) The Servicer may, in lieu of causing individual Hazard Insurance
Policies to be maintained with respect to each Mortgaged Property pursuant to
subsection (a) of this


                                      -13-
<PAGE>


Section 2.13, and shall, to the extent that the related Accounts do not
require the Obligor to maintain a Hazard Insurance Policy with respect to the
related Mortgaged Property, maintain one or more blanket insurance policies
covering losses on the mortgagee's interest in the Accounts resulting from the
lack of or insufficiency of individual Hazard Insurance Policies issued by a
company regulated under applicable state law and authorized by such state to
issue such policies in the state in which the Mortgaged Property is located and
in an amount that is not less than an amount that would satisfy the definition
of Full Prepayment with respect to the related Account. The Servicer shall pay
the premium for such policy on the basis described therein and shall pay any
deductible amount with respect to claims under such policy relating to the
Accounts; provided, however, that such deductible cannot exceed an amount that
is customary under similar policies. If the insurer thereunder shall cease to be
acceptable to the Servicer, the Servicer shall exercise its best efforts to
obtain from another insurer a replacement policy comparable to such policy. All
amounts collected by the Servicer under any such policy and reimbursements by
the Servicer of deductible amounts shall be deposited in the Holding Account in
accordance with Section 2.07.

      (c) The Servicer shall indemnify the Issuer for any losses resulting from
a failure to maintain insurance pursuant to this Section 2.13 and the Servicer
shall deposit the amount of such loss in the Collection Account on the next
Remittance Date following the determination of such loss.

      Section 2.14 Realization upon Defaulted Accounts.

      With respect to any defaulted Account, the Servicer shall use its
reasonable best efforts consistent with the servicing procedures as set forth in
Section 2.01 hereof, to foreclose upon or otherwise comparably convert (through
replevin, deed in lieu of foreclosure or otherwise) the ownership of properties
securing any Account that comes into and continues in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments
pursuant to Section 2.07. The Servicer shall prepare all documents necessary and
appropriate in connection with the realization upon defaulted Accounts. The
Servicer's obligations under this Section 2.14 are subject to the proviso that,
in the case of damage to Mortgaged Property from an Uninsured Cause, the
Servicer shall not be required to expend its own funds in restoring such
property unless it shall in good faith determine (i) that such restoration will
increase the proceeds of liquidation of the related Account, after reimbursement
to itself for such expenses, and (ii) that such expenses will be recoverable by
it either as Liquidation Expenses or as Insured Expenses. For purposes of clause
(ii) of the preceding sentence, if the Servicer is maintaining a blanket Hazard
Insurance Policy pursuant to Section 2.13(b), expenses shall be deemed
recoverable as Insured Expenses if they would have been recoverable under an
individual Hazard Insurance Policy maintained pursuant to Section 2.13(a). The
Servicer shall be responsible for all other costs and expenses incurred by it in
connection with any action taken in respect of a defaulted Account; provided,
however, that it shall be entitled to reimbursement of such costs and expenses
to the extent they constitute Liquidation Expenses, Insured Expenses or
reasonable and necessary expenses incurred in the preservation and the
management of Acquired Properties. All Liquidation Proceeds shall be deposited
in the Holding Account in accordance with Section 2.07(b) hereof.

      Section 2.15 Release of Accounts.


                                      -14-
<PAGE>


      In the case of a final Monthly Payment, Full Prepayment or liquidation of
any Account, the Servicer shall deliver to the Indenture Trustee and the Issuer
an Officers' Certificate (i) identifying the Account that was the subject of
such final payment, Full Prepayment or liquidation, (ii) stating with respect to
a Full Prepayment that all prepayment proceeds received in connection therewith
are in an amount necessary to effect a Full Prepayment (after taking into
account amounts representing reimbursement for advances by the Servicer for
taxes and insurance premiums) and have been deposited in the Holding Account,
(iii) stating with respect to a liquidation of an Account, that all Liquidation
Proceeds which have been determined by the Servicer in its reasonable judgment
to be finally recoverable have been received and the Net Liquidation Proceeds
have been deposited in the Holding Account, (iv) stating that with respect to a
final Monthly Payment, all amounts due under such Account have been paid (after
taking into account amounts representing reimbursement for advances by the
Servicer for taxes and insurance premiums) and such amounts have been deposited
in the Holding Account and (v) identifying such documents as the Servicer or the
Obligor may request to evidence satisfaction and discharge of such Account.

      In connection with any prepaid Account with respect to which the related
Mortgage is a deed of trust, the Servicer is authorized to procure from the
trustee under such deed of trust a deed of full reconveyance covering the
property encumbered by such deed of trust, which deed of reconveyance shall be
delivered by the Servicer to the person or persons entitled thereto, but no
expenses incurred in connection with such deed of reconveyance shall be payable
out of the proceeds received in respect of such Account.

      If from time to time and as appropriate for the servicing or foreclosure
of any Account the Servicer requests the Indenture Trustee to release the
related Mortgage Asset Documents and delivers to the Indenture Trustee a trust
receipt reasonably satisfactory to the Indenture Trustee and signed by a
Servicing Officer, the Indenture Trustee shall release the related Mortgage
Asset Documents to the Servicer. Such trust receipt shall obligate the Servicer
to return the related Mortgage Asset Documents to the Indenture Trustee when the
need therefor by the Servicer no longer exists. If such Account shall be
liquidated and the Indenture Trustee receives a certificate from the Servicer as
provided above, then, upon request of the Issuer, the Indenture Trustee shall
release the trust receipt to or upon the order of the Issuer.

      Section 2.16 Servicing Compensation.

      As compensation for the performance of its obligations under this
Agreement, the Servicer shall be entitled to the Servicing Fee for each Account
that is not a repossessed or foreclosed Account at the beginning of any month
and that has a Principal Balance commencing on the Cut-Off Date and terminating
on the first to occur of the maturity of such Account or the date of Full
Prepayment of such Account. The Servicing Fee in respect of an Account for a
particular month shall be paid to the Servicer by the Custodian from amounts
held in the Holding Account upon submission to the Custodian of a withdrawal
request pursuant to Section 2.07(c). In addition to the Servicing Fee, the
Servicer shall be entitled to receive pursuant to this Section 2.16 as
additional servicing compensation all late payment charges, assumption fees,
interest on taxes, insurance premiums and similar charges paid in respect of the
Accounts and previously deposited in the Holding Account. The Servicer shall pay
all expenses and charges imposed on the Servicer hereunder, including servicing
fees, expenses and charges of any Sub-Servicers, out


                                      -15-
<PAGE>


of its servicing compensation or its own funds, and shall not be entitled
to reimbursement for such expenses and charges except as specifically provided
for herein.

                               ARTICLE THREE

                        STATEMENTS, REPORTS AND NOTICES

      Section 3.01 Reporting by the Servicer.

      (a) On or before each Reporting Date, the Servicer shall render to the
Issuer, the Indenture Trustee and [______________] a certificate, as of the
immediately preceding Monthly Cut-Off Date, certifying to all funds collected by
it through such Monthly Cut-Off Date that it was required to deposit in the
Holding Account in respect of the preceding Collection Period and, except for
amounts provided on a cumulative basis, that have not been previously reflected
on a prior certificate pursuant to this Section 3.01 and reporting certain other
information. Such certificate shall be substantially in the form of Exhibit A
hereto. Such certificate shall also be sent to [___________________] and
[___________________].

      (b) On or before each Reporting Date, the Servicer shall provide the
Issuer, with such information as of the immediately preceding Monthly Cut-Off
Date as is necessary in connection with the maintenance of the Issuer's
financial records and preparation of the Issuer's financial statements.

      (c) On or before each Reporting Date, the Servicer shall provide the
Successor Servicer with servicing tapes in a format compatible with the
Successor Servicer's computer systems and containing such data as the Successor
Servicer may reasonably request.

      Section 3.02 Annual Certificate; Account Statement.

      On or before 60 days after the end of the fiscal year of the Servicer that
ends in [________] 20 and each fiscal year thereafter, the Servicer shall
deliver or cause to be delivered to the Issuer and the Indenture Trustee an
Officers' Certificate, dated as of the first Monthly Cut-Off Date following the
end of the preceding fiscal year, to the effect that a review of the activities
of the Servicer during the period from the beginning of the first Collection
Period (or the Closing Date in the case of the first such Officers' Certificate
required to be delivered) to the end of the last Collection Period during the
preceding fiscal year has been made under the supervision of the officers
executing such Officers' Certificate with a view to determining whether during
such period the Servicer had performed and observed all of its obligations under
this Agreement. Such Certificate shall state to the best of the Servicer's
knowledge either (A) no Default by the Servicer under this Agreement has
occurred and is continuing, or (B) if such a Default has occurred and is
continuing, specifying such Default and the nature and status thereof.

      Section 3.03 Annual Accountants' Reports.

      On or before 60 days after the end of the fiscal year of the Servicer that
ends in [_________] 20 and each fiscal year thereafter, the Servicer shall
deliver to the Issuer and the Indenture Trustee a report, prepared by a firm of
Accountants of recognized national standing


                                      -16-
<PAGE>


selected by the Servicer, to the effect that (i) they have examined
certain documents and records relating to the Accounts during the preceding
fiscal year in accordance with the requirements of the Uniform Single Audit
Program for Mortgage Bankers and (ii) such examinations disclosed no exceptions
that, in their opinion, were material, relating to such Accounts, or, if any
such exceptions were disclosed thereby, setting forth such exceptions that, in
their opinion, were material. If any of the Accounts are being serviced by a
Sub-Servicer, the firm of Accountants preparing the report with respect to the
servicing of such Accounts by the Servicer may rely, as to matters relating to
the servicing of such Accounts, upon a comparable report (rendered with respect
to the most recent fiscal year of such Sub-Servicer which ended at or prior to
the end of the Servicer's fiscal year) of another firm of Accountants of
recognized national standing with respect to such Sub-Servicer's servicing of
such Accounts.

      Section 3.04 Notices.

      The Servicer shall, as promptly as practicable (i) following receipt by it
of notice thereof, notify the Indenture Trustee of the commencement of a
class-action litigation challenging the validity or enforceability of Accounts
having an aggregate Principal Balance totaling $1,000,000.

                                  ARTICLE FOUR

                                  THE SERVICER

      Section 4.01 Representations and Warranties of the Servicer.

      The Servicer represents and warrants to the Issuer as of the Closing Date
as follows:

      (a) The Servicer (i) is a corporation, validly existing and in good
standing under the laws of the State of its incorporation, (ii) has qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction where the character of its properties or the nature of its
activities makes such qualification necessary, and (iii) has full power,
authority and legal right to own its property, to carry on its business as
presently conducted, and to enter into and perform its obligations under this
Agreement.

      (b) The execution and delivery by the Servicer of this Agreement are
within the corporate power of the Servicer and have been duly authorized by all
necessary corporate action on the part of the Servicer. Neither the execution
and delivery of this Agreement, nor the consummation of the transactions herein
contemplated, nor compliance with the provisions hereof, will conflict with or
result in a breach of, or constitute a default under, any of the provisions of
any law, governmental rule, regulation, judgment, decree or order binding on the
Servicer or its properties or the charter or by-laws of the Servicer, or any of
the provisions of any indenture, mortgage, contract or other instrument to which
the Servicer is a party or by which it is bound or result in the creation or
imposition of any lien, charge or encumbrance upon any of its property pursuant
to the terms of any such indenture, mortgage, contract or other instrument (or
if such conflict with, breach of or default under any such indenture, mortgage,
contract or


                                      -17-
<PAGE>


other instrument exists or will exist, any remedies in respect thereof and
in respect of any such related lien, charge or encumbrance have been stayed
under the Bankruptcy Code).

      (c) The execution, delivery and performance by the Servicer of this
Agreement and the consummation of the transactions contemplated hereby do not
require the consent or approval of, the giving of notice to, the registration
with, or the taking of any other action in respect of, any state, federal or
other governmental authority or agency, except as has been previously obtained
and are in effect.

      (d) This Agreement has been duly executed and delivered by the Servicer
and constitutes a legal, valid and binding instrument enforceable against the
Servicer in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of creditors'
rights generally.

      (e) There are no actions, suits or proceedings pending or, to the
knowledge of the Servicer, threatened or likely to be asserted against or
affecting the Servicer, before or by any court, administrative agency,
arbitrator or governmental body with respect to any of the transactions
contemplated by this Agreement or the Indenture, or which will, if determined
adversely to the Servicer, materially and adversely affect it or its business,
assets, operations or condition, financial or otherwise, or adversely affect the
Servicer's ability to perform its obligations under this Agreement. The Servicer
is not in default with respect to any order of any court, administrative agency,
arbitrator or governmental body so as to materially and adversely affect the
transactions contemplated by the above-mentioned documents.

      (f) The Servicer has obtained or made all necessary consents, approvals,
waivers and notifications of stockholders, creditors, lessors and other
nongovernmental persons, in each case, in connection with the execution,
delivery and performance of this Agreement.

      The foregoing representations and warranties shall be deemed to be made to
the Indenture Trustee, as assignee of the Issuer.

      Section 4.02 Merger or Consolidation of the Servicer.

      The Servicer will keep in full effect its existence, rights and franchises
as a corporation under the laws of the State of Florida, and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the Indenture or any of the Accounts and to
perform its duties under this Agreement.

      Any Person into which the Servicer may be merged or consolidated, or any
entity resulting from any merger or consolidation to which the Servicer shall be
a party, or any Person succeeding to the business of the Servicer shall be the
successor of the Servicer hereunder, without the execution or filing of any
paper or any further act on the part of any of the parties hereto.

      Section 4.03 Performance of Obligations.


                                      -18-
<PAGE>


      (a) The Servicer shall punctually perform and observe all of its
obligations and agreements contained in this Agreement and shall take such
action as may be necessary to prevent the attachment on the Mortgaged Properties
of liens or levies superior to the lien of the Mortgages securing the Accounts
arising from actions by or claims against the Servicer.

      (b) The Servicer shall not take any action, or permit any action to be
taken by others, which would (i) materially and adversely affect the validity or
collectability of the Accounts or (ii) excuse any person from any of its
covenants or obligations under any of the Accounts or under any other instrument
included in the Trust Estate, or (iii) result in the amendment, hypothecation,
subordination, termination or discharge of, or (iv) impair the validity or
effectiveness of, any of the Mortgage Asset Documents or any such instrument,
except as expressly provided herein and therein.

      Section 4.04 Servicer Not to Resign.

      (a) The Servicer shall not resign from the obligations and duties hereby
imposed on it except upon determination that its duties hereunder are no longer
permissible under applicable law. Any such determination permitting the
resignation of the Servicer shall be evidenced by an Opinion of Counsel to such
effect delivered to the Indenture Trustee. No such resignation shall become
effective unless and until the Successor Servicer or another new servicer,
qualified to act as a mortgage servicer and reasonably acceptable to the
Indenture Trustee, enters into a servicing agreement with the Issuer and the
Indenture Trustee in form and substance substantially similar to this Agreement.

      (b) The Servicer may not assign this Agreement or any of its rights,
powers, duties or obligations hereunder except as permitted under Section 4.02
hereof.

      (c) Except as provided in Section 4.04(a), the duties and obligations of
the Servicer under this Agreement shall continue until this Agreement shall have
been terminated as provided in Section 7.01, and shall survive the exercise by
the Issuer or the Indenture Trustee of any right or remedy under this Agreement,
or the enforcement by the Issuer, the Indenture Trustee or any Noteholder of any
provision of the Indenture, the Notes or this Agreement.

      Section 4.05 Fidelity Bond.

      On or before the Closing Date, the Servicer shall obtain and deliver to
the Indenture Trustee and shall thereafter maintain in effect a fidelity bond
(or a direct surety bond) in the amount of $1,500,000 (subject to a deductible
of an amount not exceeding $250,000.00). Such bond shall name the Indenture
Trustee as an additional insured and as a joint loss payee, shall provide for 30
days' prior notice of cancellation to the Indenture Trustee and shall otherwise
be in form and substance reasonably satisfactory to the Indenture Trustee. Any
successor to the Servicer appointed as servicer of the Accounts pursuant to
Section 3.07(d) of the Indenture or Section 4.04(a) of this Agreement shall be
obligated to obtain and maintain a fidelity bond to the same extent as the
Servicer is obligated under this Section 4.05 or under the higher of the then
current Fannie Mae or Freddie Mac guidelines and shall deliver a copy of such
bond to the Indenture Trustee promptly after its appointment. The Servicer or
any successor


                                      -19-
<PAGE>


servicer shall deliver to the Indenture Trustee, within 30 days prior to
the expiration of any such bond, a renewal or replacement thereof.

                                  ARTICLE FIVE

                                    DEFAULT

      Section 5.01 Events of Default.

      (a) Any of the following acts or occurrences shall constitute an Event of
Default by the Servicer under this Agreement:

            (i) any failure by the Servicer to remit to the Indenture Trustee
      any amount required to be so remitted under the terms of this Agreement
      that continues unremedied for a period of five Business Days after the
      date upon which such amount was due to be so remitted; or

            (ii) failure to submit to the Indenture Trustee the report called
      for by Section 2.07(b) within two Business Days following the related
      Remittance Date; or

            (iii) failure on the part of the Servicer duly to observe or perform
      any other of the covenants or agreements on the part of the Servicer
      contained in this Agreement that continues unremedied for a period of 30
      days after the date on which written notice of such failure, requiring the
      same to be remedied, shall have been given to the Servicer by the
      Indenture Trustee or to the Servicer and the Indenture Trustee by the
      holders of Notes representing at least a majority of the Voting Rights; or

            (iv) a decree or order of a court or agency or supervisory authority
      having jurisdiction in the premises pursuant to any bankruptcy or
      insolvency law or any other law relating to the relief of debtors, to the
      readjustment, composition or extension of indebtedness, to liquidation or
      to reorganization, or any formal or informal proceeding for the
      dissolution, liquidation or winding up of the affairs of, or for the
      settlement of claims against, the Servicer which is involuntary on the
      part of the Servicer is entered and is not discharged or stayed for a
      period of sixty (60) days;

            (v) the Servicer becomes insolvent, generally fails to pay its debts
      as they become due, has any receiver, trustee, liquidator, sequestrator or
      custodian of it or any of its property appointed (whether with or without
      its consent), makes any assignment for the benefit of creditors or
      commences any case or other proceeding pursuant to any bankruptcy or
      insolvency law or any other law relating to the relief of debtors, to the
      readjustment, composition or extension of indebtedness, to liquidation or
      to reorganization, or any formal or informal proceeding for the
      dissolution, liquidation or winding up of the affairs of, or for the
      settlement of claims against it; or

            (vi) any representation, warranty or statement of the 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


                                      -20-
<PAGE>


      and, within 30 days after written notice thereof shall have been
      given to the Servicer by the Indenture Trustee or by the holders of Notes
      representing at least a majority of the Voting Rights, the circumstance or
      condition in respect of which such representation, warranty or statement
      was incorrect shall not have been eliminated or otherwise cured.

      (b) So long as an Event of Default shall have occurred and be continuing,
the Issuer or the Indenture Trustee (in each case subject to the provisions of
the Indenture), or the holders of Notes representing at least a majority of the
Voting Rights may, by notice given to the Servicer (with a copy to the parties
not giving such notice), terminate all of the rights and powers of the Servicer
under this Agreement ("Servicer Termination"), including without limitation all
rights of the Servicer to receive the Servicing Fee. On and after the receipt of
such notice, all rights, powers, duties and responsibilities of the Servicer
under this Agreement, whether with respect to the Accounts, Holding Account,
Collection Account, Servicing Account, any Servicing Fee or otherwise, shall
vest in and be assumed by the Successor Servicer as provided in Section 3.07 of
the Indenture, and the Issuer and the Indenture Trustee are each hereby
authorized and empowered to execute and deliver, on behalf of the Servicer, as
attorney-in-fact or otherwise, all documents and other instruments (including
any notices to Obligors deemed necessary or advisable by the Indenture Trustee)
and to do or accomplish all other acts or things necessary or appropriate to
effect such vesting and assumption. The terminated Servicer shall cooperate
promptly and in good faith with the Successor Servicer to transfer the servicing
records and other account documents maintained by the terminated Servicer to the
Successor Servicer in a prompt and efficient manner. Except as otherwise
expressly provided in the Indenture, the Issuer shall not have any right to
waive any Default or Event of Default by the Servicer under this Agreement. In
addition to any right of the Indenture Trustee upon an Event of Default
hereunder, the Indenture Trustee may take any action at law or in equity that it
deems appropriate to protect the interest of the Holders of Notes.

      Section 5.02 No Effect on Other Parties.

      Upon any termination of the rights and powers of the Servicer from time to
time pursuant to Section 5.01 or upon any appointment of a successor to the
Servicer, all the rights, powers, duties and obligations of the Issuer under
this Agreement or under the Indenture shall remain unaffected by such
termination or appointment and shall remain in full force and effect thereafter,
except as otherwise expressly provided in this Agreement or in the Indenture.

      Section 5.03 Rights Cumulative.

      All rights and remedies from time to time conferred upon or reserved to
the Issuer, the Indenture Trustee or the Noteholders or to any or all of the
foregoing are cumulative, and none is intended to be exclusive of another. No
delay or omission in insisting upon the strict observance or performance of any
provision of this Agreement, or in exercising any right or remedy, shall be
construed as a waiver or relinquishment of such provision, nor shall it impair
such right or remedy. Every right and remedy may be exercised from time to time
and as often as deemed expedient.


                                      -21-
<PAGE>


                                  ARTICLE SIX

                                   [RESERVED]

                                 ARTICLE SEVEN

                            MISCELLANEOUS PROVISIONS

      Section 7.01 Termination.

      (a) The respective duties and obligations of the Servicer and the Issuer
created by this Agreement shall terminate upon the final payment or other
liquidation of the last outstanding Account. Upon the termination of this
Agreement pursuant to this Section 7.01(a), the Servicer shall pay all moneys in
the Servicing Account to the persons entitled thereto, and shall direct the
Indenture Trustee to pay over to the Issuer or any other person entitled thereto
all other moneys with respect to the Accounts held in the Holding Account.

      (b) Following an Event of Default under the Indenture and foreclosure upon
the Trust Estate pursuant thereto, the successor to the rights of the Issuer
(including, without limitation, the Indenture Trustee or any or all of the
related Noteholders) shall have the right to terminate this Agreement by notice
to the Servicer and the Issuer, within 90 days after the date such successor
shall have succeeded to such rights of the Issuer. Upon such termination, the
Servicer shall be entitled to receive only the accrued and unpaid Servicing Fee
to the date of such termination, any amounts it would have been permitted to
receive pursuant to Section 2.07 from the Holding Account or the Collection
Account as of the date of such termination.

      Section 7.02 Amendment.

      (a) This Agreement may be amended from time to time by the Issuer and the
Servicer without the prior written consent of the Indenture Trustee, or any of
the Noteholders, provided that such action shall not adversely affect in any
material respect the interests of the Indenture Trustee or any Noteholder and
the Indenture Trustee shall have received an Opinion of Counsel to the effect
that such amendment does not adversely affect in any material respect the
interest of the Noteholders (such Opinion of Counsel may rely as to factual
matters on representations of the parties hereto or other persons appropriate
therefor).

      (b) Notwithstanding paragraph (a) of this Section 7.02, this Agreement may
be amended in accordance with the proviso set forth in the first sentence of
Section 3.14 of the Indenture.

      (c) This Agreement may also be amended from time to time by the Issuer and
the Servicer, with the written consent of the Indenture Trustee and the Holders
of Notes representing more than 51% of the aggregate Voting Rights of all
Classes of Notes voting together as a single class, for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Agreement; provided, however, that no such amendment shall, without the
consent of the Indenture Trustee and each holder of Outstanding Notes, (i)
adversely affect in any material respect the amount of, or the timing of,
payments


                                      -22-
<PAGE>


received on the related Accounts which are required to be deposited in
the Holding Account and the Collection Account; (ii) alter the priorities with
which any allocation of funds shall be made under this Agreement; (iii) permit
the creation of any lien on the Trust Estate or any portion thereof or deprive
any such holder of the benefit of this Agreement with respect to the Trust
Estate or any portion thereof; or (iv) modify this Section 7.02 or Section 4.02,
4.03(b), 4.04 or 4.05.

      (d) Promptly after the execution of any amendment, the Servicer shall send
to the Indenture Trustee a conformed copy of each such amendment, but the
failure to do so will not impair or affect its validity.

      (e) It shall not be necessary for any consent of Noteholders under this
Section 7.02 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 Noteholders shall be subject to such reasonable regulations
as the Indenture Trustee may prescribe.

      (f) Any amendment or modification effected contrary to the provisions of
this Section 7.02 shall be void.

      Section 7.03 Governing Law.

      This Agreement shall be construed in accordance with the laws of the State
of Florida, and the obligations, rights and remedies of the parties hereunder
shall be determined in accordance with such laws.

      Section 7.04 Notices.

      All demands, notices and communications hereunder shall be in writing and
shall be delivered or mailed by registered or certified United States mail,
postage prepaid, and addressed in each case as follows: (a) if to the Issuer, at
[_______________], (b) if to the Servicer, at 4211 West Boy Scout Boulevard,
Tampa, Florida, 33607, Attention: General Counsel, (c) if to the Indenture
Trustee, at [_______________] and (d) if to any Noteholder, at the address of
such holder as it appears in the Note Register. Any of the persons in subclauses
(a) through (d) above may change its address for notices hereunder by giving
notice of such change to the other persons. Any change of address shown on a
Note Register shall, after the date of such change, be effective to change the
address for such Noteholder hereunder. All notices and demands shall be deemed
to have been given either at the time of the delivery thereof to any officer of
the person entitled to receive such notices and demands at the address of such
person for notices hereunder, or on the third day after the mailing thereof to
such address, as the case may be.

      Notices required hereunder shall in addition be sent to
[_____________________] and to [____________________].

      Section 7.05 Severability of Provisions.


                                      -23-
<PAGE>


      If one or more of the provisions of this Agreement shall be for any reason
whatever held invalid or unenforceable, such provisions shall be deemed
severable from the remaining covenants, agreements and provisions of this
Agreement and such invalidity or unenforceability shall in no way affect the
validity or enforceability of such remaining provisions, the rights of any
parties hereto, or the rights of the Indenture Trustee or any Noteholders. To
the extent permitted by law, the parties hereto hereby waive any provision of
law that renders any provision of this Agreement invalid or unenforceable in any
respect.

      Section 7.06 Inspection and Audit Rights.

      The Servicer agrees that, on reasonable prior notice, it will permit any
representative of the Indenture Trustee or the Issuer, during the Servicer's
normal business hours, to examine all the books of account, records, reports and
other papers of the Servicer relating to the Accounts, to make copies and
extracts therefrom to cause such books to be audited by Accountants selected by
the Indenture Trustee or the Issuer, as the case may be, and to discuss its
affairs, finances and accounts relating to the Accounts with its officers,
employees and Independent Accountants (and by this provision the Servicer hereby
authorizes said Independent Accountants to discuss with such representatives
such affairs, finances and accounts) all at such reasonable times and as often
as may be reasonably requested. Any expense incident to the exercise by the
Indenture Trustee or the Issuer of any right under this Section 7.06 shall be
borne by the Indenture Trustee or the Issuer, as the case may be, provided that
if an audit is made during the continuance of an Event of Default, the expense
incident to such audit shall be borne by the Servicer.

      Section 7.07 Binding Effect.

      The provisions of this Agreement shall be binding upon and inure to the
benefit of the respective successors and assigns of the parties hereto, and all
such provisions shall inure to the benefit of the Indenture Trustee, the
Noteholders and their successors and assigns.

      Section 7.08 Article and Section Headings.

      The article and section headings herein are for convenience of reference
only, and shall not limit or otherwise affect the meaning thereof.

      Section 7.09 The Owner Trustee.

      It is expressly understood and agreed by the parties hereto that (a) this
Agreement is executed and delivered by [_______________], not individually but
solely as Owner Trustee under the Trust Agreement, in the exercise of the powers
and authority conferred and vested in it as the Owner Trustee, (b) each of the
representations, undertakings and agreements herein made on the part of the
Issuer is made and intended not as personal representations, undertakings and
agreements by [_______________] but is made and intended for the purpose of
binding only the Trust Property, (c) nothing herein contained shall be construed
as creating any liability on [_______________], individually or personally, to
perform any covenant either expressed or implied contained herein, all such
liability, if any, being expressly waived by the Servicer and the Indenture
Trustee and by any Person claiming by, through or under the Servicer and the
Indenture Trustee and (d) under no circumstances shall [_______________] be
personally liable


                                      -24-
<PAGE>


for the payment of any indebtedness or expenses of the Indenture Trustee
or be liable for the breach or failure of any obligation, representations,
warranty or covenant made or undertaken by the Issuer under this Agreement.

      Section 7.10 Distribution of Servicing Procedures and Standards.

      The Servicer agrees to distribute the procedures and standards set forth
herein to each of its field offices and to take all reasonable action to
instruct its field servicing personnel concerning their duties hereunder as soon
as practicable after execution hereof.

      Section 7.11 Property Address.

      Within nine months from the Closing Date the Servicer shall provide the
Indenture Trustee a magnetic tape showing, for each Account, the Account number,
property address and customer name.

      Section 7.12 Power of Attorney.

      The Issuer is authorized from time to time to deliver one or more powers
of attorney to the Servicer or Sub-Servicer that authorize the Servicer and/or
Sub-Servicer, as applicable, to act on behalf of the Issuer as contemplated by
this Agreement and any Sub-Servicing Agreement. The Issuer shall upon request of
any Successor Servicer deliver one or more powers of attorney to the Successor
Servicer or its designated agent for purposes contemplated by this Agreement.

      Section 7.13 Rights Upon Discharge of Indenture.

      Upon the payment in full of the Notes, the satisfaction and discharge of
the Indenture, the Owner Trustee will succeed to all rights of the Indenture
Trustee hereunder and the Owners (as such term is defined in the Trust
Agreement) will succeed to all rights of the Noteholders hereunder.

      Section 7.14 Non-Petition.

      The Servicer hereby agrees not to cause or permit any affiliate to
petition or otherwise invoke the process of any court or government authority
for the purpose of commencing or sustaining a case against the Issuer under any
federal or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequester or other similar official of
the Issuer or any substantial part of its property, or ordering the winding up
or liquidation of the affairs of the Issuer.


                                      -25-
<PAGE>


      IN WITNESS WHEREOF, the Owner Trustee on behalf of the Issuer, the
Servicer and the Indenture Trustee have caused this Agreement to be duly
executed by their respective officers thereunder duly authorized as of the day
and year first above written.

                                    ISSUER:

                                    MID-STATE TRUST [__]

                                    By:   [_______________], not in its
                                          individual capacity, but solely as
                                          Owner Trustee of Mid-State
                                          Trust [__]

                                          By:__________________________________
                                             Name:
                                             Title:

                                    SERVICER:

                                    MID-STATE HOMES, INC.

                                    By:____________________________________
                                       Name:
                                       Title:

                                    [______________________]
                                      as Indenture Trustee

                                    By:____________________________________
                                       Name:
                                       Title:

<PAGE>


                                   EXHIBIT A

                              MID-STATE TRUST [__]

                             SERVICER'S CERTIFICATE

      _______________ and ________________ hereby certify that they are officers
of Mid-State Homes, Inc. (the "Servicer") holding their respective offices set
forth beneath their signatures and that they are duly authorized to execute this
Servicer's Certificate on behalf of the Servicer and further certify that with
respect to the preceding Collection Period (________ to ________):

      (i) the aggregate Principal Balance of all Accounts as of the first day of
the month of the preceding Collection Period is $______;

      (ii) the total number of Accounts outstanding as of the end of the
preceding Collection Period is _____ and the aggregate funds collected on the
Accounts with respect to the preceding Collection Period is $________;

      (iii) _________ Additional Accounts were added during the preceding
Collection Period and have an aggregate Principal Balance as of the end of the
preceding Collection Period of $__________;

      (iv) (a) the aggregate amount of the Servicing Fee included in (i) above
is $________ based on the ________ Accounts outstanding that have a Principal
Balance of more than zero as of the beginning of the preceding Collection Period
and the cumulative amount for the related Collection Period is $________;

            (b) the aggregate amount of reimbursement for advances for taxes and
      insurance premiums and other advances included in (i) above is $_________;

            (c) the aggregate amount of late payment charges, prepayment
      penalties and assumption fees with respect to the Accounts is
      $_________;

            (d) the aggregate amount previously deposited in the Holding Account
      in respect of payments by Obligors on Accounts made by checks subsequently
      returned for insufficient funds or other reason for non-payment is
      $_________;

      (v) the amount in (i) for the preceding Collection Period minus the total
of amounts in (ii) for the preceding Collection Period is $___________;

      (vi) (a) the aggregate amount withdrawn from the Holding Account as
reimbursement to the Servicer for expenses for the restoration of Mortgaged
Property damaged by an Uninsured Cause and as reimbursement for usual and
customary Liquidation Expenses is $______________, [A schedule of the Account
numbers for the related Account shall be attached];

<PAGE>


            (b) the aggregate amount withdrawn from the Holding Account as
      reimbursement for Insured Expenses with respect to the Accounts is
      $________, [A schedule of the Mortgage Asset Numbers for the related
      Accounts, shall be attached]; and

            (c) the aggregate amount withdrawn from the Holding Account with
      respect to the Accounts that is not part of the Trust Estate is $_______;

      (vii) the amount in (iv) minus the total of the amounts in (v) is
$________;

            (a) the portion of such amount that represents Net Insurance
      Proceeds that do not constitute a Full Prepayment with respect to any
      Account is $________;

            (b) the portion of such amount that represents Net Liquidation
      Proceeds with respect to Accounts is $___________;

            (c) the portion of such amount that represents Full Prepayments on
      the Accounts is $_________;

      (viii) with respect to each Account that was the subject of a Full
Prepayment:

         Mortgage Asset Number               Full Prepayment Amount
         ---------------------               ----------------------


      (ix) the amount of Cumulative Prepayments on the Accounts is $______;

      (x) the cumulative amount of Realized Losses on the Accounts is
$______________;

            (a) the cumulative Principal Balance of all Accounts which have been
      repossessed equals $_______; and

            (b) if applicable, the Principal Balance of those Accounts which are
      delinquent over 120 days equals $_________; and

            (c) the amount of cumulative Net Liquidation Proceeds on the
      Accounts is $_______________;

      (xi) the Principal Balance of all Accounts with respect to which there is
a material breach of any representation or warranty made in Section 3.11 of the
Indenture or in the related Addition Transfer Agreement or as to which there is
a material defect in the related Mortgage Asset Documents in accordance with
Section 3.12(b) of the Indenture is $________;

      (xii) the amount that represents the cumulative amount since the Cut-Off
Date of the cash component of aggregate Net Liquidation Proceeds on the Accounts
equals $________;

      (xiii) with respect to delinquent Accounts:

<PAGE>


                                                   Aggregate
      Period of               Number of            Principal
     Delinquency               Accounts           Balance ($)
----------------------    -------------------    ---------------
      0-30 days
     31-60 days
     61-90 days
     91 or more days
                          -------------------    ---------------
           Total

      The percentage of Accounts (by Principal Balance) that are 60 days or more
delinquent (including Accounts in foreclosure and the balance of "real estate
owned" (by Principal Balance) for the immediately preceding three months is set
forth on Schedule __ hereto;

      (xiv) with respect to property acquired in respect of an Account:

                                                   Aggregate
   Period of Time             Number of            Principal
as Real Estate Owned           Accounts           Balance ($)
----------------------    -------------------    ---------------
     0-3 months
     4-6 months
     7-9 months
    10-12 months
   Over 12 months
                          -------------------    ---------------
           Total

      (xv) delivered herewith, if previously requested, is a copy of a magnetic
tape file containing the Schedule of Mortgage Assets information and current
mailing address information for each Account and showing the paid-through status
of each Account;

      (xvi) a list of Accounts which became the subject of an Assumption
Agreement;

      (xvii) with respect to the Servicing Account for the related Collection
Period:

            Beginning Balance           $

<PAGE>


            Deposits

            Disbursements
                                           ------------------------
            Ending Balance              $
                                           ========================

      (xviii) with respect to each Account that was the subject of a
Repossession:

           Mortgage Asset Number        Principal Balance
           ---------------------        -----------------


      (xix) with respect to each Account that was the subject of a Resale:

           Mortgage Asset Number        Principal Balance
           ---------------------        -----------------


      (xx) the aggregate number and aggregate Principal Balance of all Accounts
that were set-up (i.e., rewritten) during the Collection Period was $________
and $________, respectively;

      (xxi) the aggregate number and aggregate Principal Balance of all Accounts
that were set-up (i.e., rewritten) during the Collection Period and the prior
eleven (11) Collection Periods was _________ and $________, respectively; and

      (xxii) the number and aggregate Principal Balances of all Accounts 30, 60
and 90 or more days past due and in repossession, foreclosure or bankruptcy are
as follows: ______________.

      The undersigned hereby certify that all amounts received from the Holding
Account during the preceding Collection Period are authorized withdrawals
pursuant to Section 2.07(c) or 2.11 of the Servicing Agreement.

                                    Mid-State Homes, Inc.

                                    By:_______________________________________

                                    Name:_____________________________________

                                    Title:____________________________________

                                    By:_______________________________________

                                    Name:_____________________________________

<PAGE>


                                    Title:____________________________________

<PAGE>


                                   EXHIBIT B

                             Mid-State Homes, Inc.
               Post Office Box 31601 o Tampa, Florida 33631-3601
                 4211 W. Boy Scout Blvd. o Tampa, Florida 33607


[_______], 20

Servicing Procedures
Mid-State Homes, Inc.


      Reference is made to the Servicing Agreement (the "Servicing Agreement")
dated [___________], 20 , among the undersigned (the "Servicer"), Mid-State
Trust [__], a statutory trust established under the laws of the State of
Delaware (the "Trust") and [________________] (the "Indenture Trustee") entered
into in connection with the issuance and sale by the Trust of its $[___________]
[____]% Class A Asset-Backed Notes, $[____________] [____]% Class M-1
Asset-Backed Notes, $[_________] [____]% Class M-2 Asset-Backed Notes and
$[____________] [____]% Class B Asset-Backed Notes (the "Notes") pursuant to the
indenture dated [______], 20 (the "Indenture") between the Trust and the
Indenture Trustee.

      Set forth below is a description of the servicing standards historically
employed by the Servicer referred to in Section 2.1 of the Servicing Agreement.

I. COLLECTION PROCEDURES

      The following procedures are those generally followed by the Servicer as
of [________], 20 in the collection, through its subservicing agent,
[______________] ("[___]"), of past-due Accounts. However, it should be noted
that since supervisory personnel and management exercise substantial
discretionary judgment in the collection effort, the procedures followed in the
collection of any particular past-due Account may deviate from those described
below.

      A. Accounts

      A list of delinquent Accounts is produced daily. Each delinquent Account
is assigned to one of the two following categories:

      1. "Field Accounts": Accounts in respect of which the Obligor will, if a
payment is not made during the course of the then current month, be in arrears
by at least two installment payments. Field Account Obligors may also owe
amounts advanced by the Servicer in respect of insurance premiums, real property
taxes or other amounts.

      2. "Off-Code Accounts": Accounts in respect of which the Obligor either is
current on installment payments or, in the event that a payment is not made
during the course of


<PAGE>


the then-current month, will be in arrears with respect to only one
installment payment at the end of such month, and is indebted to the Servicer
for amounts advanced by the Servicer in respect of insurance premiums, real
property taxes or other amounts.

      B. Field Offices

      Field Accounts and Off-Code Accounts are serviced from [___]'s Field
Offices. [___] has approximately [___] such Field Offices serving [__] different
states, with mortgage servicing field personnel in approximately [__] offices.
Each Field Representative services an average of approximately [___] Accounts
per month. Each Field Representative is furnished daily with the report of
delinquent Field Accounts and Off-Code Accounts respecting properties within his
service area, and a copy of such list for each Field Office within a division is
made available to the Divisional Vice Presidents and Assistant Divisional
Supervisors.

      Upon receipt of such list, each Field Representative seeks to make contact
with each delinquent Obligor either by telephone or in person, in order to make
payment arrangements with such Obligors. Field Representatives and their
respective Assistant Divisional Supervisors communicate not less frequently than
every other day to review Field Accounts and to discuss progress and problems in
such Field Representative's collection efforts. All collection efforts of the
Field Representatives (whether by phone or in person) are documented directly on
the collection activity database.

      At least weekly, the Assistant Divisional Supervisor reviews orally with
the respective Divisional Vice President the results of the field collection
efforts for the previous week. Additionally, Assistant Divisional Supervisors
request, upon the recommendation of the Field Representative, that the account
be foreclosed or repossessed, request a deed in lieu of foreclosure or refrain
from foreclosing or repossessing an account which is two or more installments in
arrears. The final decision is made by the Divisional Vice President.

      In the event an Obligor fails to adhere to the payment schedule arranged
with the Field Representative, the Field Representative will re-contact such
Obligor, usually by means of a visit to the Obligor's home. The Field
Representatives spend a significant portion of their time on the road making
face-to-face contact with delinquent Obligors. Not only does such visit seek to
impress upon the Obligor the urgency of coming to some successful arrangement,
but also affords the Field Representative the opportunity to make a cursory
inspection of the condition of the house and property, so that repair plans can
be made should reacquisition become necessary. The highest priority of
visitation is placed on the delinquent accounts with the largest balance.

      In many circumstances, a satisfactory payment schedule can be arranged
with the Obligor (see below "WORK-OUT POLICIES"). However, if it is felt that
the chances of arranging a successful repayment program satisfactory to the
Servicer are not good, after a final attempt by either one or both of the
Divisional Vice President or Assistant Divisional Supervisor, the Field Account
Obligor will either be requested to sign a deed in lieu of foreclosure or will
be advised that his Account has been or will be referred to an attorney for the
commencement of foreclosure proceedings (see below "FORECLOSURE POLICIES").


                                      C-2
<PAGE>


      Field Representatives frequently receive monthly payments and other
repayments of outstanding advances directly from the Obligors. The Field
Representatives give the Obligor a receipt for such payment and mail the payment
to the lock box or to Tampa, if manual processing is required, as soon as
practicable. When the receipt book is used up it is forwarded to the Divisional
Office for review. Each day the Field Representatives take all collections made
or which have otherwise been received and mail such payments to the lock box or
Tampa headquarters.

      C. Collection of Off-Code Accounts

      Five Collection Managers and one Supervisor, all located at a central
office in Fort Worth, Texas, are also responsible for the collection of Off-Code
Accounts. Collection efforts begin immediately upon receipt of the daily
delinquency report and are confined to contacting Obligors by telephone, by mail
or by assignment to a Field Representative. Since the majority of Obligors with
respect to Accounts in this category have built up substantial equity in the
relevant properties, it is the experience of the Servicer that such Obligors can
be persuaded to bring their Account balance current with relative ease.
Therefore, the bulk of the collection effort expended by such Collection
Managers is directed toward collecting amounts advanced by the Servicer on such
Obligor's behalf in respect of insurance premiums and real property taxes. All
Obligor contacts in the collection effort are documented directly on the
collection activity database. Account Obligors incapable of paying all such
amounts upon demand are permitted to pay in installments pursuant to a repayment
schedule satisfactory to the Servicer.

      Central office Collection Managers review the collection status of all
their accounts with the Supervisor at least every other day. When, in his
judgment, the Collection Manager deems it appropriate, he will refer an Off-Code
Account to the field for collection efforts by a Field Representative.

II. WORK-OUT POLICIES

      As a general rule, the Servicer will not permit an Account to remain two
installment payments in arrears. Whether or not the Obligor will be allowed to
arrange a repayment schedule rather than be required either to bring the Account
current or see foreclosure proceedings brought will depend upon the Servicer's
estimate of the likelihood of a successful work-out being accomplished.
Naturally, such an estimate is subjective to a certain degree.

      The factors considered in arriving at a decision whether or not to enter
into an arrangement with an Obligor include whether or not the Obligor has a
record of making previous payments in a timely fashion, the nature of the reason
for failure to remain current on mortgage payments, the likelihood of such
reason being cured or removed in the near future and the difficulty, if any,
anticipated in prosecuting an action for foreclosure.

      Generally, an acceptable work-out schedule of payments will require the
Obligor to pay either two installment payments, or a payment and a half, in the
immediately following month or months. On rare occasions, if an Obligor has a
good past payment record and experiences difficulty in making payment, which
difficulty, in the judgment of the relevant Representatives and Supervisors, is
likely to be cured or removed, the Account may be deemed


                                      C-3
<PAGE>


current and the delinquent payments added to the end of the original
outstanding balance of such Account. All accounts that are "deemed to be
current" through this process must have been approved by senior management at
the central office in Tampa, Florida.

      A successful work-out should result in a current Account within the space
of two or three months following agreement upon a repayment schedule.

III. FORECLOSURE POLICIES

      A. Generally

      Accounts in respect of which foreclosure proceedings are to be commenced
are referred for foreclosure to [___]. The actual foreclosure process consists
of [___] delivering the necessary Mortgage Asset Documents to attorneys in the
state in which the mortgaged property is located with direction to foreclose on
the Account as quickly as possible. [___] also has staff in Tampa, Florida to
oversee the foreclosure activities of all local counsel.

      In any case in which an Obligor has agreed to surrender the mortgaged
property by deed in lieu of foreclosure, [___] performs a search of the records
on file in the applicable county to determine whether the property is subject to
tax or other liens. If there are liens on record, other than tax liens, [___]
refuses the deed in lieu of foreclosure and, if necessary, initiates foreclosure
to acquire the property free of such liens.

      Accounts recommended for foreclosure are notified that [___] intends to
initiate foreclosure or repossession if payment is not made in 30 days. Provided
that [___] is the successful bidder at the resulting judicial sale, the relevant
[___] Field Representative will be responsible for reselling the repossessed
property. The average period elapsed between repossession of a property and its
resale is approximately 45 days.

      B. Maintenance and Repair of Repossessed Homes

      Immediately upon becoming aware that a property has been abandoned or
vacated or following repossession of a property, the Field Representative will
arrange for basic clean-up of the yard and interior of the house as necessary.
Periodic inspections of the property are made during the period between
repossession and resale to ensure that the property does not deteriorate
significantly.

      The Field Representative will recommend needed repairs to the Assistant
Divisional Supervisor. Generally speaking, repairs necessary to prevent any
structural deterioration will be made forthwith. Depending upon the magnitude of
interior repairs, such repairs may either be made at once or they may be made a
part of the negotiation of the price and terms of the resale contract. Likewise,
in the case of a house which was both sold and repossessed in an unfinished
state, as a general rule no work will be done on the interior to bring it to a
higher state of completion except as part of a firm contract of resale.

      [___] generally does not maintain a Hazard Insurance Policy on each
Acquired Property; however, it does pay all property taxes, assessments and
utility bills for such properties


                                      C-4
<PAGE>


and arranges for utilities to be connected or disconnected, as
appropriate, and for the properties to be protected in winter months to avoid
damage to plumbing.

      C. Resale

      During the repossession and/or foreclosure process, the Field
Representative resale efforts are commenced. After title to the house is taken,
the Field Representative's resale effort may take the form of canvassing the
neighborhood, leaving information and pictures at corner stores and factories or
advertising in local newspapers.

      1. Resale Price

      Several points of reference are used in arriving at a resale price for a
repossessed home. First, the Servicer will provide a baseline number that
represents its cash cost. This figure provides a baseline price below which the
property generally will not be sold. Sales for a price below such baseline price
require the permission of the Divisional Vice President. Second, the Field
Representative makes reference to the current price for a similar new home.
Finally, the Field Representative refers to the market price prevailing for
comparable homes in the area, discounting, if necessary, for the work left to be
done to bring the house to completion.

      If the proposed sale price is less than a specified deviation below the
baseline price, the property must be seen by the Assistant Divisional Supervisor
or Divisional Vice President supervising the area in which the property is
located. The Divisional Vice President must explain any shortfalls to an officer
in the central office in Tampa, Florida, who will attach the statement to the
sale package.

      2. Resale Credit Policies

      Prospective purchasers at resale are subject to the same credit review
procedures as purchasers of new homes. In lieu of the pledge of real property
received from new home buyers, a certain amount of equity in the property is
provided in a resale by requiring the purchaser at resale to make a down payment
of between a minimum of $750 and up to 10% of the selling price, depending upon
the credit profile of such purchaser.

                                          MID-STATE HOMES, INC.

                                          By:____________________________
                                          Name:
                                          Title:


                                      C-5

<PAGE>








                               SERVICING AGREEMENT

                                Dated [_____], 20

                                      among

                              MID-STATE TRUST [__]

                                     Issuer

                                       and

                            WALTER MORTGAGE COMPANY,

                                    Servicer

                                       and

                           [________________________]
                                Indenture Trustee

         Relating to the Mortgage Loans Pledged to [__________________],
              as Indenture Trustee, as Collateral for the Issuer's
        $[___________] [___]% Asset-Backed Notes, Class A $[___________]
           [___]% Asset-Backed Notes, Class M-1 $[___________] [___]%
                          Asset-Backed Notes, Class M-2
       $[___________] [___]% Asset-Backed Notes, Class B in the Aggregate
                            Initial Principal Amount
                         of $[__________] (Approximate)

<PAGE>

                                Table of Contents

                                                                            Page

                                   ARTICLE ONE

                                   DEFINITIONS

Section 1.01  Defined Terms..................................................1
Section 1.02  Terms Defined in the Indenture.................................3

                                   ARTICLE TWO

                ADMINISTRATION AND SERVICING OF Mortgage Loans

Section 2.01  The Servicer to Act as Servicer................................3
Section 2.02  Sub-Servicing Agreements Between Servicer and
               Sub-Servicer..................................................6
Section 2.03  Successor Sub-Servicers........................................7
Section 2.04  Liability of the Servicer......................................7
Section 2.05  No Contractual Relationship Between Sub-Servicer and
               Indenture Trustee or Issuer...................................7
Section 2.06  Assumption of Sub-Servicing Agreement by Successor
               Servicer......................................................8
Section 2.07  Collection of Mortgage Loan Payments; Holding Account..........8
Section 2.08  Collection Account; Servicing Account.........................10
Section 2.09  Records and Servicing Account Moneys..........................11
Section 2.10  Assumption Agreements.........................................12
Section 2.11  Permitted Withdrawals from the Collection Account.............13
Section 2.12  Advances for Delinquent Taxes.................................13
Section 2.13  Maintenance of Insurance; Collection Thereunder...............13
Section 2.14  Realization upon Defaulted Mortgage Loans.....................14
Section 2.15  Release of Mortgage Loans.....................................15
Section 2.16  Servicing Compensation........................................16
Section 2.17  Establishment of Escrow Accounts; Deposits in Escrow
               Accounts.....................................................16
Section 2.18  Permitted Withdrawals From Escrow Account.....................16

                                  ARTICLE THREE

                         STATEMENTS, REPORTS AND NOTICES

Section 3.01  Reporting by the Servicer.....................................17
Section 3.02  Annual Certificate; Mortgage Loan Statement...................17
Section 3.03  Annual Accountants' Reports...................................18
Section 3.04  Notices.......................................................18


                                      -i-
<PAGE>


                                  ARTICLE FOUR

                                  THE SERVICER

Section 4.01  Representations and Warranties of the Servicer................18
Section 4.02  Merger or Consolidation of the Servicer.......................19
Section 4.03  Performance of Obligations....................................20
Section 4.04  Servicer Not to Resign........................................20
Section 4.05  Fidelity Bond.................................................20

                                  ARTICLE FIVE

                                     DEFAULT

Section 5.01  Events of Default.............................................21
Section 5.02  No Effect on Other Parties....................................22
Section 5.03  Rights Cumulative.............................................22

                                  ARTICLE SIX

                                   [RESERVED]

                                 ARTICLE SEVEN

                            MISCELLANEOUS PROVISIONS

Section 7.01  Termination...................................................23
Section 7.02  Amendment.....................................................23
Section 7.03  Governing Law.................................................24
Section 7.04  Notices.......................................................24
Section 7.05  Severability of Provisions....................................25
Section 7.06  Inspection and Audit Rights...................................25
Section 7.07  Binding Effect................................................25
Section 7.08  Article and Section Headings..................................25
Section 7.09  The Owner Trustee.............................................25
Section 7.10  Distribution of Servicing Procedures and Standards............26
Section 7.11  Property Address..............................................26
Section 7.12  Power of Attorney.............................................26
Section 7.13  Rights Upon Discharge of Indenture............................26
Section 7.14  Non-Petition..................................................26


                                      -ii-

<PAGE>


                                    EXHIBITS


EXHIBIT A   Mid-State Trust [__] Servicer's Certificate
Exhibit B   Historical Servicing Standards


                                     -iii-

<PAGE>


            THIS SERVICING AGREEMENT is dated [________], 20__, among Mid-State
Trust [__], a Delaware statutory trust (such trust being herein called, the
"Issuer"), Walter Mortgage Company, a Delaware corporation (herein, together
with its successors and assigns, called the "Servicer") and [_______________],
as Indenture Trustee under the Indenture referred to below.

                             PRELIMINARY STATEMENT

            The Issuer is a statutory trust created by a trust agreement dated
[______], 20__ (as amended, restated, supplemented or otherwise modified from
time to time, the "Trust Agreement"), between [_______________] (in its capacity
as Trustee thereunder, the "Owner Trustee") and Mid-State Capital Corporation,
as Grantor. The Issuer will act at all times through the Owner Trustee. The
Issuer has entered into an indenture (the "Indenture"), dated as of the date of
this Agreement, with [_____________________], as Indenture Trustee (the
"Indenture Trustee"), pursuant to which the Issuer intends to issue its
$[__________] [____]% Asset-Backed Notes, Class A, $[__________] [____]%
Asset-Backed Notes, Class M-1, $[__________] [___]% Asset-Backed Notes, Class
M-2, and $[___________] [___]% Asset-Backed Notes, Class B (the "Notes").
Pursuant to the Indenture, as security for the Notes, the Issuer is Granting to
the Indenture Trustee a security interest in, among other things, certain
Mortgage Assets, its rights under this Agreement, the Mid-State Servicing
Agreement, the Collection Account, the Holding Account and the Hazard Insurance
Policies (as such terms are hereinafter defined).

            The parties desire to enter into this Agreement to provide, among
other things, for the servicing of the Mortgage Loans by the Servicer. The
Servicer acknowledges that, in order further to secure the Notes, the Issuer is
Granting to the Indenture Trustee a security interest in, among other things,
its rights under this Agreement, and the Servicer agrees that all covenants and
agreements made by the Servicer herein with respect to the Mortgage Loans shall
also be for the benefit and security of the Indenture Trustee and Holders of the
Notes. For its services hereunder, the Servicer will receive a Servicing Fee
with respect to each Mortgage Loan serviced hereunder as provided herein.

                                  ARTICLE ONE

                                  DEFINITIONS

            Section 1.01 Defined Terms.

            Except as otherwise specified or as the context may otherwise
require, the following terms have the respective meanings set forth below for
all purposes of this Agreement, and the definitions of such terms are applicable
to the singular as well as to the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such terms:

            "Acquired Property": Property acquired by the Issuer by foreclosure,
deed in lieu of foreclosure, or otherwise in respect of a defaulted Mortgage
Loan.


<PAGE>


            "Agreement": This Servicing Agreement as originally executed and as
amended or supplemented from time to time in accordance with the terms hereof
and of the Indenture.

            "Bankruptcy Code":  Title 11 of the United States Code.

            "Collection Period": With respect to any Payment Date, the one-month
period ending on the close of business on the last day of the month preceding
the month in which the related Payment Date occurs.

            "Custodian": As defined in the Holding Account Agreement, dated
[____________], 20__, among the Servicer, Mid-State Homes, Inc. and
[____________________], as Indenture Trustee.

            "Default":  Any occurrence or  circumstance  that,  with notice or
lapse of time or both, would be an Event of Default.

            "Escrow  Account":  The account or accounts created and maintained
pursuant to Section 2.17.

            "Escrow Payments": The amounts constituting ground rents, taxes,
assessments, water rates, mortgage insurance premiums, fire and hazard insurance
premiums and other payments required to be escrowed by the Obligor pursuant to
any Mortgage Loan.

            "Event of Default": Any of the occurrences or circumstances
enumerated in Section 5.01.

            "Holding Account": A custodial account established by the Servicer
and Mid-State Homes, Inc. pursuant to the Holding Account Agreement, dated
[______], 20__, in the name of [_______________], as Custodian for
[______________], as Indenture Trustee under the Indenture, Mid-State Homes,
Inc. and the Servicer, maintained at a depository institution (i) the deposits
in which are fully insured by the Federal Deposit Insurance Corporation through
either the Bank Insurance Fund or the Savings Association Insurance Fund and
(ii) the commercial paper or other short term obligations of which (or, in the
case of a depository institution which is the principal subsidiary of a holding
company the commercial paper or other short-term debt obligations of such
holding company) have a credit rating of at least "[__]" and "[__]" from [_____]
and [______], respectively.

            "Homes":  Jim Walter Homes, Inc., a Florida corporation.

            "Indenture": The Indenture, dated [_________], 20__, between the
Issuer and [_______________________], as Indenture Trustee, as such Indenture
may be amended or supplemented from time to time in accordance with its terms.

            "Mid-State Servicing Agreement": The servicing agreement among
Mid-State Homes, Inc., Mid-State Trust [__] and [____________], dated
[____________], 20__, as amended or supplemented from time to time in accordance
with the terms thereof and of the Indenture, providing for the servicing of the
Accounts.


                                      -2-
<PAGE>


            "Monthly Cut-Off Date": The last day of any Collection Period.

            "Realized Loss": With respect to a Mortgage Loan that is liquidated,
the amount by which the sum of the remaining unpaid Principal Balance of the
Mortgage Loan and the related Liquidation Expenses exceed the amount of
Liquidation Proceeds applied to the Principal Balance of the related Mortgage
Loan. With respect to any Mortgage Loan, a valuation of the related Mortgaged
Property by a court of competent jurisdiction in an amount less than the then
outstanding Principal Balance of the Mortgage Loan, which valuation results from
a proceeding initiated under the Bankruptcy Code or a reduction in the Principal
Balance thereof resulting from a modification by the Servicer.

            "Remittance   Date":   The  first   Business   Day  of  each  week
(beginning [________], 20__) following the end of each Collection Period.

            "Reporting Date": With respect to any Collection Period, the 10th
day of the month following such Collection Period or if such day is not a
Business Day the next preceding Business Day.

            "Servicer Termination":  As defined in Section 5.01.

            "Servicing Account":  As defined in Section 2.08(b).

            "Servicing Fee":  As defined in the Indenture.

            "Sub-Servicer":  As defined in Section 2.02.

            "Sub-Servicing Agreement": An agreement between the Servicer and a
Sub-Servicer as described in Section 2.02.

            "Successor Servicer":  As defined in the Indenture.

            "Uninsured Cause": Any cause of damage to property subject to a
Mortgage such that the property cannot be completely restored out of the
proceeds of the Hazard Insurance Policies required to be maintained pursuant to
Section 2.13.

            Section 1.02 Terms Defined in the Indenture.

            For purposes of this Agreement, all capitalized terms used herein
that are defined in the Indenture (other than terms defined in Section 1.01 of
this Agreement) shall have the respective meanings assigned to such terms in the
Indenture.

                                  ARTICLE TWO

                 ADMINISTRATION AND SERVICING OF Mortgage Loans

            Section 2.01 The Servicer to Act as Servicer.


                                      -3-
<PAGE>


            The Servicer shall service and administer the Mortgage Loans, in
accordance with the express terms of this Agreement, applicable state and
federal law, and with the standards and procedures employed by a prudent
servicer with respect to the servicing of similar accounts held in its own
portfolio and in accordance with the Servicer's historical servicing standards
set forth on Exhibit B, and the Servicer shall have full power and authority,
acting alone, to do any and all things in connection with such servicing and
administration that it may deem necessary or desirable and, subject to the
foregoing and the provisions of the Indenture to execute and deliver in the
Servicer's own name, on behalf of the Issuer, any and all deeds, sale contracts,
instruments of satisfaction or cancellation, or of partial or full release or
discharge, and all other comparable instruments, with respect to the Mortgage
Loans and with respect to the Mortgaged Properties; provided, however, any
Successor Servicer shall not be bound by the Servicer's historical servicing
standards.

            Notwithstanding the preceding paragraph, the Servicer shall at all
times follow the procedures set forth below:

            1. The Servicer shall use its reasonable best efforts to contact,
either by telephone, mail, in person, or in such other manner as the Servicer
deems appropriate under the circumstances, each Obligor on any Mortgage Loan
that is delinquent 30 days or more in any payments called for under the terms
and provisions of the Mortgage Loans (including outstanding advances for taxes,
insurance and other amounts) as of the most recent Monthly Cut-Off Date, in
order to ascertain the reason for the delinquency and the likelihood that the
Mortgage Loan will become current. Thereafter, the Servicer shall diligently
pursue collection efforts in order to bring the Mortgage Loan current with
respect to all outstanding amounts (including outstanding taxes, insurance and
other amounts) unless the Servicer in its good faith judgment believes it is
most appropriate, under the circumstances, and not as a general matter, not to
pursue the outstanding amounts for taxes, insurance and other amounts.

            2. The Servicer shall use its reasonable best efforts to physically
inspect or visit the Mortgaged Property securing any Mortgage Loan that is 60 or
more days delinquent as of the most recent Monthly Cut-Off Date, unless the
Servicer otherwise determines to its reasonable satisfaction that the value of
the Mortgaged Property securing such Mortgage Loan has not been materially
impaired and that such property has not been abandoned.

            3. The Servicer shall use its reasonable best efforts to diligently
pursue, foreclose upon, sell the underlying note, or otherwise comparably
convert the ownership of properties securing a Mortgage Loan that continues in
default (including default in payment of taxes and insurance) for more than 90
days, unless the Servicer, in its best judgment, believes that the Mortgage Loan
can be returned to current status within a reasonable period of time or, solely
with respect to defaults due solely to default in payment of taxes and insurance
and other amounts, unless the Servicer in its good faith judgment believes it is
most appropriate, under the circumstances, and not as a general matter, not to
pursue the outstanding amounts for taxes, insurance and other amounts.

            4. With respect to Mortgaged Properties that are known by the
Servicer to be abandoned or in foreclosure, or properties with respect to which
title has been acquired, the


                                      -4-
<PAGE>


Servicer shall take such action as it deems necessary in its good
faith judgment and not in violation of law to protect such property from
vandalism or damage by the elements.

            5. The deed to any Acquired Property delivered as a result of any
foreclosure or similar proceeding or deed in lieu thereof shall name the Issuer
as grantee unless the Servicer deems it necessary to foreclose or otherwise
comparably convert title to any Mortgaged Property in the name of a party other
than the Issuer. In that event, the Servicer may designate such a party to hold
title to the Acquired Property. The party designated to hold such title shall
sign a written acknowledgment that it is holding title on behalf of the Issuer
and any such acknowledgment shall be delivered to the Indenture Trustee together
with the deed to such Acquired Property.

            6. Upon acquisition of an Acquired Property by the Issuer, the
Servicer shall prepare a Trust Mortgage in form appropriate to the state in
which such Acquired Property is located and furnish such Trust Mortgage to the
Indenture Trustee within two Business Days of acquiring a deed in respect of
such Acquired Property for execution by the Issuer and recordation in accordance
with the terms of the Indenture. The Servicer or Sub-Servicer in order to
facilitate the sale of the Acquired Property, at its option, may execute and
record as agent and attorney in fact for the Issuer a deed granting to the
Servicer or Sub-Servicer a ten percent interest in the Acquired Property as a
tenant in common, which interest shall be subject to the Trust Mortgage. As
consideration for that interest, the Servicer or Sub-Servicer shall convey and
hereby agrees to convey to the Issuer all of its share of the proceeds of
disposition of any such Acquired Property (including any interest in any new
Mortgage Loan with respect to such Acquired Property). No other consideration
shall be payable by the Servicer or Sub-Servicer to the Issuer for that
interest.

            If an Acquired Property is resold in exchange for a new Mortgage
Loan within two Business Days of acquisition of such Acquired Property, the
mortgage or deed of trust executed by the Issuer need not be executed and
delivered to the Indenture Trustee, provided the Mortgage Asset Documents for
such new Mortgage Loan and all assignments and endorsements with respect to such
new Mortgage Loan required by the Indenture are delivered to the Indenture
Trustee within five Business Days of acquisition.

            7. Upon the acquisition of an Acquired Property, the Servicer shall
(i) deliver the deed or certificate of sale to the Indenture Trustee, (ii)
advance all taxes and standard hazard insurance premiums relating to the
Acquired Property, (iii) process any claims for redemption and otherwise comply
with any redemption procedures required by law, (iv) use its reasonable best
efforts to promptly sell or otherwise dispose of such Acquired Property at a
price which in its best judgment represents reasonable value and remit the
proceeds to the Indenture Trustee, and (v) if, in order to sell the property at
what it reasonably determines to be the best price available, the Servicer deems
it reasonably necessary for the Issuer to provide mortgage financing to the
prospective buyer, the Servicer shall undertake, as agent for the Issuer, to
apply substantially the same underwriting standards as the Servicer applies to
similar transactions originated by it for its own account provided however that
the Maturity Date of any such Mortgage Loan shall not exceed [________].

            8. If the Servicer deems it reasonably necessary to convey an
Acquired Property in exchange for a new Mortgage Loan, such new Mortgage Loan
may be originated on


                                      -5-
<PAGE>


documents naming the Servicer or Sub-Servicer as payee; provided,
however, that the Maturity Date of any such new Mortgage Loan shall not exceed
[________]. The Sub-Servicer's or Servicer's rights under any such documents
shall be subject to its obligation to convey proceeds of the disposition of
Acquired Property.

            In connection with the sale of an Acquired Property, any contract of
sale or deed shall be executed by the Servicer or Sub-Servicer in its individual
capacity and as agent and attorney in fact for the Issuer. The Servicer shall
request release of the Trust Mortgage by the Indenture Trustee. Immediately upon
consummation of the sale, the Servicer or Sub-Servicer shall assign all of its
right, title and interest in the new Mortgage Loan to the Issuer and the Issuer
shall assign all of its right, title and interest in the new Mortgage Loan to
the Indenture Trustee. The Servicer shall record the release, the deed, the
Mortgage, the assignment of the Servicer's or Sub-Servicer's interest to the
Issuer and an assignment of the Mortgage by the Issuer to the Indenture Trustee
immediately.

            9. The Servicer shall segregate and hold all funds collected and
received in connection with the rental or sale of any Acquired Property separate
and apart from its own funds and general assets and shall deposit such moneys in
the Holding Account in accordance with Section 2.07(b).

            10. Except as expressly permitted by Section 2.10 or as otherwise
provided in Exhibit B, the Servicer shall not alter, change or modify, or permit
the alteration, change or modification of, any Mortgage Loan without the prior
consent of the Indenture Trustee; provided, however, that the Servicer may
charge-off or write-off Mortgage Loans when the Servicer determines in its best
judgment that it is prudent to do so and that the costs and expenses of
continued servicing of such Mortgage Loans (including foreclosure proceedings)
exceeds the expected revenues therefrom, and such determination is evidenced by
a certification signed by a duly authorized officer of the Servicer setting
forth such conclusions and the basis therefor.

            Promptly after the execution and delivery of this Agreement, the
Servicer shall deliver to the Issuer and the Indenture Trustee a list of
officers of the Servicer involved in, or responsible for, the administration and
servicing of the Mortgage Loans, which list shall from time to time be updated
by the Servicer after each change in servicing officers.

            At all times while the Servicer is servicing the Mortgage Loans
pursuant to this Agreement, the Servicer shall employ field servicing personnel
for each state in which Mortgaged Properties are located who are assigned to
service the related outstanding Mortgage Loans of that state; provided, however,
that if the Servicer does not employ field servicing personnel in any such state
or does not employ sufficient field servicing personnel in any such state to
service the related outstanding Mortgage Loans of that state in accordance with
the terms and provisions of this Agreement, the Servicer shall enter into one or
more Sub-Servicing Agreements as described in Section 2.02 with a Sub-Servicer
that employs field servicing personnel or agents for that state providing for
the servicing of the effected outstanding Mortgage Loans of that state.

            Section 2.02 Sub-Servicing Agreements Between Servicer and
Sub-Servicer.


                                      -6-
<PAGE>


            The Servicer may enter into sub-servicing agreements (each, a
"Sub-Servicing Agreement") with sub-servicers (each, a "Sub-Servicer") which may
include affiliates of the Servicer, for the servicing and administration of any
or all of the Mortgage Loans. In the event that any such Sub-Servicing Agreement
exists, the Sub-Servicer will represent and warrant that it is duly organized
and existing under the applicable laws of the United States or any state and is
duly qualified and licensed to do business in each state in which the Mortgaged
Property relating to a Mortgage Loan to be serviced under such Sub-Servicing
Agreement is located. Any such Sub-Servicing Agreement entered into by the
Successor Servicer shall not be less favorable to the Issuer in its reasonable
judgment. For purposes of this Agreement (except as otherwise provided herein),
the Servicer shall be deemed to have received payments on Mortgage Loans
referred to in Sections 2.07 and 2.15 when the Sub-Servicer has received such
payments. The Servicer and any Sub-Servicer may enter into amendments of a
Sub-Servicing Agreement; provided, however, that any such amendments shall be
consistent with and not violate the provisions of this Agreement. Copies of all
amendments shall promptly be sent as provided in Section 7.04 hereof to the
Indenture Trustee.

            Section 2.03 Successor Sub-Servicers.

            The Servicer shall be entitled to terminate any Sub-Servicing
Agreement that may exist from time to time in accordance with the terms and
conditions of such Sub-Servicing Agreement and, except as hereinafter provided
in this Section 2.03, without any limitation by virtue of this Agreement;
provided, however, that in the event of termination of any Sub-Servicing
Agreement by the Servicer or the Sub-Servicer the Servicer shall either act as
primary servicer of the related Mortgage Loans or enter into a Sub-Servicing
Agreement in accordance with the provisions of Section 2.02 with a successor
Sub-Servicer.

            Section 2.04 Liability of the Servicer.

            Notwithstanding any Sub-Servicing Agreement, any of the provisions
of this Agreement relating to agreements or arrangements between the Servicer
and a Sub-Servicer or reference to actions taken through a Sub-Servicer or
otherwise, the Servicer shall remain primarily obligated and liable to the
Issuer and the Indenture Trustee for the servicing and administering of the
Mortgage Loans in accordance with the provisions of this Agreement without
diminution of such obligation or liability by virtue of such Sub-Servicing
Agreement or arrangements or by virtue of indemnification from the Sub-Servicer
and to the same extent and under the same terms and conditions as if the
Servicer alone were servicing and administering the Mortgage Loans. The Servicer
shall be entitled to enter into any agreement with a Sub-Servicer for
indemnification of the Servicer by such Sub-Servicer, and nothing contained in
this Agreement shall be deemed to limit or modify such indemnification.

            Section 2.05 No Contractual Relationship Between Sub-Servicer and
Indenture Trustee or Issuer.

            Any Sub-Servicing Agreement that may be entered into and any other
transactions or services relating to the Mortgage Loans involving a Sub-Servicer
in its capacity as such shall be deemed to be between the Sub-Servicer and the
Servicer alone and the Sub-Servicer shall have no claim against the Indenture
Trustee or the Issuer except to the extent set


                                      -7-
<PAGE>


forth in Section 2.06 arising from any Sub-Servicing Agreement; provided,
however, that the Indenture Trustee and the Issuer may upon the happening of a
default thereunder enforce the Servicer's rights under any Sub-Servicing
Agreement as third party beneficiaries thereof.

            Section 2.06 Assumption of Sub-Servicing Agreement by Successor
Servicer.

            In the event the Servicer shall for any reason no longer be the
Servicer (including by reason of an Event of Default or Trigger Event), the
Successor Servicer may, at its election, assume all of the rights and
obligations of the Servicer under each Sub-Servicing Agreement that may have
been entered into. The Indenture provides that the Successor Servicer may, at
its election, assume all of the Servicer's interest therein and replace the
Servicer as a party to the Sub-Servicing Agreement to the same extent as if the
Sub-Servicing Agreement had been assigned to the assuming party, except that the
Servicer shall not thereby be relieved of any liability or obligation under the
Sub-Servicing Agreement.

            The Servicer shall, upon request of the Indenture Trustee or the
Successor Servicer but at the expense of the Servicer, deliver to the Successor
Servicer all documents and records pursuant to Section 2.09 relating to the
Sub-Servicing Agreement and the Mortgage Loans then being serviced and an
accounting of amounts collected and held by it and otherwise use its best
efforts to effect the orderly and efficient transfer of the Sub-Servicing
Agreement to the assuming party.

            Section 2.07 Collection of Mortgage Loan Payments; Holding Account.

            (a) In accordance with the servicing standards set forth in Section
2.01, the Servicer shall use its reasonable best efforts to cause each Obligor
to make all payments in respect of his or her Mortgage Loan to the Servicer and
to collect all payments (including amounts for taxes and insurance and other
Escrow Payments) called for under the terms and provisions of the Mortgage Loans
(other than any fees and charges the collectability of which is not legally
enforceable). Consistent with the foregoing, the Servicer may in its discretion
(i) waive any late payment charge, assumption fee, prepayment charge, or penalty
interest in connection with the prepayment of a Mortgage Loan and (ii) arrange a
schedule for liquidation of delinquent payments due on a Mortgage Loan, running
for a period as the Servicer reasonably believes prudent under the
circumstances.

            (b) On or before the Closing Date the Servicer, with Mid-State
Homes, Inc., shall establish the Holding Account and shall cause all payments
received with respect to the Mortgage Loans (other than Escrow Payments) to be
deposited in the Holding Account. The deposit of substantially all such amounts
shall be made as soon as reasonably practicable after such payment is actually
received by it but in no event later than two Business Days after receipt by the
Servicer, and in the case of all payments received by Sub-Servicers with respect
to the Mortgage Loans, such amounts shall be remitted as soon as reasonably
practicable to the Servicer but in no event later than two Business Days after
collection by the Sub-Servicer and deposited by the Servicer in the Holding
Account as described above. The Servicer shall hold in escrow all moneys
received in respect of taxes and insurance to be disbursed in accordance with
the applicable Mortgage. The Sub-Servicer shall not deposit any amounts received
by it in any deposit, trust, or similar account prior to remitting such amounts
to the Servicer. On each


                                      -8-
<PAGE>


Remittance Date the Servicer shall submit to the Custodian, with a copy to the
Indenture Trustee, a report substantially in the form provided in the Holding
Account Agreement relating to funds deposited in the Holding Account during the
immediately preceding calendar week which specifies the amount of such funds
referred to in Section 2.08(a) to be transferred from the Holding Account by the
Custodian to the Collection Account.

            (c) The Servicer may, by written request delivered to the Custodian,
with a copy to the Indenture Trustee, receive funds from the Holding Account for
the following purposes:

                        (i) to repay to the Servicer moneys in the Holding
            Account upon certification by the Servicer reasonably acceptable to
            the Indenture Trustee that such funds are not part of the Trust
            Estate;

                        (ii) to clear the Holding Account pursuant to Section
            7.01(a);

                        (iii) to deposit Insurance Proceeds in the Servicing
            Account for application to restoration or repair of a Mortgaged
            Property in the future, to the extent such proceeds were deposited
            in the Holding Account;

                        (iv) to pay the Servicer the Servicing Fee pursuant to
            Section 2.16;

                        (v) to pay the Servicer amounts represented by any late
            payment charges, interest charged on advances of taxes and insurance
            premiums, assumption fees and other such additional charges with
            respect to the Mortgage Loans as additional servicing compensation;

                        (vi) to reimburse the Servicer for advances of taxes,
            insurance premiums and other amounts in accordance with Sections
            2.12 and 2.13, respectively; provided, however, that with respect to
            advances of taxes and insurance premiums and other amounts made on
            the Mortgage Loans on or prior to the Cut-Off Date the extent of
            reimbursement for such advances shall be limited to the related
            amounts collected by the Servicer or, in the case of a liquidation,
            the amount by which the related Liquidation Proceeds, if any, for
            each such Mortgage Loan exceeds the sum of the Principal Balance of
            the related Mortgage Loan and the related Liquidation Expenses other
            than such advances;

                        (vii) to reimburse the Servicer from the related
            Insurance Proceeds and Liquidation Proceeds with respect to a
            Mortgaged Property for any expenses incurred by it in good faith
            pursuant to Section 2.14 for restoration of such Mortgaged Property
            damaged by an Uninsured Cause;

                        (viii) to reimburse the Servicer from the Holding
            Account for any unreimbursed usual and customary Liquidation
            Expenses subject to the limitations set forth in Sections 2.12 and
            2.13 with respect to advances for taxes and insurance;

                        (ix) to reimburse the Servicer for expenses reasonably
            incurred by the Servicer pursuant to Section 6.01; and


                                      -9-
<PAGE>


                        (x) to reimburse the Servicer for reasonable and
            necessary expenses incurred in connection with the preservation and
            management of Acquired Properties.

            Section 2.08 Collection Account; Servicing Account.

            (a) On or before the Closing Date the Issuer shall open the
Collection Account as provided in Section 8.02 of the Indenture. On the Closing
Date, the Servicer shall on behalf of the Issuer remit to the Indenture Trustee
for deposit in the Collection Account all Monthly Payments and all prepayments
(net of the applicable Servicing Fee) collected on the Mortgage Loans after the
Cut-Off Date and received by the Servicer not less than five Business Days
before the Closing Date. All funds collected in respect of the Mortgage Loans
prior to the Closing Date not deposited in the Collection Account pursuant to
the preceding sentence on the Closing Date shall be deposited in the Holding
Account on the Closing Date and transferred to the Collection Account on the
first Remittance Date following the Closing Date. Thereafter, the Servicer shall
submit to the Custodian, with a copy to the Indenture Trustee, the report
required by Section 2.07(b) directing the deposit into the Collection Account
or, with respect to certain Insurance Proceeds, the Servicing Account of all
payments and collections in respect of the Mortgage Loans then on deposit in the
Holding Account (other than withdrawals simultaneously requested pursuant to
Section 2.07(c) and amounts in respect of payments by Obligors made by checks
subsequently returned for insufficient funds or other reason for non-payment)
including the following:

                        (i) all Obligor payments on account of principal,
            including Full Prepayments, of the Mortgage Loans;

                        (ii) all Obligor payments on account of finance charges
            on the Mortgage Loans; and

                        (iii) all net Insurance Proceeds (other than proceeds to
            be applied to the restoration or repair of the related Mortgaged
            Property which shall be deposited to the Servicing Account) and Net
            Liquidation Proceeds with respect to the Mortgage Loans.

The Servicer may request withdrawals from the Collection Account as
permitted by Section 2.11 hereof.

            (b) The Servicer shall open, at the Corporate Trust Office or at any
other financial institution the deposits of which are fully insured by the
Federal Deposit Insurance Corporation ("FDIC") (through either the Bank
Insurance Fund or the Savings Association Insurance Fund), one or more accounts
(collectively, the "Servicing Account"), which such accounts shall be Eligible
Accounts, designated as follows: "Walter Mortgage Company, as Servicer for
Mid-State Trust [__]." There shall be deposited in the Servicing Account on the
Closing Date all Insurance Proceeds which are to be applied to the restoration
or repair of the related Mortgaged Property received after the Cut-Off Date and
still in the custody of the Servicer on the Closing Date; thereafter all
Insurance Proceeds shall be deposited into the Servicing Account. Obligors'
funds in a Servicing Account shall be segregated, and the Servicer shall
instruct the financial institution in which such account is maintained
accordingly. The Servicing Account shall be an interest bearing account fully
insured as to amounts deposited


                                      -10-
<PAGE>


therein by the FDIC. In addition, moneys in the Servicing Account may be
invested as provided in Section 2.08(c). The Servicer shall make withdrawals
from a Servicing Account only (i) for the purpose of applying proceeds of a
Hazard Insurance Policy or other insurance policy to the restoration or repair
of a Mortgaged Property, to the extent such proceeds were deposited in such
Servicing Account; (ii) to the extent required by applicable law or regulation
or by the related Mortgage Loans and to the extent of earnings on the Servicing
Account then on deposit in the Servicing Account to pay interest on funds in
such Servicing Account to the Obligors entitled thereto; (iii) to pay to the
Obligors Insurance Proceeds required to be paid to them pursuant to the terms of
the related Account Note; (iv) to clear and terminate such Servicing Account at
the termination of this Agreement in accordance with Section 7.01; (v) to pay to
the Servicer net earnings on amounts in the Servicing Account to the extent
permitted by Section 2.08(c) below; or (vi) to transfer to the Holding Account
any funds then on deposit in the Servicing Account upon a determination by the
Servicer that such funds will not be applied in the manner described in (i
through (v) above.

            (c) Monies in any Servicing Account from time to time may be
invested and reinvested by the Servicer, but only in one or more Eligible
Investments and obligations on which the Indenture Trustee in its commercial
capacity is the obligor. No such investment shall mature later than one Business
Day prior to the next Remittance Date (or on such Remittance Date, in the case
of Eligible Investments of which the Indenture Trustee is the obligor). All net
income or gain from such investment of moneys shall be paid to the Servicer as
it is earned and received, provided that all interest required to be paid to
Obligors shall be paid to them as required or shall be held for the Obligors
entitled thereto. If any loss results from such investments, the Servicer shall
promptly reimburse the Servicing Account for the amount of any such loss from
its own funds. Whenever any amounts invested as aforesaid shall be needed for
disbursement from a Servicing Account, the Servicer shall cause a sufficient
amount of such investments to be sold or otherwise converted to cash for such
purpose.

            (d) Notwithstanding Section 2.08(c), all funds in the Servicing
Account are held by the Servicer as agent and bailee of the Indenture Trustee
for the benefit of the Indenture Trustee, the Noteholders and the Obligors.

            Section 2.09 Records and Servicing Account Moneys.

            (a) The Servicer agrees to act as agent and bailee of the Indenture
Trustee in holding any Mortgage Asset Documents released to the Servicer
pursuant to Section 3.13(c) of the Indenture, and any other items constituting a
part of the Trust Estate that from time to time come into the possession of the
Servicer. The Servicer agrees, for the benefit of the Indenture Trustee and the
Noteholders, to act as such agent and bailee, and to hold and deal with such
Mortgage Loans and such items, as agent and bailee for the Indenture Trustee, in
accordance with the provisions of this Agreement and the Indenture.

            (b) The Servicer shall for a period of four years following
termination of this Agreement or from the time a Mortgage Loan is paid in full,
with respect to such Mortgage Loan, retain all data relating directly to or
maintained in connection with the servicing of the Mortgage Loans at the
Servicer's principal service office in Ft. Worth, Texas, or at such other place
where the servicing offices of the Servicer are located, and shall give the
Indenture Trustee


                                      -11-
<PAGE>


access to all data at all reasonable times, and, while an Event of
Default shall be continuing, the Servicer shall, on demand of the Indenture
Trustee or the Successor Servicer, deliver to the Indenture Trustee or the
Successor Servicer, as the case may be, all data necessary for the servicing of
the Mortgage Loans, provide the Indenture Trustee and the Successor Servicer
with the information called for by Section 2.07(b) concerning all moneys in the
Holding Account and deliver to the Indenture Trustee all moneys in each
Servicing Account and all other moneys collected by it from Obligors and not
previously deposited in the Holding Account or the Servicing Account. If the
rights of the Servicer shall have been terminated in accordance with Section
5.01 or if this Agreement shall have been terminated pursuant to Section
7.01(b), the Servicer shall, upon demand of the Indenture Trustee, the Successor
Servicer or the Noteholders in the case of Section 5.01, or of the successor to
the rights of the Issuer in the case of Section 7.01(b), deliver to the
Successor Servicer all data necessary for the servicing of the Mortgage Loans,
provide the Indenture Trustee and the Successor Servicer with the information
called for by Section 2.07(b) concerning all moneys in the Holding Account and
deliver to the Indenture Trustee all moneys in each Servicing Account and all
other moneys collected by it from obligors and not previously deposited in the
Holding Account or the Servicing Account. In addition to delivering such data
and moneys the Servicer shall use its reasonable best efforts to effect the
orderly and efficient transfer of the servicing of the Mortgage Loans to the
party which will be assuming responsibility for such servicing.

            Section 2.10 Assumption Agreements.

            (a) When a Mortgaged Property has been or is about to be conveyed by
the Obligor, the Servicer is authorized to take or enter into an assumption
agreement or other similar agreement from or with the person to whom such
Mortgaged Property has been or is about to be conveyed, provided that (i) the
interest rate on, Monthly Payment and balance of such Mortgage Loan shall not be
reduced, (ii) the term of the Mortgage Loan shall not be extended, (iii) there
are either no unreimbursed advances for taxes and insurance on such Mortgage
Loan following assumption or such advances are assumed and (iv) the Servicer
shall not agree to any other modification unless in the best judgment of the
Servicer such modification would not materially adversely affect the
collectability or enforceability of the Mortgage Loans or the interests of the
Noteholders. The Servicer shall notify the Indenture Trustee that any such
assumption agreement or similar agreement has been completed by forwarding to
the Indenture Trustee the original copy of such assumption agreement or similar
agreement for addition to the related Mortgage Asset Documents. Any fee
collected by the Servicer for entering into an assumption agreement or similar
agreement shall be retained by the Servicer as additional servicing
compensation. The Servicer shall use its reasonable best efforts to enter into
an assumption agreement or other similar agreement; however, if, in connection
with the conveyance of such Mortgaged Property, the continuation of liability of
the original Obligor shall be impracticable, or if, in the opinion of the
Servicer, the release of the liability of the original Obligor would not
substantially impair the ability of the holder of the related Mortgage Loan to
realize the full repayment of such Mortgage Loan, the Servicer may release the
original Obligor from liability on such Mortgage Loan so long as the new Obligor
meets the underwriting standards which the Servicer is applying to similar
transactions originated for its own account. The Servicer shall notify the
Indenture Trustee if the original Obligor is released from liability on such
Mortgage Loan.


                                      -12-
<PAGE>


            (b) The Servicer shall not be deemed to be in default, breach or any
other violation of its obligations under this Agreement by reason of any
assumption of a Mortgage Loan by operation of law or any assumption or transfer
of property subject to a Mortgage Loan which the Servicer may be restricted by
law from preventing, for any reason whatever.

            Section 2.11 Permitted Withdrawals from the Collection Account.

            If at any time funds on deposit in the Holding Account are
insufficient to satisfy the Servicer withdrawal requests referred to in Section
2.07(c) hereof, and so long as no Event of Default or Trigger Event shall have
occurred and be continuing, the Servicer may request withdrawal of such
deficiency from the Collection Account, and upon receipt of such written
request, the Indenture Trustee shall withdraw the amount of such deficiency from
the Collection Account and make the requested payments to the Servicer, provided
that such payments shall not be made within six Business Days of a Payment Date.
In addition, the Indenture Trustee shall make withdrawals from the Collection
Account to repay to the Servicer moneys in the Collection Account upon
certification by the Servicer reasonably acceptable to the Indenture Trustee
that such funds are not part of the Trust Estate.

            Section 2.12 Advances for Delinquent Taxes.

            (a) If the Servicer shall have knowledge that real property taxes or
other taxes, charges or assessments relating to any Mortgaged Property have not
been paid when due, the Servicer shall make such payment prior to the time by
which failure to make such payment would give rise to a lien on the related
Mortgaged Property. Any costs so incurred by the Servicer shall be recoverable
by the Servicer pursuant to Section 2.07(c), or to the extent recoverable from
any Sub-Servicer servicing such Mortgage Loan, or from the related Obligor or
from other funds on deposit in the Holding Account to the extent that the
Servicer certifies that such advances are not otherwise recoverable due to
insufficient Net Liquidation Proceeds.

            (b) The Servicer shall indemnify the Issuer for any losses resulting
from a failure to make the payments referred to in Paragraph (a) above and the
Servicer shall deposit the amount of such loss in the Collection Account on the
next Remittance Date following the determination of such loss.

            Section 2.13 Maintenance of Insurance; Collection Thereunder.

            (a) Except as otherwise provided in subsection (b) of this Section
2.13, the Servicer shall cause to be maintained with respect to each Mortgaged
Property and Acquired Property one or more Hazard Insurance Policies that
provide at least the same coverage as a standard form fire and extended coverage
insurance policy issued by a company regulated under applicable state law and
authorized by such state to issue such policies in the state in which the
Mortgaged Property or Acquired Property is located and in an amount that is not
less than an amount that would satisfy the definition of Full Prepayment with
respect to the related Mortgage Loan; provided, however, that the amount of
coverage provided by each Hazard Insurance Policy shall be sufficient to avoid
the application of any co-insurance clause contained therein. Any individual
Hazard Insurance Policies shall name the Servicer as additional loss payee and
run to the benefit of the Servicer's successors and assigns as their interests
may appear. Any amounts


                                      -13-
<PAGE>


received under any such policies shall be transferred to or
deposited in the Holding Account or Servicing Account (or paid over to the
related Obligor if the Servicer reasonably does not deem it necessary to deposit
such amounts in the Servicing Account) pursuant to Sections 2.07 and 2.08. If
any Obligor is in default in the payment of such premiums, the Servicer shall
pay such premiums out of its own funds, and any costs so incurred by the
Servicer shall be recoverable by the Servicer to the extent such costs
constitute Liquidation Expenses pursuant to Section 2.14, or to the extent
recoverable from any Sub-Servicer servicing such Mortgage Loan, or from the
related Obligor or from other funds on deposit in the Holding Account to the
extent that the Servicer certifies that such advances are not otherwise
recoverable due to insufficient Net Liquidation Proceeds.

            (b) The Servicer may, in lieu of causing individual Hazard Insurance
Policies to be maintained with respect to each Mortgaged Property pursuant to
subsection (a) of this Section 2.13, and shall, to the extent that the related
Mortgage Loans do not require the Obligor to maintain a Hazard Insurance Policy
with respect to the related Mortgaged Property, maintain one or more blanket
insurance policies covering losses on the mortgagee's interest in the Mortgage
Loans resulting from the lack of or insufficiency of individual Hazard Insurance
Policies issued by a company regulated under applicable state law and authorized
by such state to issue such policies in the state in which the Mortgaged
Property is located and in an amount that is not less than an amount that would
satisfy the definition of Full Prepayment with respect to the related Mortgage
Loan. The Servicer shall pay the premium for such policy on the basis described
therein and shall pay any deductible amount with respect to claims under such
policy relating to the Mortgage Loans; provided, however, that such deductible
cannot exceed an amount that is customary under similar policies. If the insurer
thereunder shall cease to be acceptable to the Servicer, the Servicer shall
exercise its best efforts to obtain from another insurer a replacement policy
comparable to such policy. All amounts collected by the Servicer under any such
policy and reimbursements by the Servicer of deductible amounts shall be
deposited in the Holding Account in accordance with Section 2.07.

            (c) The Servicer shall indemnify the Issuer for any losses resulting
from a failure to maintain insurance pursuant to this Section 2.13 and the
Servicer shall deposit the amount of such loss in the Collection Account on the
next Remittance Date following the determination of such loss.

            Section 2.14 Realization upon Defaulted Mortgage Loans.

            With respect to any defaulted Mortgage Loan, the Servicer shall use
its reasonable best efforts consistent with the servicing procedures as set
forth in Section 2.01 hereof, to foreclose upon or otherwise comparably convert
(through replevin, deed in lieu of foreclosure or otherwise) the ownership of
properties securing any Mortgage Loan that comes into and continues in default
and as to which no satisfactory arrangements can be made for collection of
delinquent payments pursuant to Section 2.07. The Servicer shall prepare all
documents necessary and appropriate in connection with the realization upon
defaulted Mortgage Loans. The Servicer's obligations under this Section 2.14 are
subject to the proviso that, in the case of damage to Mortgaged Property from an
Uninsured Cause, the Servicer shall not be required to expend its own funds in
restoring such property unless it shall in good faith determine (i) that such
restoration will increase the proceeds of liquidation of the related Mortgage
Loan, after


                                      -14-
<PAGE>


reimbursement to itself for such expenses, and (ii) that such
expenses will be recoverable by it either as Liquidation Expenses or as Insured
Expenses. For purposes of clause (ii) of the preceding sentence, if the Servicer
is maintaining a blanket Hazard Insurance Policy pursuant to Section 2.13(b),
expenses shall be deemed recoverable as Insured Expenses if they would have been
recoverable under an individual Hazard Insurance Policy maintained pursuant to
Section 2.13(a). The Servicer shall be responsible for all other costs and
expenses incurred by it in connection with any action taken in respect of a
defaulted Mortgage Loan; provided, however, that it shall be entitled to
reimbursement of such costs and expenses to the extent they constitute
Liquidation Expenses, Insured Expenses or reasonable and necessary expenses
incurred in the preservation and the management of Acquired Properties. All
Liquidation Proceeds shall be deposited in the Holding Account in accordance
with Section 2.07(b) hereof.

            Section 2.15 Release of Mortgage Loans.

            In the case of a final Monthly Payment, Full Prepayment or
liquidation of any Mortgage Loan, the Servicer shall deliver to the Indenture
Trustee and the Issuer an Officers' Certificate (i) identifying the Mortgage
Loan that was the subject of such final payment, Full Prepayment or liquidation,
(ii) stating with respect to a Full Prepayment that all prepayment proceeds
received in connection therewith are in an amount necessary to effect a Full
Prepayment (after taking into account amounts representing reimbursement for
advances by the Servicer for taxes and insurance premiums) and have been
deposited in the Holding Account, (iii) stating with respect to a liquidation of
a Mortgage Loan, that all Liquidation Proceeds which have been determined by the
Servicer in its reasonable judgment to be finally recoverable have been received
and the Net Liquidation Proceeds have been deposited in the Holding Account,
(iv) stating that with respect to a final Monthly Payment, all amounts due under
such Mortgage Loan have been paid (after taking into account amounts
representing reimbursement for advances by the Servicer for taxes and insurance
premiums) and such amounts have been deposited in the Holding Account and (v)
identifying such documents as the Servicer or the Obligor may request to
evidence satisfaction and discharge of such Mortgage Loan.

            In connection with any prepaid Mortgage Loan with respect to which
the related Mortgage is a deed of trust, the Servicer is authorized to procure
from the trustee under such deed of trust a deed of full reconveyance covering
the property encumbered by such deed of trust, which deed of reconveyance shall
be delivered by the Servicer to the person or persons entitled thereto, but no
expenses incurred in connection with such deed of reconveyance shall be payable
out of the proceeds received in respect of such Mortgage Loan.

            If from time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan the Servicer requests the Indenture Trustee to
release the related Mortgage Asset Documents and delivers to the Indenture
Trustee a trust receipt reasonably satisfactory to the Indenture Trustee and
signed by a Servicing Officer, the Indenture Trustee shall release the related
Mortgage Asset Documents to the Servicer. Such trust receipt shall obligate the
Servicer to return the related Mortgage Asset Documents to the Indenture Trustee
when the need therefor by the Servicer no longer exists. If such Mortgage Loan
shall be liquidated and the Indenture Trustee receives a certificate from the
Servicer as provided above, then, upon request of the Issuer, the Indenture
Trustee shall release the trust receipt to or upon the order of the Issuer.


                                      -15-
<PAGE>


            Section 2.16 Servicing Compensation.

            As compensation for the performance of its obligations under this
Agreement, the Servicer shall be entitled to the Servicing Fee for each Mortgage
Loan that is not a repossessed or foreclosed Mortgage Loan at the beginning of
any month and that has a Principal Balance commencing on the Cut-Off Date and
terminating on the first to occur of the maturity of such Mortgage Loan or the
date of Full Prepayment of such Mortgage Loan. The Servicing Fee in respect of a
Mortgage Loan for a particular month shall be paid to the Servicer by the
Custodian from amounts held in the Holding Account upon submission to the
Custodian of a withdrawal request pursuant to Section 2.07(c). In addition to
the Servicing Fee, the Servicer shall be entitled to receive pursuant to this
Section 2.16 as additional servicing compensation all late payment charges,
assumption fees, interest on taxes, insurance premiums and similar charges paid
in respect of the Mortgage Loans and previously deposited in the Holding
Account. The Servicer shall pay all expenses and charges imposed on the Servicer
hereunder, including servicing fees, expenses and charges of any Sub-Servicers,
out of its servicing compensation or its own funds, and shall not be entitled to
reimbursement for such expenses and charges except as specifically provided for
herein.

            Section 2.17 Establishment of Escrow Accounts; Deposits in Escrow
Accounts.

            The Servicer shall segregate and hold all funds collected and
received pursuant to each Mortgage Loan which constitute Escrow Payments
separate and apart from any of its own funds and general assets and shall
establish and maintain one or more Escrow Accounts, in the form of time deposit
or demand accounts. A copy of such letter agreement shall be furnished to the
Indenture Trustee upon request. The Escrow Account shall be an Eligible Account.

            The Servicer shall deposit in the Escrow Account or Accounts on a
daily basis within two Business Days of receipt, and retain therein, all Escrow
Payments collected on account of the Mortgage Loans, for the purpose of
effecting timely payment of any such items as required under the terms of this
Agreement. The Servicer shall make withdrawals therefrom only to effect such
payments as are required under this Agreement, and for such other purposes as
shall be set forth in, or in accordance with, Section 2.18. The Servicer shall
be entitled to retain any interest paid on funds deposited in the Escrow Account
by the depository institution other than interest on escrowed funds required by
law to be paid to the Obligor and, to the extent required by the related
Mortgage Loan, the Servicer shall pay interest on escrowed funds to the Obligor
notwithstanding that the Escrow Account is non-interest bearing or that interest
paid thereon is insufficient for such purposes.

            Section 2.18 Permitted Withdrawals From Escrow Account.

            Withdrawals from the Escrow Account may be made by the Servicer (i)
to effect timely payments of ground rents, taxes, assessments, water rates,
fire, flood and hazard insurance premiums and comparable items in a manner and
at a time that assures that the lien priority of the Mortgage is not jeopardized
(or, with respect to the payment of taxes, in a manner and at a time that avoids
the loss of the Mortgaged Property due to a tax sale or the foreclosure as a
result of a tax lien), (ii) to reimburse the Servicer for any advance made by it
with respect to a related Mortgage Loan but only from amounts received on the
related Mortgage Loan which represent


                                      -16-
<PAGE>


Escrow Payments thereunder with respect to taxes and assessments and
with respect to hazard insurance, (iii) to refund to the Obligor any funds as
may be determined to be overages, (iv) for transfer to the Holding Account in
accordance with the terms of this Agreement, (v) to pay to the Servicer, or to
the Obligor to the extent required by the related Mortgage Loan, any interest
paid on the funds deposited in the Escrow Account or (vi) to clear and terminate
the Escrow Account on the termination of this Agreement.

            In the event the Servicer shall deposit in the Escrow Account any
amount not required to be deposited therein, it may at any time withdraw such
amount from the Escrow Account, any provision herein to the contrary
notwithstanding.

                                 ARTICLE THREE

                        STATEMENTS, REPORTS AND NOTICES

            Section 3.01 Reporting by the Servicer.

            (a) On or before each Reporting Date, the Servicer shall render to
the Issuer, the Indenture Trustee and [______________] a certificate, as of the
immediately preceding Monthly Cut-Off Date, certifying to all funds collected by
it through such Monthly Cut-Off Date that it was required to deposit in the
Holding Account in respect of the preceding Collection Period and, except for
amounts provided on a cumulative basis, that have not been previously reflected
on a prior certificate pursuant to this Section 3.01 and reporting certain other
information. Such certificate shall be substantially in the form of Exhibit A
hereto. Such certificate shall also be sent to [___________________] and
[___________________].

            (b) On or before each Reporting Date, the Servicer shall provide the
Issuer, with such information as of the immediately preceding Monthly Cut-Off
Date as is necessary in connection with the maintenance of the Issuer's
financial records and preparation of the Issuer's financial statements.

            (c) On or before each Reporting Date, the Servicer shall provide the
Successor Servicer with servicing tapes in a format compatible with the
Successor Servicer's computer systems and containing such data as the Successor
Servicer may reasonably request.

            Section 3.02 Annual Certificate; Mortgage Loan Statement.

            On or before 60 days after the end of the fiscal year of the
Servicer that ends in [________] 20__ and each fiscal year thereafter, the
Servicer shall deliver or cause to be delivered to the Issuer and the Indenture
Trustee an Officers' Certificate, dated as of the first Monthly Cut-Off Date
following the end of the preceding fiscal year, to the effect that a review of
the activities of the Servicer during the period from the beginning of the first
Collection Period (or the Closing Date in the case of the first such Officers'
Certificate required to be delivered) to the end of the last Collection Period
during the preceding fiscal year has been made under the supervision of the
officers executing such Officers' Certificate with a view to determining whether
during such period the Servicer had performed and observed all of its
obligations under this Agreement. Such Certificate shall state to the best of
the Servicer's knowledge either (A) no


                                      -17-
<PAGE>


Default by the Servicer under this Agreement has occurred and is
continuing, or (B) if such a Default has occurred and is continuing, specifying
such Default and the nature and status thereof.

            Section 3.03 Annual Accountants' Reports.

            On or before 60 days after the end of the fiscal year of the
Servicer that ends in [_________] 20__ and each fiscal year thereafter, the
Servicer shall deliver to the Issuer and the Indenture Trustee a report,
prepared by a firm of Accountants of recognized national standing selected by
the Servicer, to the effect that (i) they have examined certain documents and
records relating to the Mortgage Loans during the preceding fiscal year in
accordance with the requirements of the Uniform Single Audit Program for
Mortgage Bankers and (ii) such examinations disclosed no exceptions that, in
their opinion, were material, relating to such Mortgage Loans, or, if any such
exceptions were disclosed thereby, setting forth such exceptions that, in their
opinion, were material. If any of the Mortgage Loans are being serviced by a
Sub-Servicer, the firm of Accountants preparing the report with respect to the
servicing of such Mortgage Loans by the Servicer may rely, as to matters
relating to the servicing of such Mortgage Loans, upon a comparable report
(rendered with respect to the most recent fiscal year of such Sub-Servicer which
ended at or prior to the end of the Servicer's fiscal year) of another firm of
Accountants of recognized national standing with respect to such Sub-Servicer's
servicing of such Mortgage Loans.

            Section 3.04 Notices.

            The Servicer shall, as promptly as practicable (i) following receipt
by it of notice thereof, notify the Indenture Trustee of the commencement of a
class-action litigation challenging the validity or enforceability of Mortgage
Loans having an aggregate Principal Balance totaling $1,000,000.

                                  ARTICLE FOUR

                                  THE SERVICER

            Section 4.01 Representations and Warranties of the Servicer.

            The Servicer represents and warrants to the Issuer as of the Closing
Date as follows:

            (a) The Servicer (i) is a corporation, validly existing and in good
standing under the laws of the State of its incorporation, (ii) has qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction where the character of its properties or the nature of its
activities makes such qualification necessary, and (iii) has full power,
authority and legal right to own its property, to carry on its business as
presently conducted, and to enter into and perform its obligations under this
Agreement.

            (b) The execution and delivery by the Servicer of this Agreement are
within the corporate power of the Servicer and have been duly authorized by all
necessary corporate action on the part of the Servicer. Neither the execution
and delivery of this Agreement, nor the


                                      -18-
<PAGE>


consummation of the transactions herein contemplated, nor compliance
with the provisions hereof, will conflict with or result in a breach of, or
constitute a default under, any of the provisions of any law, governmental rule,
regulation, judgment, decree or order binding on the Servicer or its properties
or the charter or by-laws of the Servicer, or any of the provisions of any
indenture, mortgage, contract or other instrument to which the Servicer is a
party or by which it is bound or result in the creation or imposition of any
lien, charge or encumbrance upon any of its property pursuant to the terms of
any such indenture, mortgage, contract or other instrument (or if such conflict
with, breach of or default under any such indenture, mortgage, contract or other
instrument exists or will exist, any remedies in respect thereof and in respect
of any such related lien, charge or encumbrance have been stayed under the
Bankruptcy Code).

            (c) The execution, delivery and performance by the Servicer of this
Agreement and the consummation of the transactions contemplated hereby do not
require the consent or approval of, the giving of notice to, the registration
with, or the taking of any other action in respect of, any state, federal or
other governmental authority or agency, except as has been previously obtained
and are in effect.

            (d) This Agreement has been duly executed and delivered by the
Servicer and constitutes a legal, valid and binding instrument enforceable
against the Servicer in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally.

            (e) There are no actions, suits or proceedings pending or, to the
knowledge of the Servicer, threatened or likely to be asserted against or
affecting the Servicer, before or by any court, administrative agency,
arbitrator or governmental body with respect to any of the transactions
contemplated by this Agreement or the Indenture, or which will, if determined
adversely to the Servicer, materially and adversely affect it or its business,
assets, operations or condition, financial or otherwise, or adversely affect the
Servicer's ability to perform its obligations under this Agreement. The Servicer
is not in default with respect to any order of any court, administrative agency,
arbitrator or governmental body so as to materially and adversely affect the
transactions contemplated by the above-mentioned documents.

            (f) The Servicer has obtained or made all necessary consents,
approvals, waivers and notifications of stockholders, creditors, lessors and
other nongovernmental persons, in each case, in connection with the execution,
delivery and performance of this Agreement.

            The foregoing representations and warranties shall be deemed to be
made to the Indenture Trustee, as assignee of the Issuer.

            Section 4.02 Merger or Consolidation of the Servicer.

            The Servicer will keep in full effect its existence, rights and
franchises as a corporation under the laws of the State of Delaware, and will
obtain and preserve its qualification to do business in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the Indenture or any of the Mortgage Loans and
to perform its duties under this Agreement.


                                      -19-
<PAGE>


            Any Person into which the Servicer may be merged or consolidated, or
any entity resulting from any merger or consolidation to which the Servicer
shall be a party, or any Person succeeding to the business of the Servicer shall
be the successor of the Servicer hereunder, without the execution or filing of
any paper or any further act on the part of any of the parties hereto.

            Section 4.03 Performance of Obligations.

            (a) The Servicer shall punctually perform and observe all of its
obligations and agreements contained in this Agreement and shall take such
action as may be necessary to prevent the attachment on the Mortgaged Properties
of liens or levies superior to the lien of the Mortgages securing the Mortgage
Loans arising from actions by or claims against the Servicer.

            (b) The Servicer shall not take any action, or permit any action to
be taken by others, which would (i) materially and adversely affect the validity
or collectability of the Mortgage Loans or (ii) excuse any person from any of
its covenants or obligations under any of the Mortgage Loans or under any other
instrument included in the Trust Estate, or (iii) result in the amendment,
hypothecation, subordination, termination or discharge of, or (iv) impair the
validity or effectiveness of, any of the Mortgage Asset Documents or any such
instrument, except as expressly provided herein and therein.

            Section 4.04 Servicer Not to Resign.

            (a) The Servicer shall not resign from the obligations and duties
hereby imposed on it except upon determination that its duties hereunder are no
longer permissible under applicable law. Any such determination permitting the
resignation of the Servicer shall be evidenced by an Opinion of Counsel to such
effect delivered to the Indenture Trustee. No such resignation shall become
effective unless and until the Successor Servicer or another new servicer,
qualified to act as a mortgage servicer and reasonably acceptable to the
Indenture Trustee, enters into a servicing agreement with the Issuer and the
Indenture Trustee in form and substance substantially similar to this Agreement.

            (b) The Servicer may not assign this Agreement or any of its rights,
powers, duties or obligations hereunder except as permitted under Section 4.02
hereof.

            (c) Except as provided in Section 4.04(a), the duties and
obligations of the Servicer under this Agreement shall continue until this
Agreement shall have been terminated as provided in Section 7.01, and shall
survive the exercise by the Issuer or the Indenture Trustee of any right or
remedy under this Agreement, or the enforcement by the Issuer, the Indenture
Trustee or any Noteholder of any provision of the Indenture, the Notes or this
Agreement.

            Section 4.05 Fidelity Bond.

            On or before the Closing Date, the Servicer shall obtain and deliver
to the Indenture Trustee and shall thereafter maintain in effect a fidelity bond
(or a direct surety bond) in the amount of $1,500,000 (subject to a deductible
of an amount not exceeding $250,000.00). Such bond shall name the Indenture
Trustee as an additional insured and as a joint loss payee, shall provide for 30
days' prior notice of cancellation to the Indenture Trustee and shall


                                      -20-
<PAGE>


otherwise be in form and substance reasonably satisfactory to the
Indenture Trustee. Any successor to the Servicer appointed as servicer of the
Mortgage Loans pursuant to Section 3.07(d) of the Indenture or Section 4.04(a)
of this Agreement shall be obligated to obtain and maintain a fidelity bond to
the same extent as the Servicer is obligated under this Section 4.05 or under
the higher of the then current Fannie Mae or Freddie Mac guidelines and shall
deliver a copy of such bond to the Indenture Trustee promptly after its
appointment. The Servicer or any successor servicer shall deliver to the
Indenture Trustee, within 30 days prior to the expiration of any such bond, a
renewal or replacement thereof.

                                  ARTICLE FIVE

                                     DEFAULT

            Section 5.01 Events of Default.

            (a) Any of the following acts or occurrences shall constitute an
Event of Default by the Servicer under this Agreement:

                        (i) any failure by the Servicer to remit to the
            Indenture Trustee any amount required to be so remitted under the
            terms of this Agreement that continues unremedied for a period of
            five Business Days after the date upon which such amount was due to
            be so remitted; or

                        (ii) failure to submit to the Indenture Trustee the
            report called for by Section 2.07(b) within two Business Days
            following the related Remittance Date; or

                        (iii) failure on the part of the Servicer duly to
            observe or perform any other of the covenants or agreements on the
            part of the Servicer contained in this Agreement that continues
            unremedied for a period of 30 days after the date on which written
            notice of such failure, requiring the same to be remedied, shall
            have been given to the Servicer by the Indenture Trustee or to the
            Servicer and the Indenture Trustee by the holders of Notes
            representing at least a majority of the Voting Rights; or

                        (iv) a decree or order of a court or agency or
            supervisory authority having jurisdiction in the premises pursuant
            to any bankruptcy or insolvency law or any other law relating to the
            relief of debtors, to the readjustment, composition or extension of
            indebtedness, to liquidation or to reorganization, or any formal or
            informal proceeding for the dissolution, liquidation or winding up
            of the affairs of, or for the settlement of claims against, the
            Servicer which is involuntary on the part of the Servicer is entered
            and is not discharged or stayed for a period of sixty (60) days;

                        (v) the Servicer becomes insolvent, generally fails to
            pay its debts as they become due, has any receiver, trustee,
            liquidator, sequestrator or custodian of it or any of its property
            appointed (whether with or without its consent), makes any
            assignment for the benefit of creditors or commences any case or
            other proceeding pursuant to any bankruptcy or insolvency law or any
            other law relating to the relief of debtors, to the readjustment,
            composition or extension of indebtedness, to liquidation or to


                                      -21-
<PAGE>


            reorganization, or any formal or informal proceeding for the
            dissolution, liquidation or winding up of the affairs of, or for the
            settlement of claims against it; or

                        (vi) any representation, warranty or statement of the
            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, within 30 days after written notice thereof shall have been
            given to the Servicer by the Indenture Trustee or by the holders of
            Notes representing at least a majority of the Voting Rights, the
            circumstance or condition in respect of which such representation,
            warranty or statement was incorrect shall not have been eliminated
            or otherwise cured.

            (b) So long as an Event of Default shall have occurred and be
continuing, the Issuer or the Indenture Trustee (in each case subject to the
provisions of the Indenture), or the holders of Notes representing at least a
majority of the Voting Rights may, by notice given to the Servicer (with a copy
to the parties not giving such notice), terminate all of the rights and powers
of the Servicer under this Agreement ("Servicer Termination"), including without
limitation all rights of the Servicer to receive the Servicing Fee. On and after
the receipt of such notice, all rights, powers, duties and responsibilities of
the Servicer under this Agreement, whether with respect to the Mortgage Loans,
Holding Account, Collection Account, Servicing Account, any Servicing Fee or
otherwise, shall vest in and be assumed by the Successor Servicer as provided in
Section 3.07 of the Indenture, and the Issuer and the Indenture Trustee are each
hereby authorized and empowered to execute and deliver, on behalf of the
Servicer, as attorney-in-fact or otherwise, all documents and other instruments
(including any notices to Obligors deemed necessary or advisable by the
Indenture Trustee) and to do or accomplish all other acts or things necessary or
appropriate to effect such vesting and assumption. The terminated Servicer shall
cooperate promptly and in good faith with the Successor Servicer to transfer the
servicing records and other account documents maintained by the terminated
Servicer to the Successor Servicer in a prompt and efficient manner. Except as
otherwise expressly provided in the Indenture, the Issuer shall not have any
right to waive any Default or Event of Default by the Servicer under this
Agreement. In addition to any right of the Indenture Trustee upon an Event of
Default hereunder, the Indenture Trustee may take any action at law or in equity
that it deems appropriate to protect the interest of the Holders of Notes.

            Section 5.02 No Effect on Other Parties.

            Upon any termination of the rights and powers of the Servicer from
time to time pursuant to Section 5.01 or upon any appointment of a successor to
the Servicer, all the rights, powers, duties and obligations of the Issuer under
this Agreement or under the Indenture shall remain unaffected by such
termination or appointment and shall remain in full force and effect thereafter,
except as otherwise expressly provided in this Agreement or in the Indenture.

            Section 5.03 Rights Cumulative.

            All rights and remedies from time to time conferred upon or reserved
to the Issuer, the Indenture Trustee or the Noteholders or to any or all of the
foregoing are cumulative, and none is intended to be exclusive of another. No
delay or omission in insisting upon the strict observance or performance of any
provision of this Agreement, or in exercising any right or


                                      -22-
<PAGE>


remedy, shall be construed as a waiver or relinquishment of such
provision, nor shall it impair such right or remedy. Every right and remedy may
be exercised from time to time and as often as deemed expedient.

                                  ARTICLE SIX

                                   [RESERVED]

                                 ARTICLE SEVEN

                            MISCELLANEOUS PROVISIONS

            Section 7.01 Termination.

            (a) The respective duties and obligations of the Servicer and the
Issuer created by this Agreement shall terminate upon the final payment or other
liquidation of the last outstanding Mortgage Loan. Upon the termination of this
Agreement pursuant to this Section 7.01(a), the Servicer shall pay all moneys in
the Servicing Account to the persons entitled thereto, and shall direct the
Indenture Trustee to pay over to the Issuer or any other person entitled thereto
all other moneys with respect to the Mortgage Loans held in the Holding Account.

            (b) Following an Event of Default under the Indenture and
foreclosure upon the Trust Estate pursuant thereto, the successor to the rights
of the Issuer (including, without limitation, the Indenture Trustee or any or
all of the related Noteholders) shall have the right to terminate this Agreement
by notice to the Servicer and the Issuer, within 90 days after the date such
successor shall have succeeded to such rights of the Issuer. Upon such
termination, the Servicer shall be entitled to receive only the accrued and
unpaid Servicing Fee to the date of such termination, any amounts it would have
been permitted to receive pursuant to Section 2.07 from the Holding Account or
the Collection Account as of the date of such termination.

            Section 7.02 Amendment.

            (a) This Agreement may be amended from time to time by the Issuer
and the Servicer without the prior written consent of the Indenture Trustee, or
any of the Noteholders, provided that such action shall not adversely affect in
any material respect the interests of the Indenture Trustee or any Noteholder
and the Indenture Trustee shall have received an Opinion of Counsel to the
effect that such amendment does not adversely affect in any material respect the
interest of the Noteholders (such Opinion of Counsel may rely as to factual
matters on representations of the parties hereto or other persons appropriate
therefor).

            (b) Notwithstanding paragraph (a) of this Section 7.02, this
Agreement may be amended in accordance with the proviso set forth in the first
sentence of Section 3.14 of the Indenture.

            (c) This Agreement may also be amended from time to time by the
Issuer and the Servicer, with the written consent of the Indenture Trustee and
the Holders of Notes


                                      -23-
<PAGE>


representing more than 51% of the aggregate Voting Rights of all
Classes of Notes voting together as a single class, for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Agreement; provided, however, that no such amendment shall, without the
consent of the Indenture Trustee and each holder of Outstanding Notes, (i)
adversely affect in any material respect the amount of, or the timing of,
payments received on the related Mortgage Loans which are required to be
deposited in the Holding Account and the Collection Account; (ii) alter the
priorities with which any allocation of funds shall be made under this
Agreement; (iii) permit the creation of any lien on the Trust Estate or any
portion thereof or deprive any such holder of the benefit of this Agreement with
respect to the Trust Estate or any portion thereof; or (iv) modify this Section
7.02 or Section 4.02, 4.03(b), 4.04 or 4.05.

            (d) Promptly after the execution of any amendment, the Servicer
shall send to the Indenture Trustee a conformed copy of each such amendment, but
the failure to do so will not impair or affect its validity.

            (e) It shall not be necessary for any consent of Noteholders under
this Section 7.02 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 Noteholders shall be subject to such reasonable regulations
as the Indenture Trustee may prescribe.

            (f) Any amendment or modification effected contrary to the
provisions of this Section 7.02 shall be void.

            Section 7.03 Governing Law.

            This Agreement shall be construed in accordance with the laws of the
State of [Texas][Delaware], and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.

            Section 7.04 Notices.

            All demands, notices and communications hereunder shall be in
writing and shall be delivered or mailed by registered or certified United
States mail, postage prepaid, and addressed in each case as follows: (a) if to
the Issuer, at [_______________], (b) if to the Servicer, at 4211 West Boy Scout
Boulevard, Tampa, Florida, 33607, Attention: General Counsel, (c) if to the
Indenture Trustee, at [_______________] and (d) if to any Noteholder, at the
address of such holder as it appears in the Note Register. Any of the persons in
subclauses (a) through (d) above may change its address for notices hereunder by
giving notice of such change to the other persons. Any change of address shown
on a Note Register shall, after the date of such change, be effective to change
the address for such Noteholder hereunder. All notices and demands shall be
deemed to have been given either at the time of the delivery thereof to any
officer of the person entitled to receive such notices and demands at the
address of such person for notices hereunder, or on the third day after the
mailing thereof to such address, as the case may be.


                                      -24-
<PAGE>


            Notices required hereunder shall in addition be sent to
[_____________________] and to [____________________].

            Section 7.05 Severability of Provisions.

            If one or more of the provisions of this Agreement shall be for any
reason whatever held invalid or unenforceable, such provisions shall be deemed
severable from the remaining covenants, agreements and provisions of this
Agreement and such invalidity or unenforceability shall in no way affect the
validity or enforceability of such remaining provisions, the rights of any
parties hereto, or the rights of the Indenture Trustee or any Noteholders. To
the extent permitted by law, the parties hereto hereby waive any provision of
law that renders any provision of this Agreement invalid or unenforceable in any
respect.

            Section 7.06 Inspection and Audit Rights.

            The Servicer agrees that, on reasonable prior notice, it will permit
any representative of the Indenture Trustee or the Issuer, during the Servicer's
normal business hours, to examine all the books of account, records, reports and
other papers of the Servicer relating to the Mortgage Loans, to make copies and
extracts therefrom to cause such books to be audited by Accountants selected by
the Indenture Trustee or the Issuer, as the case may be, and to discuss its
affairs, finances and accounts relating to the Mortgage Loans with its officers,
employees and Independent Accountants (and by this provision the Servicer hereby
authorizes said Independent Accountants to discuss with such representatives
such affairs, finances and accounts) all at such reasonable times and as often
as may be reasonably requested. Any expense incident to the exercise by the
Indenture Trustee or the Issuer of any right under this Section 7.06 shall be
borne by the Indenture Trustee or the Issuer, as the case may be, provided that
if an audit is made during the continuance of an Event of Default, the expense
incident to such audit shall be borne by the Servicer.

            Section 7.07 Binding Effect.

            The provisions of this Agreement shall be binding upon and inure to
the benefit of the respective successors and assigns of the parties hereto, and
all such provisions shall inure to the benefit of the Indenture Trustee, the
Noteholders and their successors and assigns.

            Section 7.08 Article and Section Headings.

            The article and section headings herein are for convenience of
reference only, and shall not limit or otherwise affect the meaning thereof.

            Section 7.09 The Owner Trustee.

            It is expressly understood and agreed by the parties hereto that (a)
this Agreement is executed and delivered by [_______________], not individually
but solely as Owner Trustee under the Trust Agreement, in the exercise of the
powers and authority conferred and vested in it as the Owner Trustee, (b) each
of the representations, undertakings and agreements herein made on the part of
the Issuer is made and intended not as personal representations, undertakings
and agreements by [_______________] but is made and intended for the purpose of
binding only the


                                      -25-
<PAGE>


Trust Property, (c) nothing herein contained shall be construed as
creating any liability on [_______________], individually or personally, to
perform any covenant either expressed or implied contained herein, all such
liability, if any, being expressly waived by the Servicer and the Indenture
Trustee and by any Person claiming by, through or under the Servicer and the
Indenture Trustee and (d) under no circumstances shall [_______________] be
personally liable for the payment of any indebtedness or expenses of the
Indenture Trustee or be liable for the breach or failure of any obligation,
representations, warranty or covenant made or undertaken by the Issuer under
this Agreement.

            Section 7.10 Distribution of Servicing Procedures and Standards.

            The Servicer agrees to distribute the procedures and standards set
forth herein to each of its field offices and to take all reasonable action to
instruct its field servicing personnel concerning their duties hereunder as soon
as practicable after execution hereof.

            Section 7.11 Property Address.

            Within nine months from the Closing Date the Servicer shall provide
the Indenture Trustee a magnetic tape showing, for each Mortgage Loan, the
Mortgage Loan number, property address and customer name.

            Section 7.12 Power of Attorney.

            The Issuer is authorized from time to time to deliver one or more
powers of attorney to the Servicer or Sub-Servicer that authorize the Servicer
and/or Sub-Servicer, as applicable, to act on behalf of the Issuer as
contemplated by this Agreement and any Sub-Servicing Agreement. The Issuer shall
upon request of any Successor Servicer deliver one or more powers of attorney to
the Successor Servicer or its designated agent for purposes contemplated by this
Agreement.

            Section 7.13 Rights Upon Discharge of Indenture.

            Upon the payment in full of the Notes, the satisfaction and
discharge of the Indenture, the Owner Trustee will succeed to all rights of the
Indenture Trustee hereunder and the Owners (as such term is defined in the Trust
Agreement) will succeed to all rights of the Noteholders hereunder.

            Section 7.14 Non-Petition.

            The Servicer hereby agrees not to cause or permit any affiliate to
petition or otherwise invoke the process of any court or government authority
for the purpose of commencing or sustaining a case against the Issuer under any
federal or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequester or other similar official of
the Issuer or any substantial part of its property, or ordering the winding up
or liquidation of the affairs of the Issuer.



                                      -26-
<PAGE>


            IN WITNESS WHEREOF, the Owner Trustee on behalf of the Issuer, the
Servicer and the Indenture Trustee have caused this Agreement to be duly
executed by their respective officers thereunder duly authorized as of the day
and year first above written.

                                    ISSUER:

                                    MID-STATE TRUST [__]

                                    By:   [_______________], not in its
                                          individual capacity, but solely as
                                          Owner Trustee of Mid-State
                                          Trust [__]

                                          By:__________________________________
                                             Name:
                                             Title:

                                    SERVICER:

                                    WALTER MORTGAGE COMPANY

                                    By:_______________________________________
                                       Name:
                                       Title:

                                    [_________________________]
                                        as Indenture Trustee

                                    By:_______________________________________
                                       Name:
                                       Title:


<PAGE>

                                   EXHIBIT A

                              MID-STATE TRUST [__]

                             SERVICER'S CERTIFICATE


            _______________ and ________________ hereby certify that they are
officers of Walter Mortgage Company (the "Servicer") holding their respective
offices set forth beneath their signatures and that they are duly authorized to
execute this Servicer's Certificate on behalf of the Servicer and further
certify that with respect to the preceding Collection Period (________ to
--------):

            (i) the aggregate Principal Balance of all Mortgage Loans as of the
first day of the month of the preceding Collection Period is $______;

            (ii) the total number of Mortgage Loans outstanding as of the end of
the preceding Collection Period is _____ and the aggregate funds collected on
the Mortgage Loans with respect to the preceding Collection Period is $________;

            (iii) _________ Additional Mortgage Loans were added during the
preceding Collection Period and have an aggregate Principal Balance as of the
end of the preceding Collection Period of $__________;

            (iv) (a) the aggregate amount of the Servicing Fee included in (i)
above is $________ based on the ________ Mortgage Loans outstanding that have a
Principal Balance of more than zero as of the beginning of the preceding
Collection Period and the cumulative amount for the related Collection Period is
$________;

                        (b) the aggregate amount of reimbursement for advances
            for taxes and insurance premiums and other advances included in (i)
            above is $____________;

                        (c) the aggregate amount of late payment charges,
            prepayment penalties and assumption fees with respect to the
            Mortgage Loans is $___________;

                        (d) the aggregate amount previously deposited in the
            Holding Account in respect of payments by Obligors on Mortgage Loans
            made by checks subsequently returned for insufficient funds or other
            reason for non-payment is $_________;

            (v) the amount in (i) for the preceding Collection Period minus the
total of amounts in (ii) for the preceding Collection Period is $___________;

            (vi) (a) the aggregate amount withdrawn from the Holding Account as
reimbursement to the Servicer for expenses for the restoration of Mortgaged
Property damaged by an Uninsured Cause and as reimbursement for usual and
customary Liquidation Expenses is $______________, [A schedule of the Mortgage
Loan numbers for the related Mortgage Loan shall be attached];

                        (b) the aggregate amount withdrawn from the Holding
            Account as reimbursement for Insured Expenses with respect to the
            Mortgage Loans is $________, [A schedule of the Mortgage Asset
            Numbers for the related Mortgage Loans, shall be attached]; and

                        (c) the aggregate amount withdrawn from the Holding
            Account with respect to the Mortgage Loans that is not part of the
            Trust Estate is $_______;

            (vii) the amount in (iv) minus the total of the amounts in (v) is
$________;

                        (a) the portion of such amount that represents Net
            Insurance Proceeds that do not constitute a Full Prepayment with
            respect to any Mortgage Loan is $________;

                        (b) the portion of such amount that represents Net
            Liquidation Proceeds with respect to the Mortgage Loans is
            $___________;

                        (c) the portion of such amount that represents Full
            Prepayments on Mortgage Loans is $_________;

            (viii) with respect to each Mortgage Loan that was the subject of a
Full Prepayment:

             Mortgage Asset Number         Full Prepayment Amount
             ---------------------         ----------------------



            (ix) the amount of Cumulative Prepayments on Mortgage Loans is
$______;

            (x) the cumulative amount of Realized Losses on the Mortgage Loans
is $______________;

                        (a) the cumulative Principal Balance of all Mortgage
            Loans which have been repossessed equals $_______; and

                        (b) if applicable, the Principal Balance of those
            Mortgage Loans which are delinquent over 120 days equals $_________;
            and

                        (c) the amount of cumulative Net Liquidation Proceeds on
            the Mortgage Loans is $_______________;

            (xi) the Principal Balance of all Mortgage Loans with respect to
which there is a material breach of any representation or warranty made in
Section 3.11 of the Indenture or in the related Addition Transfer Agreement or
as to which there is a material defect in the related Mortgage Asset Documents
in accordance with Section 3.12(b) of the Indenture is $________;

            (xii) the amount that represents the cumulative amount since the
Cut-Off Date of the cash component of aggregate Net Liquidation Proceeds for the
Mortgage Loans equals $________;

            (xiii) with respect to delinquent Mortgage Loans:

                                                   Aggregate
      Period of               Number of            Principal
     Delinquency            Mortgage Loans        Balance ($)
----------------------    -------------------    ---------------
      0-30 days

     31-60 days

     61-90 days

     91 or more days
                          -------------------    ---------------
           Total

            The percentage of Mortgage Loans (by Principal Balance) that are 60
days or more delinquent (including Mortgage Loans in foreclosure and the balance
of "real estate owned" (by Principal Balance) for the immediately preceding
three months is set forth on Schedule __ hereto;

            (xiv) with respect to property acquired in respect of a Mortgage
Loan:

                                                   Aggregate
   Period of Time             Number of            Principal
as Real Estate Owned        Mortgage Loans        Balance ($)
----------------------    -------------------    ---------------
     0-3 months

     4-6 months

     7-9 months

    10-12 months

   Over 12 months
                          -------------------    ---------------
           Total


            (xv) delivered herewith, if previously requested, is a copy of a
magnetic tape file containing the Schedule of Mortgage Assets information and
current mailing address information for each Mortgage Loan and showing the
paid-through status of each Mortgage Loan;


<PAGE>


            (xvi) a list of Mortgage Loans which became the subject of an
Assumption Agreement;

            (xvii) with respect to the Servicing Account for the related
Collection Period:

            Beginning Balance           $

            Deposits

            Disbursements
                                           ------------------------
            Ending Balance              $
                                           ========================

            (xviii) with respect to each Mortgage Loan that was the subject of a
Repossession:

            Mortgage Asset Number        Principal Balance
            ---------------------        -----------------



            (xix) with respect to each Mortgage Loan that was the subject of a
Resale:

            Mortgage Asset Number        Principal Balance
            ---------------------        -----------------



            (xx) the aggregate number and aggregate Principal Balance of all
Mortgage Loans that were set-up (i.e., rewritten) during the Collection Period
was $________ and $________, respectively;

            (xxi) the aggregate number and aggregate Principal Balance of all
Mortgage Loans that were set-up (i.e., rewritten) during the Collection Period
and the prior eleven (11) Collection Periods was _________ and $________,
respectively; and

            (xxii) the number and aggregate Principal Balances of all Mortgage
Loans 30, 60 and 90 or more days past due and in repossession, foreclosure or
bankruptcy are as follows: ______________.

            The undersigned hereby certify that all amounts received from the
Holding Account during the preceding Collection Period are authorized
withdrawals pursuant to Section 2.07(c) or 2.11 of the Servicing Agreement.

                                    Walter Mortgage Company

                                    By:_______________________________________

                                    Name:_____________________________________

                                    Title:____________________________________


                                    By:_______________________________________

                                    Name:_____________________________________

                                    Title:____________________________________


<PAGE>


                                    EXHIBIT B

                             Walter Mortgage Company
                                    [Address]


[_______], 20__


Servicing Procedures
Walter Mortgage Company


            Reference is made to the Servicing Agreement (the "Servicing
Agreement") dated [___________], 20__, among the undersigned (the "Servicer"),
Mid-State Trust [__], a statutory trust established under the laws of the State
of Delaware (the "Trust") and [________________] (the "Indenture Trustee")
entered into in connection with the issuance and sale by the Trust of its
$[___________] [____]% Class A Asset-Backed Notes, $[____________] [____]% Class
M-1 Asset-Backed Notes, $[_________] [____]% Class M-2 Asset-Backed Notes and
$[____________] [____]% Class B Asset-Backed Notes (the "Notes") pursuant to the
indenture dated [______], 20__ (the "Indenture") between the Trust and the
Indenture Trustee.

            Set forth below is a description of the servicing standards
historically employed by the Servicer referred to in Section 2.1 of the
Servicing Agreement.

I. COLLECTION PROCEDURES

            The following procedures are those generally followed by the
Servicer as of [________], 20__ in the collection, through its subservicing
agent, [______________] ("[___]"), of past-due Mortgage Loans. However, it
should be noted that since supervisory personnel and management exercise
substantial discretionary judgment in the collection effort, the procedures
followed in the collection of any particular past-due Mortgage Loan may deviate
from those described below.

            A. Mortgage Loans

            A list of delinquent Mortgage Loans is produced daily. Each
delinquent Mortgage Loan is assigned to one of the two following categories:

            1. "Field Mortgage Loans": Mortgage Loans in respect of which the
Obligor will, if a payment is not made during the course of the then current
month, be in arrears by at least two installment payments. Field Mortgage Loan
Obligors may also owe amounts advanced by the Servicer in respect of insurance
premiums, real property taxes or other amounts.

            2. "Off-Code Mortgage Loans": Mortgage Loans in respect of which the
Obligor either is current on installment payments or, in the event that a
payment is not made during the course of the then-current month, will be in
arrears with respect to only one


                                      C-1
<PAGE>


installment payment at the end of such month, and is indebted to the
Servicer for amounts advanced by the Servicer in respect of insurance premiums,
real property taxes or other amounts.

            B. Field Offices

            Field Mortgage Loans and Off-Code Mortgage Loans are serviced from
[___]'s Field Offices. [___] has approximately [___] such Field Offices serving
[__] different states, with mortgage servicing field personnel in approximately
[__] offices. Each Field Representative services an average of approximately
[___] Mortgage Loans per month. Each Field Representative is furnished daily
with the report of delinquent Field Mortgage Loans and Off-Code Mortgage Loans
respecting properties within his service area, and a copy of such list for each
Field Office within a division is made available to the Divisional Vice
Presidents and Assistant Divisional Supervisors.

            Upon receipt of such list, each Field Representative seeks to make
contact with each delinquent Obligor either by telephone or in person, in order
to make payment arrangements with such Obligors. Field Representatives and their
respective Assistant Divisional Supervisors communicate not less frequently than
every other day to review Field Mortgage Loans and to discuss progress and
problems in such Field Representative's collection efforts. All collection
efforts of the Field Representatives (whether by phone or in person) are
documented directly on the collection activity database.

            At least weekly, the Assistant Divisional Supervisor reviews orally
with the respective Divisional Vice President the results of the field
collection efforts for the previous week. Additionally, Assistant Divisional
Supervisors request, upon the recommendation of the Field Representative, that
the account be foreclosed or repossessed, request a deed in lieu of foreclosure
or refrain from foreclosing or repossessing an account which is two or more
installments in arrears. The final decision is made by the Divisional Vice
President.

            In the event an Obligor fails to adhere to the payment schedule
arranged with the Field Representative, the Field Representative will re-contact
such Obligor, usually by means of a visit to the Obligor's home. The Field
Representatives spend a significant portion of their time on the road making
face-to-face contact with delinquent Obligors. Not only does such visit seek to
impress upon the Obligor the urgency of coming to some successful arrangement,
but also affords the Field Representative the opportunity to make a cursory
inspection of the condition of the house and property, so that repair plans can
be made should reacquisition become necessary. The highest priority of
visitation is placed on the delinquent accounts with the largest balance.

            In many circumstances, a satisfactory payment schedule can be
arranged with the Obligor (see below "WORK-OUT POLICIES"). However, if it is
felt that the chances of arranging a successful repayment program satisfactory
to the Servicer are not good, after a final attempt by either one or both of the
Divisional Vice President or Assistant Divisional Supervisor, the Field Mortgage
Loan Obligor will either be requested to sign a deed in lieu of foreclosure or
will be advised that his Mortgage Loan has been or will be referred to an
attorney for the commencement of foreclosure proceedings (see below "FORECLOSURE
POLICIES").


                                      C-2
<PAGE>


            Field Representatives frequently receive monthly payments and other
repayments of outstanding advances directly from the Obligors. The Field
Representatives give the Obligor a receipt for such payment and mail the payment
to the lock box or to Ft. Worth, if manual processing is required, as soon as
practicable. When the receipt book is used up it is forwarded to the Divisional
Office for review. Each day the Field Representatives take all collections made
or which have otherwise been received and mail such payments to the lock box or
Ft. Worth headquarters.

            C. Collection of Off-Code Mortgage Loans

            Five Collection Managers and one Supervisor, all located at a
central office in Ft. Worth, Texas, are also responsible for the collection of
Off-Code Mortgage Loans. Collection efforts begin immediately upon receipt of
the daily delinquency report and are confined to contacting Obligors by
telephone, by mail or by assignment to a Field Representative. Since the
majority of Obligors with respect to Mortgage Loans in this category have built
up substantial equity in the relevant properties, it is the experience of the
Servicer that such Obligors can be persuaded to bring their Mortgage Loan
balance current with relative ease. Therefore, the bulk of the collection effort
expended by such Collection Managers is directed toward collecting amounts
advanced by the Servicer on such Obligor's behalf in respect of insurance
premiums and real property taxes. All Obligor contacts in the collection effort
are documented directly on the collection activity database. Mortgage Loan
Obligors incapable of paying all such amounts upon demand are permitted to pay
in installments pursuant to a repayment schedule satisfactory to the Servicer.

            Central office Collection Managers review the collection status of
all their accounts with the Supervisor at least every other day. When, in his
judgment, the Collection Manager deems it appropriate, he will refer an Off-Code
Mortgage Loan to the field for collection efforts by a Field Representative.

II. WORK-OUT POLICIES

            As a general rule, the Servicer will not permit a Mortgage Loan to
remain two installment payments in arrears. Whether or not the Obligor will be
allowed to arrange a repayment schedule rather than be required either to bring
the Mortgage Loan current or see foreclosure proceedings brought will depend
upon the Servicer's estimate of the likelihood of a successful work-out being
accomplished. Naturally, such an estimate is subjective to a certain degree.

            The factors considered in arriving at a decision whether or not to
enter into an arrangement with an Obligor include whether or not the Obligor has
a record of making previous payments in a timely fashion, the nature of the
reason for failure to remain current on mortgage payments, the likelihood of
such reason being cured or removed in the near future and the difficulty, if
any, anticipated in prosecuting an action for foreclosure.

            Generally, an acceptable work-out schedule of payments will require
the Obligor to pay either two installment payments, or a payment and a half, in
the immediately following month or months. On rare occasions, if an Obligor has
a good past payment record and


                                      C-3
<PAGE>


experiences difficulty in making payment, which difficulty, in the
judgment of the relevant Representatives and Supervisors, is likely to be cured
or removed, the Mortgage Loan may be deemed current and the delinquent payments
added to the end of the original outstanding balance of such Mortgage Loan. All
accounts that are "deemed to be current" through this process must have been
approved by senior management at the central office in Ft. Worth, Texas.

            A successful work-out should result in a current Mortgage Loan
within the space of two or three months following agreement upon a repayment
schedule.

III. FORECLOSURE POLICIES

            A. Generally

            Mortgage Loans in respect of which foreclosure proceedings are to be
commenced are referred for foreclosure to [___]. The actual foreclosure process
consists of [___] delivering the necessary Mortgage Asset Documents to attorneys
in the state in which the mortgaged property is located with direction to
foreclose on the Mortgage Loan as quickly as possible. [___] also has staff in
Tampa, Florida to oversee the foreclosure activities of all local counsel.

            In any case in which an Obligor has agreed to surrender the
mortgaged property by deed in lieu of foreclosure, [___] performs a search of
the records on file in the applicable county to determine whether the property
is subject to tax or other liens. If there are liens on record, other than tax
liens, [___] refuses the deed in lieu of foreclosure and, if necessary,
initiates foreclosure to acquire the property free of such liens.

            Mortgage Loans recommended for foreclosure are notified that [___]
intends to initiate foreclosure or repossession if payment is not made in 30
days. Provided that [___] is the successful bidder at the resulting judicial
sale, the relevant [___] Field Representative will be responsible for reselling
the repossessed property. The average period elapsed between repossession of a
property and its resale is approximately 45 days.

            B. Maintenance and Repair of Repossessed Homes

            Immediately upon becoming aware that a property has been abandoned
or vacated or following repossession of a property, the Field Representative
will arrange for basic clean-up of the yard and interior of the house as
necessary. Periodic inspections of the property are made during the period
between repossession and resale to ensure that the property does not deteriorate
significantly.

            The Field Representative will recommend needed repairs to the
Assistant Divisional Supervisor. Generally speaking, repairs necessary to
prevent any structural deterioration will be made forthwith. Depending upon the
magnitude of interior repairs, such repairs may either be made at once or they
may be made a part of the negotiation of the price and terms of the resale
contract. Likewise, in the case of a house which was both sold and repossessed
in an unfinished state, as a general rule no work will be done on the interior
to bring it to a higher state of completion except as part of a firm contract of
resale.


                                      C-4
<PAGE>


            [___] generally does not maintain a Hazard Insurance Policy on each
Acquired Property; however, it does pay all property taxes, assessments and
utility bills for such properties and arranges for utilities to be connected or
disconnected, as appropriate, and for the properties to be protected in winter
months to avoid damage to plumbing.

            C. Resale

            During the repossession and/or foreclosure process, the Field
Representative resale efforts are commenced. After title to the house is taken,
the Field Representative's resale effort may take the form of canvassing the
neighborhood, leaving information and pictures at corner stores and factories or
advertising in local newspapers.

            1. Resale Price

            Several points of reference are used in arriving at a resale price
for a repossessed home. First, the Servicer will provide a baseline number that
represents its cash cost. This figure provides a baseline price below which the
property generally will not be sold. Sales for a price below such baseline price
require the permission of the Divisional Vice President. Second, the Field
Representative makes reference to the current price for a similar new home.
Finally, the Field Representative refers to the market price prevailing for
comparable homes in the area, discounting, if necessary, for the work left to be
done to bring the house to completion.

            If the proposed sale price is less than a specified deviation below
the baseline price, the property must be seen by the Assistant Divisional
Supervisor or Divisional Vice President supervising the area in which the
property is located. The Divisional Vice President must explain any shortfalls
to an officer in the central office in Ft. Worth, Texas, who will attach the
statement to the sale package.

            2. Resale Credit Policies

            Prospective purchasers at resale are subject to the same credit
review procedures as purchasers of new homes. In lieu of the pledge of real
property received from new home buyers, a certain amount of equity in the
property is provided in a resale by requiring the purchaser at resale to make a
down payment of between a minimum of $750 and up to 10% of the selling price,
depending upon the credit profile of such purchaser.



                                          WALTER MORTGAGE COMPANY


                                          By:____________________________
                                          Name:
                                          Title:


                                      C-5