<PAGE>

                                                                    Exhibit 10.1

                                                                  EXECUTION COPY



                             NOVASTAR MORTGAGE, INC.
                                   as Seller,



                      NOVASTAR MORTGAGE FUNDING CORPORATION
                                   as Company,




                       WACHOVIA BANK, NATIONAL ASSOCIATION
                                  as Custodian



                                       and



                               JPMORGAN CHASE BANK
                                   as Trustee





                        MORTGAGE LOAN PURCHASE AGREEMENT


                          Dated as of February 1, 2003


                    Fixed and Adjustable Rate Mortgage Loans



                 NovaStar Mortgage Funding Trust, Series 2003-1
        NovaStar Home Equity Loan Asset-Backed Certificate, Series 2003-1

<PAGE>


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                          Page(s)
<S>                                                                                                       <C>
ARTICLE I         DEFINITIONS ..........................................................................       1

  Section 1.01     Definitions. .........................................................................      1

ARTICLE II        SALE OF MORTGAGE LOANS AND RELATED PROVISIONS ........................................       2

  Section 2.01    Sale of Closing Date Mortgage Loans and MI Policies. .................................       2
  Section 2.02    Conveyance of the Subsequent Mortgage Loans
  Section 2.03    Pre-Funding Account

ARTICLE III       REPRESENTATIONS AND WARRANTIES; REMEDIES FOR BREACH ..................................       9

  Section 3.01    Seller Representations and Warranties. ...............................................       9
  Section 3.02    Company Representations and Warranties. ..............................................      23
  Section 3.03    [Reserved] ...........................................................................      24

ARTICLE IV        SELLER'S COVENANTS ...................................................................      24

  Section 4.01    Covenants of the Seller. .............................................................      24
  Section 4.02    Payment of Expenses. .................................................................      25

ARTICLE V         CONDITIONS TO CLOSING DATE MORTGAGE LOAN PURCHASE ....................................      25

  Section 5.01    Conditions of Company's Obligations. .................................................      25

ARTICLE VI        INDEMNIFICATION BY THE SELLER WITH RESPECT TO THE MORTGAGE LOANS .....................      26

  Section 6.01    Indemnification With Respect to the Mortgage Loans. ..................................      26
  Section 6.02    Limitation on Liability of the Seller. ...............................................      26

ARTICLE VII       TERMINATION ..........................................................................      27

  Section 7.01    Termination. .........................................................................      27

ARTICLE VIII      MISCELLANEOUS PROVISIONS .............................................................      28

  Section 8.01    Amendment. ...........................................................................      28
  Section 8.02    Governing Law. .......................................................................      28
  Section 8.03    Notices. .............................................................................      28
  Section 8.04    Severability of Provisions. ..........................................................      29
</TABLE>

                                        i

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<TABLE>
<S>                                                                                                           <C>
  Section 8.05    Relationship of Parties. .............................................................      29
  Section 8.06    Counterparts. ........................................................................      30
  Section 8.07    Further Agreements. ..................................................................      30
  Section 8.08    Intention of the Parties. ............................................................      30
  Section 8.09    Successors and Assigns; Assignment of Purchase Agreement. ............................      31
  Section 8.10    Survival. ............................................................................      31
  Section 8.11    Liability of the Trustee. ............................................................      31


EXHIBIT 1         Closing Date Mortgage Loan Schedule
EXHIBIT 2(A)      Seller's Subsequent Transfer Instrument
EXHIBIT 2(B)      Company's Subsequent Transfer Instrument
</TABLE>

                                       ii

<PAGE>

          THIS MORTGAGE LOAN PURCHASE AGREEMENT (this "Purchase Agreement"),
dated as of February 1, 2003, is made among NovaStar Mortgage, Inc. (the
"Seller"), NovaStar Mortgage Funding Corporation (the "Company"), Wachovia Bank,
National Association (the "Custodian") and JPMorgan Chase Bank (the "Trustee").

                          W I T N E S S E T H  T H A T:

          WHEREAS, pursuant to the terms of this Purchase Agreement, the Seller
will sell the Closing Date Mortgage Loans and the related MI Policies to the
Company on the Closing Date;

          WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement,
the Company will transfer the Closing Date Mortgage Loans and the related MI
Policies, and assign all of its rights under the Purchase Agreement, to the
Trustee, without recourse, on the Closing Date;

          WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement,
the Trustee will issue the Certificates;

          WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement,
the Trustee will transfer to the Company the Certificates;

          WHEREAS, pursuant to the terms of the Underwriting Agreement, the
Company will sell the Underwritten Certificates to the Underwriter;

          WHEREAS, pursuant to the terms of the REMIC Interests Sale Agreement,
the Company will sell the Retained Certificates to NovaStar REMIC Financing
Corporation ("NRFC"), and NRFC will then transfer the Class O Certificates to
NovaStar Certificates Financing Corporation;

          WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement,
the Servicer will service the Mortgage Loans; and

          WHEREAS, pursuant to the terms of the Converted Loan Purchase
Agreement, the Converted Loan Purchaser will purchase the Converted Mortgage
Loans from the Trustee.

                                    ARTICLE I

                                   DEFINITIONS

          Section 1.01 Definitions.

          For all purposes of this Purchase Agreement, except as otherwise
expressly provided herein or unless the context otherwise requires, capitalized
terms not otherwise defined herein shall have the meanings assigned to such
terms in the Definitions contained in Appendix A to the Pooling and Servicing
Agreement, dated as of February 1, 2003, among the Custodian, the Trustee, the
Company and NovaStar Mortgage, Inc. as seller and servicer (the "Servicer")

                                        1

<PAGE>

which is incorporated by reference herein. All other capitalized terms
used herein shall have the meanings specified herein.

                                   ARTICLE II

                  SALE OF MORTGAGE LOANS AND RELATED PROVISIONS

          Section 2.01 Sale of Closing Date Mortgage Loans and MI Policies.

          (a)  The Seller hereby sells, and the Company hereby purchases on the
Closing Date the Closing Date Mortgage Loans identified (and the related MI
Policies) on the Mortgage Loan Schedule annexed hereto as Exhibit 1, the
proceeds thereof and all rights under the Related Documents (including the
related Mortgage Files). The Closing Date Mortgage Loans consist of two groups
of conventional, residential first and second lien mortgage loans with fixed and
adjustable interest rates, the Group I Mortgage Loans and the Group II Mortgage
Loans. The Closing Date Mortgage Loans will have a Principal Balance as of the
close of business on the Cut-off Date, after giving effect to any payments due
on or before such date whether or not received, of approximately $1,084,764,759.
The sale of the Closing Date Mortgage Loans will take place on the Closing Date,
subject to and simultaneously with the deposit of the Closing Date Mortgage
Loans and the Original Pre-Funded Amount into the Trust Fund, the issuance of
the Securities by the Trustee and the sale of the Underwritten Certificates
pursuant to the Underwriting Agreement. The purchase price (the "Purchase
Price") for the Closing Date Mortgage Loans to be paid by the Company to the
Seller on the Closing Date shall consist of the following:

               (i)  a payment in an amount equal to $1,254,489,064 representing
the net proceeds of the sale of the Underwritten Certificates, which payment
shall be paid to the Seller by wire transfer in immediately available funds on
the Closing Date by or on behalf of the Company, or as otherwise agreed by the
Company; and

               (ii) a payment in an amount equal to $13,000,000 representing the
proceeds of the sale of the Retained Certificates by the Company to NRFC
pursuant to the REMIC Interests Sale Agreement, which payment shall be paid to
the Seller by wire transfer in immediately available funds on the Closing Date
by or on behalf of the Company, or as otherwise agreed by the Company.

          (b)  [Reserved]

          (c)  In connection with such conveyances by the Seller, the Seller
shall on behalf of and at the direction of the Company deliver to, and deposit
with the Custodian on behalf of the Trustee, on or before the Closing Date in
the case of a Closing Date Mortgage Loan and two Business Days prior to the
related Subsequent Transfer Date in the case of a Subsequent Mortgage Loan, the
following documents or instruments with respect to each Mortgage Loan (the
"Mortgage File"):

               (i)  the original Mortgage Note endorsed to "JPMorgan Chase Bank,
as Trustee of the NovaStar Mortgage Funding Trust, Series 2003-1, relating to
the NovaStar Home Equity Loan Asset-Backed Certificates, Series 2003-1";

                                        2

<PAGE>

               (ii)  the original Mortgage with evidence of recording thereon,
or, if the original Mortgage has not yet been returned from the public recording
office, a copy of the original Mortgage certified by the Seller or the public
recording office in which such original Mortgage has been recorded and if the
Mortgage Loan is registered on the MERS System, such Mortgage shall include
thereon a statement that it is a MOM Loan and shall include the MIN for such
Mortgage Loan;

               (iii) unless the Mortgage Loan is registered on the MERS System,
an original assignment (which may be included in one or more blanket assignments
if permitted by applicable law) of the Mortgage endorsed to "JPMorgan Chase
Bank, as Trustee of the NovaStar Mortgage Funding Trust, Series 2003-1, relating
to the NovaStar Home Equity Loan Asset-Backed Certificates, Series 2003-1", and
otherwise in recordable form;

               (iv)  originals of any intervening assignments of the Mortgage
showing an unbroken chain of title from the originator thereof to the Person
assigning it to the Trustee (or to MERS, if the Mortgage Loan is registered on
the MERS System, and noting the presence of a MIN, if the Mortgage Loan is
registered on the MERS System), with evidence of recording thereon, or, if the
original of any such intervening assignment has not yet been returned from the
public recording office, a copy of such original intervening assignment
certified by the Seller or the public recording office in which such original
intervening assignment has been recorded;

               (v)   the original policy of title insurance (or a commitment for
title insurance, if the policy is being held by the title insurance company
pending recordation of the Mortgage);

               (vi)  true and correct copy of each assumption, modification,
consolidation or substitution agreement, if any, relating to the Mortgage Loan;
and

               (vii) an executed copy of the notice of assignment and
acknowledgement of assignment with respect to the Mortgage Loans covered by the
MI Policies.

          If a material defect in any Mortgage File is discovered which may
materially and adversely affect the value of the related Mortgage Loan, or the
interests of the Trustee (as pledgee of the Mortgage Loans), or the
Certificateholders in such Mortgage Loan, including if any document required to
be delivered to the Custodian has not been delivered (provided that a Mortgage
File will not be deemed to contain a defect for an unrecorded assignment under
clause (i) above for 180 days following submission of the assignment if the
Seller has submitted such assignment for recording pursuant to the terms of the
following paragraph), the Seller shall cure such defect, repurchase the related
Mortgage Loan at the Repurchase Price or substitute an Eligible Substitute
Mortgage Loan for the related Mortgage Loan upon the same terms and conditions
set forth in Section 3.01 hereof as to the Closing Date Mortgage Loans and the
Subsequent Mortgage Loans and Section 2.02(c) hereof as to the Subsequent
Mortgage Loans for breaches of representations and warranties.

          Promptly after the Closing Date in the case of a Closing Date Mortgage
Loan or, in the case of a Subsequent Mortgage Loan, promptly after the
Subsequent Transfer Date (or after the date of transfer of any Eligible
Substitute Mortgage Loan), the Seller at its own expense

                                        3

<PAGE>

shall complete and submit for recording in the appropriate public office for
real property records each of the assignments referred to in clause (i) above,
with such assignment completed in favor of the Trustee, excluding any Mortgage
Loan that is registered on the MERS System if MERS is identified on the Mortgage
or on a properly recorded assignment of Mortgage as the mortgagee of record.
While such assignment to be recorded is being recorded, the Custodian shall
retain a photocopy of such assignment. If any assignment is lost or returned
unrecorded to the Custodian because of any defect therein, the Seller is
required to prepare a substitute assignment or cure such defect, as the case may
be, and the Seller shall cause such substitute assignment to be recorded in
accordance with this paragraph.

          In instances where an original Mortgage or any original intervening
assignment of Mortgage is not, in accordance with clause (ii) or (iv) above,
delivered by the Seller to the Custodian, on behalf of the Trustee, prior to or
on the Closing Date in the case of a Closing Date Mortgage Loan or, in the case
of a Subsequent Mortgage Loan, prior to or on the Subsequent Transfer Date, the
Seller will deliver or cause to be delivered the originals of such documents to
the Custodian, on behalf of the Trustee, promptly upon receipt thereof.

          In connection with the assignment of any Closing Date Mortgage Loan
registered on the MERS System, promptly after the Closing Date, the Seller
further agrees that it will cause, at the Seller's own expense, the MERS System
to indicate that such Closing Date Mortgage Loan has been assigned by the Seller
to the Trustee in accordance with this Agreement for the benefit of the
Certificateholders by including in such computer files (a) the applicable
Trustee code in the field "Trustee" which identifies the Trustee and (b) the
code "NovaStar 2003-1" (or its equivalent) in the field "Pool Field" which
identifies the series of the Certificates issued in connection with such
Mortgage Loans.

          Effective on the Closing Date, the Company hereby acknowledges its
acceptance of all right, title and interest to the Closing Date Mortgage Loans
and other property, existing on the Closing Date and thereafter created and
conveyed to it pursuant to this Section 2.01.

          The Trustee, as assignee or transferee of the Company, shall be
entitled to all scheduled principal payments due after the Cut-off Date, all
other payments of principal due and collected after the Cut-off Date, and all
payments of interest on the Closing Date Mortgage Loans. No scheduled payments
of principal due on or before the Cut-off Date and collected after the Cut-off
Date shall belong to the Company pursuant to the terms of this Purchase
Agreement. The Pooling and Servicing Agreement shall provide that any late
payment charges collected in connection with a Mortgage Loan shall be paid to
the Servicer as provided therein.

          (d) The parties hereto intend that the transactions set forth herein
constitute a sale by the Seller to the Company on the Closing Date of all the
Seller's right, title and interest in and to the Closing Date Mortgage Loans and
other property as and to the extent described above. In the event the
transactions set forth herein shall be deemed not to be a sale, the Seller
hereby grants to the Company as of the Closing Date a security interest in all
of the Seller's right, title and interest in, to and under the Closing Date
Mortgage Loans and such other property, to secure all of the Seller's
obligations hereunder and this Purchase Agreement shall constitute a security
agreement under applicable law and in such event, the parties hereto acknowledge
that the Custodian, in addition to holding the Closing Mortgage Loans on behalf
of the Trustee for the

                                        4

<PAGE>

benefit of the Certificateholders, holds the Closing Date Mortgage Loans as
designee of the Company. The Seller agrees to take or cause to be taken such
actions and to execute such documents, including without limitation the filing
of all necessary UCC-1 financing statements filed in the Commonwealth of
Virginia (which shall have been submitted for filing as of the Closing Date and
each Subsequent Transfer Date, as applicable), any continuation statements with
respect thereto and any amendments thereto required to reflect a change in the
name or corporate structure of the Seller, as are necessary to perfect and
protect the interests of the Company and their respective assignees in each
Closing Date Mortgage Loan and the proceeds thereof and the interests of the
Trustee and its assignees in each Subsequent Mortgage Loan and the proceeds
thereof. The Company agrees to take or cause to be taken such actions and to
execute such documents, including without limitation the filing of all necessary
UCC-1 financing statements, and continuation statements with respect thereto and
any amendments thereto as are necessary to perfect and protect the interests of
the Trustee and its assignees in each Closing Date Mortgage Loan.

          Section 2.02   Conveyance of the Subsequent Mortgage Loans.

          (a) Subject to the conditions set forth in paragraph (b) below in
consideration of the Trustee's delivery on the related Subsequent Transfer Dates
of all or a portion of the balance of funds in the Pre-Funding Account, the
Seller shall on any Subsequent Transfer Date sell, transfer, assign, set over
and convey, without recourse, to the Company, who shall then sell, transfer,
assign, set over and convey, without recourse, to the Trustee, but subject to
the other terms and provisions of this Purchase Agreement, all of the right,
title and interest of the Seller in and to (i) the Subsequent Mortgage Loans
(and the related MI Policies) identified on the related Mortgage Loan Schedule
attached to the related Subsequent Transfer Instrument delivered by the Seller
on such Subsequent Transfer Date, (ii) principal due and interest accruing on
the Subsequent Mortgage Loans after the related Subsequent Cut-off Date and (i)
with respect to such Subsequent Mortgage Loans all items to be delivered
pursuant to Section 2.01(c) above and the other items in the related Mortgage
Files; provided, however, that the Seller reserves and retains all right, title
and interest in and to principal received and interest accruing on the
Subsequent Mortgage Loans prior to the related Subsequent Cut-off Date. The
transfer by the Seller to the Company, and by the Company to the Trustee, of the
Subsequent Mortgage Loans identified on each Mortgage Loan Schedule attached to
the related Subsequent Transfer instrument shall be absolute and is intended by
the Trustee, the Company and the Seller to constitute and to be treated as a
sale of the Subsequent Mortgage Loans by the Seller to the Company, and a sale
of the Subsequent Mortgage Loans by the Company to the Trustee.

          In the event such transactions shall be deemed not to be a sale, the
Seller hereby grants to the Company as of each Subsequent Transfer Date a
security interest in all of the Seller's right, title and interest in, to and
under the related Subsequent Mortgage Loans and such other property, to secure
all of the Seller's obligations hereunder, and this Purchase Agreement shall
constitute a security agreement under applicable law, and in such event, the
parties hereto acknowledge that the Custodian, in addition to holding the
Subsequent Mortgage Loans and the related MI Policies on behalf of the Trustee
for the benefit of the Certificateholders, holds the Subsequent Mortgage Loans
and the related MI Policies as designee of the Company. The Seller agrees to
take or cause to be taken such actions and to execute such documents, including
without limitation the filing of all necessary UCC-1 financing statements filed
in the

                                        5

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Commonwealth of Virginia (which shall be submitted for filing as of the related
Subsequent Transfer Date), any continuation statements with respect thereto and
any amendments thereto required to reflect a change in the name or corporate
structure of the Seller or the filing of any additional UCC-1 financing
statements due to a change in the state of incorporation of the Seller as are
necessary to perfect and protect the interests of the Company and its assignees
in the Subsequent Mortgage Loans.

                  In the event such transactions shall be deemed not to be a
sale, the Company hereby grants to the Trustee as of each Subsequent Transfer
Date a security interest in all of the Company's right, title and interest in,
to and under the related Subsequent Mortgage Loans and such other property, to
secure all of the Company's obligations hereunder, and this Purchase Agreement
shall constitute a security agreement under applicable law, and in such event,
the parties hereto acknowledge that the Custodian, in addition to holding the
Subsequent Mortgage Loans and the related MI Policies on behalf of the Trustee
for the benefit of the Certificateholders, holds the Subsequent Mortgage Loans
and the related MI Policies as designee of the Trustee. The Company agrees to
take or cause to be taken such actions and to execute such documents, including
without limitation, the filing of all necessary UCC-1 financing statements filed
in the State of Delaware (which shall be submitted for filing as of the related
Subsequent Transfer Date), any continuation statements with respect thereto and
any amendments thereto required to reflect a change in the name or corporate
structure of the Company or the filing of any additional UCC-1 financing
statements due to a change in the state of incorporation of the Company as are
necessary to perfect and protect the interests of the Trustee and its assignees
in Subsequent Mortgage Loans.

                  The related Mortgage File for each Subsequent Mortgage Loan
shall be delivered to the Custodian, on behalf of the Trustee, prior to the
related Subsequent Transfer Date.

                  The Trustee on each Subsequent Transfer Date shall acknowledge
by signing receipt thereof its acceptance of all right, title and interest to
the related Subsequent Mortgage Loans and other property, existing on the
Subsequent Transfer Date and thereafter created, conveyed to it pursuant to this
Section 2.02.

                  The Trustee, as trustee of the Trust Fund, shall be entitled
to all scheduled principal payments due after each Subsequent Cut-off Date, all
other payments of principal due and collected after each related Subsequent
Cut-off Date, and all payments of interest on the Subsequent Mortgage Loans,
minus that portion of any such payment which is allocable to the period prior to
the related Subsequent Cut-off Date. No scheduled payments of principal due on
or before the related Subsequent Cut-off Date and collected after the related
Subsequent Cut-off Date shall belong to the Trust Fund pursuant to the terms of
this Purchase Agreement.

                  The purchase price paid by the Trustee, at the direction of
the Servicer and on behalf of the Trustee, from amounts released from the
Pre-Funding Account shall be one-hundred percent (100%) of the aggregate
Principal Balances of the Subsequent Mortgage Loans so transferred (as
identified on the Mortgage Loan Schedule attached to the related Subsequent
Transfer Instrument provided by the Seller).

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<PAGE>

          (b) The Seller shall transfer to the Company, who shall transfer to
the Trustee, the Subsequent Mortgage Loans and the other property and rights
related thereto described in Section 2.02(a) above, and the Trustee shall cause
to be released funds from the related Pre-Funding Account, only upon the
satisfaction of each of the following conditions on or prior to the related
Subsequent Transfer Date:

              (i)   the Seller shall have provided the Company, and the Company
shall have provided the Trustee, with a timely Addition Notice, which notice
shall be given no fewer than four Business Days prior to the related Subsequent
Transfer Date and shall designate the Subsequent Mortgage Loans to be sold to
the Company and then to the Trustee and the aggregate Principal Balances of such
Subsequent Mortgage Loans as of the related Subsequent Cut-off Date and any
other information reasonably requested by the Trustee with respect to the
Subsequent Mortgage Loans;

              (ii)  the Seller shall have delivered to the Company, who shall
have delivered to the Trustee, who shall have delivered to the Custodian, a duly
executed Subsequent Transfer Instrument substantially in the form of Exhibit
2(A) or 2(B), as applicable, (A) confirming the satisfaction of each condition
precedent and representations specified in this Section 2.02(b), Section 2.02(c)
and in the related Subsequent Transfer Instrument and (B) including a Mortgage
Loan Schedule attached thereto listing the Subsequent Mortgage Loans;

              (iii) as of each Subsequent Transfer Date, as evidenced by
delivery of the Seller's Subsequent Transfer Instrument in the form of Exhibit
2(A) and the Company's Subsequent Transfer Instrument is the form of Exhibit
2(B), neither the Seller nor the Company shall be insolvent or have been made
insolvent by such transfers, nor shall they be aware of any pending insolvency;

              (iv)  such sale and transfer (i) does not cause the REMIC to fail
to qualify as a REMIC and (ii) is not a prohibited transaction within the
meaning of Section 860F(a)(2) of the Code, both as evidenced by an Opinion of
Counsel provided for the Trustee at the expense of the Seller;

              (v)   the Funding Period shall not have terminated; and

              (vi)  the Seller shall have delivered to the Custodian, the
Trustee, and the Rating Agencies Opinions of Counsel addressed to the Rating
Agencies, the Trustee and the Custodian with respect to the transfers of the
Subsequent Mortgage Loans substantially in the form of the Opinion of Counsel
delivered to the Custodian, the Trustee and the Rating Agencies on the Closing
Date (1) regarding certain corporate matters and (2) confirming the existence of
a true sale which may be contained in such opinion delivered on the Closing
Date.

          (c) The obligation of the Trustee to purchase a Subsequent Mortgage
Loan on any Subsequent Transfer Date is subject to the following conditions: (1)
each such Subsequent Mortgage Loan shall satisfy the representations and
warranties specified in the related Subsequent Transfer Instrument and this
Purchase Agreement; (2) the Seller shall not select such Subsequent Mortgage
Loans in a manner that it reasonably believes is adverse to the interests of the
Majority Certificateholders; (3) the Seller shall have delivered certain
Opinions of Counsel

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<PAGE>

required pursuant to Section 2.02(b)(iv) and (vi) hereof; (4) as of the related
Subsequent Cut-off Date, the Subsequent Mortgage Loans shall satisfy the
following criteria: (i) each Subsequent Mortgage Loan shall not be 60 or more
days contractually delinquent as of the related Subsequent Cut-off Date; (ii)
the remaining stated term to maturity of each Subsequent Mortgage Loan shall not
exceed 360 months; (iii) approximately 95% of the Subsequent Mortgage Loans are
secured by first liens on the related Mortgaged Property; (iv) each Subsequent
Mortgage Loan shall have an outstanding Principal Balance of at least $10,000;
(v) each Subsequent Mortgage Loan shall be underwritten in accordance with the
Underwriting Guidelines; (vi) each Subsequent Mortgage Loan shall have a
Loan-to-Value Ratio of no more than 100%; (vii) each Subsequent Mortgage Loan
shall have a stated maturity of no later than April 2033; (viii) no Subsequent
Mortgage Loan shall permit negative amortization; (ix) each Subsequent Mortgage
Loan shall either have a fixed Mortgage Rate of at least 5.00% or, if an
adjustable loan, a Gross Margin of at least 2.75%; (x) a minimum of 55% of the
Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall
have an adjustable Mortgage Rate; (xi) the weighted average Loan-to-Value Ratio
of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance)
shall be no more than 81%; (xii) no less than 69% of the Subsequent Mortgage
Loans shall either (A) have a Loan-to Value Ratio of no more than 60% or (B)
have a Loan-to-Value Ratio of greater than 60% and be covered by an MI Policy
which will insure losses to the extent that the uninsured exposure of the
related Subsequent Mortgage Loan is reduced to an amount equal to 51%, or 55% of
the lesser of the appraised value or purchase price, as the case may be, of the
related Mortgaged Property, in each case, at the time of the applicable
effective date of the MI Policy; (xiii) the Subsequent Mortgage Loans (by
Subsequent Cut-off Date Principal Balance) shall have a weighted average coupon
of at least 7.00%; (xiv) pursuant to the Underwriting Guidelines, no fewer than
50% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal
Balance) shall be AAA, A+, ALT-A and AA credit risks, no fewer than 10% of the
Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall
be A and A- credit risks, and no more than 15% of the Subsequent Mortgage Loans
(by Subsequent Cut-off Date Principal Balance) shall be B, B-, C, and C- credit
risks; (xv) no greater than 10% of such Subsequent Mortgage Loans (by Subsequent
Cut-off Date Principal Balance) shall be FICO Enhanced loans pursuant to the
Underwriting Guidelines; (xvi) no more than 12% of such Subsequent Mortgage
Loans (by Subsequent Cut-off Date Principal Balance) shall be FICO only loans;
(xvii) the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal
Balance) shall have a weighted average FICO score issued by a consumer credit
rating agency of at least 620; (xviii) at least 85% of such Subsequent Mortgage
Loans (by Subsequent Cut-off Date Principal Balance) shall be loans for primary
residences; (xix) no more than 50% of the Subsequent Mortgage Loans (by
Subsequent Cut-off Date Principal Balance) shall have stated loan documentation,
and no more than 15% of the Subsequent Mortgage Loans (by Subsequent Cut-off
Date Principal Balance shall have no loan documentation; (xx) at least 70% of
the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance)
shall be loans for single family residences; (xxi) no more than 75% of the
Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall
be loans that are the subject of cash-out refinances; and (xxii) the ratings
agencies shall have consented in writing to the transfer of the Subsequent
Mortgage Loans.

                  The acceptance of the Subsequent Mortgage Loans by the Trustee
is subject to the Seller receiving and providing to the Trustee a written
consent from each of the Rating Agencies

                                        8

<PAGE>

that states that the addition of such Subsequent Mortgage Loans will not cause
the Rating Agencies to downgrade any of their ratings on the Underwritten
Certificates.

                  Notwithstanding the foregoing, Subsequent Mortgage Loans with
characteristics varying from those set forth above may be purchased by the
Trustee and included in the Trust Fund, if (i) the Trustee is provided with
written confirmation that the aggregate credit risk of such Subsequent Mortgage
Loans is similar to that of the Closing Date Mortgage Loans and (ii) the Seller
receives and provides to the Trustee a written consent from each of the Rating
Agencies that states that the addition of such Subsequent Mortgage Loans will
not cause the Rating Agencies to downgrade any of their ratings of the
Underwritten Certificates.

                  (d) Within five Business Days after the end of the Funding
Period, the Seller shall deliver to the Rating Agencies, the Trustee and the
Custodian a copy of the updated Mortgage Loan Schedule including the Subsequent
Mortgage Loans in electronic format.

                  Section 2.03 Pre-Funding Account.

                  (a) No later than the Closing Date, the Trustee will establish
and maintain the Pre-Funding Account pursuant to the Pooling and Servicing
Agreement. On the Closing Date, the Seller will deposit in the Pre-Funding
Account the Original Pre-Funding Amount from the net proceeds of the sale of the
Underwritten Certificates.

                                  ARTICLE III

                         REPRESENTATIONS AND WARRANTIES;
                               REMEDIES FOR BREACH

                  Section 3.01 Seller Representations and Warranties.

                  The Seller hereby represents and warrants to the Company and
the Trustee as of the date hereof, as of the Closing Date (or if otherwise
specified below, as of the date so specified) and as of each Subsequent Transfer
Date:

                  (a) As to the Seller:

                      (i)  The Seller (i) is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Virginia and (ii) is qualified and in good standing as a foreign corporation to
do business in each jurisdiction where such qualification is necessary, except
where the failure so to qualify would not have a material adverse effect on the
Seller's ability to enter into this Purchase Agreement and each Seller's
Subsequent Transfer Instrument and to consummate the transactions contemplated
hereby and thereby;

                      (ii) The Seller has the power and authority to make,
execute, deliver and perform its obligations under this Purchase Agreement and
each Seller's Subsequent Transfer Instrument and all of the transactions
contemplated under this Purchase Agreement and each Seller's Subsequent Transfer
Instrument, and has taken all necessary corporate action to

                                        9

<PAGE>

authorize the execution, delivery and performance of this Purchase Agreement
each Seller's Subsequent Transfer Instrument;

                      (iii)  The Seller is not required to obtain the consent of
any other Person or any consent, approval or authorization from, or registration
or declaration with, any governmental authority, bureau or agency in connection
with the execution, delivery, performance, validity or enforceability of this
Purchase Agreement or any Seller's Subsequent Transfer Instrument, except for
such consents, approvals or authorization, or registration or declaration, as
shall have been obtained or filed, as the case may be;

                      (iv)   The execution and delivery of this Purchase
Agreement and each Seller's Subsequent Transfer Instrument and the performance
of the transactions contemplated hereby by the Seller will not violate any
provision of any existing law or regulation or any order or decree of any court
applicable to the Seller or any provision of the certificate of incorporation or
bylaws of the Seller, or constitute a material breach of any mortgage,
indenture, contract or other agreement to which the Seller is a party or by
which the Seller may be bound;

                      (v)    No litigation or administrative proceeding of or
before any court, tribunal or governmental body is currently pending, or to the
knowledge of the Seller threatened, against the Seller or any of its properties
or with respect to this Purchase Agreement or any Seller's Subsequent Transfer
Instrument, the Certificates which in the opinion of the Seller has a reasonable
likelihood of resulting in a material adverse effect on the transactions
contemplated by this Purchase Agreement or any Seller's Subsequent Transfer
Instrument;

                      (vi)   This Purchase Agreement and each Seller's
Subsequent Transfer Instrument constitute the legal, valid and binding
obligations of the Seller, enforceable against the Seller in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect affecting the enforcement of creditors' rights in general and except as
such enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity);

                      (vii)  This Purchase Agreement constitutes a valid
transfer and assignment to the Company of all right, title and interest of the
Seller in and to the Cut-off Date Principal Balance of the Closing Date Mortgage
Loans, all monies due or to become due with respect thereto, and all proceeds of
such Cut-off Date Principal Balance of the Closing Date Mortgage Loans, and this
Purchase Agreement and the related Seller's Subsequent Transfer Instrument
constitutes a valid transfer and assignment to the Trustee of all right, title
and interest of the Seller in and to the Subsequent Cut-off Date Principal
Balance of the Subsequent Mortgage Loans, all monies due or to become due with
respect thereto, and all proceeds of such Subsequent Cut-off Date Principal
Balance of the Subsequent Mortgage Loans;

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

                                       10

<PAGE>


              (ix) The Servicer or any Subservicer who will be servicing any
Mortgage Loan pursuant to the Pooling and Servicing Agreement or a Subservicing
Agreement is qualified to do business in all jurisdictions in which its
activities as Servicer or Subservicer of the Mortgage Loans serviced by it
require such qualifications except where failure to be so qualified will not
have a material adverse effect on such servicing activities.

          (b) As to each Closing Date Mortgage Loan as of the Closing Date and
with respect to each Subsequent Mortgage Loan as of the Subsequent Transfer
Date, except as otherwise expressly stated:

              (i)   The information set forth on the Mortgage Loan Schedule with
respect to each Closing Date Mortgage Loan is true and correct in all material
respects as of the Closing Date, and with respect to each Subsequent Mortgage
Loan is true and correct in all material respects as of the related Subsequent
Transfer Date, and the information regarding the Closing Date Mortgage Loans and
the Subsequent Mortgage Loans on the computer diskette or tape delivered to the
Trustee prior to the Closing Date or Subsequent Transfer Date, as applicable, is
true and accurate in all material respects and describes the same Mortgage Loans
as the Mortgage Loans on the Mortgage Loan Schedule;

              (ii)  The Mortgage Loans are not being transferred with any intent
to hinder, delay or defraud any creditors;

              (iii) No more than 5.96% and 4.42% of the Closing Date Mortgage
Loans in Group I and Closing Date Mortgage Loans in Group II, respectively, (by
Cut-off Date Principal Balance) were secured by condominium units; and no more
than 10.72% and 22.31% of the Closing Date Mortgage Loans in Group I and the
Closing Date Mortgage Loans in Group II, respectively, (by Cut-off Date
Principal Balance) were secured by properties in planned unit developments;

              (iv)  As of the Cut-off Date, the remaining term of each Group I
Closing Date Mortgage Loan is not more than 360 months and not less than 114
months and the remaining term of each Group II Closing Date Mortgage Loan is not
more than 360 months and not less than 119 months;

              (v)   No more than 60.92% and 54.88% of the Closing Date Mortgage
Loans in Group I and Closing Date Mortgage Loans in Group II, respectively, (by
Cut-off Date Principal Balance) have been the subject of cash-out refinances;

              (vi)  No more than 11.24% and 17.62% of the Closing Date Mortgage
Loans in Group I and Closing Date Mortgage Loans in Group II, respectively, (by
Cut-off Date Principal Balance) respectively, have been the subject of rate and
term (no cash-out) refinances;

              (vii) No fewer than 27.68% and 27.03% of the Closing Date Mortgage
Loans in Group I and Closing Date Mortgage Loans in Group II, respectively, (by
Cut-off Date Principal Balance) are purchase money loans;

                                       11

<PAGE>

              (viii) No more than 15.44% and 9.78% of the Closing Date Mortgage
Loans in Group I and the Closing Date Mortgage Loans in Group II, respectively,
(by Cut-off Date Principal Balance) are secured by Mortgaged Properties located
in the State of Florida; no more than 24.36% and 43.52% of the Closing Date
Mortgage Loans in Group I and the Closing Date Mortgage Loans in Group II,
respectively, (by Cut-off Date Principal Balance) are secured by Mortgaged
Properties located in the State of California; and no more than 4.30% and 3.92%
of the Closing Date Mortgage Loans in Group I and the Closing Date Mortgage
Loans in Group II, respectively, (by Cut-off Date Principal Balance) are located
in any other state;

              (ix)   The outstanding Principal Balances of the Closing Date
Mortgage Loans in Group I (by Cut-off Date Principal Balance) ranged from $9,075
to $466,986, respectively; the average outstanding Principal Balance of the
Closing Date Mortgage Loans in Group I is approximately $127,509; the original
Principal Balances of the Closing Date Mortgage Loans in Group II (by Cut-off
Date Principal Balance) ranged from $12,400 to $999,003, respectively; the
average outstanding Principal Balance of the Closing Date Mortgage Loans in
Group II is approximately $190,167;

              (x)    Approximately 75.80% of the Closing Date Mortgage Loans in
Group I and approximately 66.56% the Closing Date Mortgage Loans in Group II (by
Cut-off Date Principal Balance) were secured by a first lien on a parcel of real
property improved by a detached single family residence; no more than 5.64% and
1.23% of the Closing Date Mortgage Loans in Group I and the Closing Date
Mortgage Loans in Group II, respectively, (by Cut-off Date Principal Balance)
were secured by a first lien on a parcel of real estate improved by a multi-unit
single family residence;

              (xi)   All points and fees related to each Mortgage Loan were
disclosed in writing to the borrower in accordance with applicable state and
federal law. No borrower was charged "points and fees" (whether or not financed)
in an amount greater than 5% of the principal amount of such loan, such 5%
limitation calculated in accordance with the Lender Letter. All fees and charges
(including finance charges) and whether or not financed, assessed, collected or
to be collected with the origination and servicing of each Mortgage Loan has
been disclosed in writing to the borrower in accordance with applicable state
and federal law and regulation;

              (xii)  The Mortgage Rates borne by the adjustable rate Closing
Date Mortgage Loans in Group I as of the Closing Date range from 3.75% and per
annum to 12.50% per annum, and the weighted average Mortgage Rate (by Cut-off
Date Principal Balance) of the adjustable rate Closing Date Mortgage Loans in
Group I was 7.77%, per annum; the Mortgage Rates borne by fixed rate Closing
Date Mortgage Loans in Group I as of the Closing Date range from 4.875% per
annum to 13.00% per annum, and the weighted average Mortgage Rate (by Cut-off
Date Principal Balance) of the Closing Date Mortgage Loans in Group I was 7.90%
per annum; the Mortgage Rates borne by adjustable rate Closing Date Mortgage
Loans in Group II as of the Closing Date range from 4.99% per annum to 11.99%
per annum, and the weighted average Mortgage Rate (by Cut-off Date Principal
Balance) of the adjustable rate Closing Date Mortgage Loans in Group II was
7.56%, per annum; the Mortgage Rates borne by fixed rate Closing Date Mortgage
Loans in Group II as of the Closing Date range

                                       12

<PAGE>

from 5.25% per annum to 14.50% per annum, and the weighted average Mortgage Rate
(by Cut-off Date Principal Balance) of the Closing Date Mortgage Loans in Group
II was 7.64% per annum;

              (xiii) Approximately 50.79% and 41.88% of the Closing Date
Mortgage Loans in Group I and the Closing Date Mortgage Loans in Group II,
respectively, (by Cut-off Date Principal Balance) have a Loan-to-Value Ratio in
excess of 80%; no Group I Closing Date Mortgage Loan or Group II Closing Date
Mortgage Loan in the Mortgage Pool had a Loan-to-Value Ratio at origination in
excess of 100%; and the weighted average Loan-to-Value Ratio (by Cut-off Date
Principal Balance) of the Closing Date Mortgage Loans in Group I and the Group
II Mortgage Closing Date Mortgage Loans was equal to or less than 81.51% and
79.23%, respectively;

              (xiv)  Approximately 97.34% and 92.13% of the Closing Date
Mortgage Loans in Group I and the Closing Date Mortgage Loans in Group II,
respectively, are secured by first liens on the related Mortgaged Property; and
approximately 2.66% and 7.87% of the Closing Date Mortgage Loans in Group I and
the Closing Date Mortgage Loans in Group II, respectively, are secured by second
liens on the related Mortgaged Property;

              (xv)   The weighted average Loan-to-Value Ratio of the Closing
Date Mortgage Loans in Group I secured by first liens is approximately 83.24%;
the weighted average combined Loan-to-Value Ratio of the Closing Date Mortgage
Loans in Group I secured by first and second liens is approximately 99.01%; the
weighted average combined Loan-to-Value Ratio of all of the Closing Date
Mortgage Loans in Group I is approximately 83.66%; the weighted average
Loan-to-Value Ratio of the Closing Date Mortgage Loans in Group II secured by
first liens is approximately 79.54%; the weighted average combined Loan-to-Value
Ratio of the Closing Date Mortgage Loans in Group II secured by first and second
liens is approximately 99.16%; the weighted average combined Loan-to-Value Ratio
of all of the Closing Date Mortgage Loans in Group II is approximately 81.08%;
the weighted average combined Loan-to-Value Ratio of all of the Closing Date
Mortgage Loans in both Group I and Group II is approximately 83.00%;

              (xvi)  There is no valid offset, right of rescission, defense,
claim or counterclaim of any obligor under any Mortgage Note or Mortgage,
including the obligation of the Mortgagor to pay the unpaid principal of or
interest on such Mortgage Note, and any applicable right of rescission has
expired, nor will the operation of any of the terms of such Mortgage Note or
Mortgage, or the exercise of any right thereunder, render either the Mortgage
Note or the Mortgage unenforceable, in whole or in part, or subject to any right
of rescission, set-off, recoupment, counterclaim or defense, including, without
limitation, the defense of usury, and no such right of rescission, set-off,
recoupment, counterclaim or defense has been asserted with respect thereto, and,
to the best of Seller's knowledge, no Mortgagor of the applicable Mortgage was a
debtor in any state or federal bankruptcy or insolvency proceeding;

              (xvii) There are no mechanics' liens or claims for work, labor or
material affecting any Mortgaged Property which are or may be a lien prior to,
or equal with, the lien of such Mortgage, except those which are insured against
by the title insurance policy referred to in clause (xix) below;

                                       13

<PAGE>

              (xviii) As of the Closing Date in the case of an Cut-off Date
Mortgage Loan or as of the related Subsequent Cut-off Date in the case of a
Subsequent Mortgage Loan, each Mortgaged Property is free of material damage and
is in good repair and there is no proceeding pending or threatened for the total
or partial condemnation of any Mortgage Property;

              (xix)   Each Mortgage is a valid and enforceable first or second
lien on the Mortgaged Property securing the related Mortgage Note and each
Mortgaged Property is owned by the Mortgagor in fee simple (except with respect
to common areas in the case of condominiums, PUDs and de minimis PUTDs) subject
only to (1) the lien of nondelinquent current real property taxes and
assessments, (2) covenants, conditions and restrictions, rights of way,
easements and other matters of public record as of the date of recording of such
Mortgage, such exceptions appearing of record being acceptable to mortgage
lending institutions generally or specifically reflected in the appraisal made
in connection with the origination of the related Mortgage Loan or referred to
in the lender's title insurance policy delivered to the originator of the
related Mortgage Loan and (3) other matters to which like properties are
commonly subject that do not materially interfere with the benefits of the
security intended to be provided by such Mortgage. Immediately prior to the sale
of such Mortgage Loan to the Company in the case of a Closing Date Mortgage Loan
and to the Trustee in the case of a Subsequent Mortgage Loan pursuant to this
Purchase Agreement, the Seller had full right to sell and assign the same to the
Company or the Trustee, as the case may be. Immediately following the sale of
such Mortgage Loan to the Company and the Company's assignment and sale thereof
of such Mortgage Loan to the Trustee in the case of a Closing Date Mortgage
Loan, the Trustee will have good title thereto subject to no claims or liens,
including delinquent tax or assessment liens. Immediately following the sale of
such Mortgage Loan to the Company and the Company's assignment and sale thereof
to the Trustee in the case of a Subsequent Mortgage Loan, the Trustee will have
good title thereto subject to no claims or liens;

              (xx)    Each Mortgage Loan at origination complied in all material
respects with applicable local, state and federal laws, including, without
limitation, usury, equal credit opportunity, real estate settlement procedures,
the Truth In Lending Act of 1968, as amended, all applicable predatory and
abusive lending laws and disclosure laws and consummation of the transactions
contemplated hereby, including without limitation, the receipt of interest by
the owner of such Mortgage Loan or the Holders of Certificates secured thereby,
will not violate any such laws. Each Mortgage Loan is being serviced in all
material respects in accordance with applicable state and federal laws,
including, without limitation, the Truth In Lending Act of 1968, as amended, and
other consumer protection laws, real estate settlement procedures, usury, equal
credit opportunity and disclosure laws;

              (xxi)   Neither the Seller nor any prior holder of any Mortgage
has impaired, waived, altered or modified the Mortgage or Mortgage Notes in any
material respect (except that a Mortgage Loan may have been modified by a
written instrument which has been recorded, if necessary to protect the
interests of the owner of such Mortgage Loan or the Certificates, and which has
been delivered to the Trustee); satisfied, canceled or subordinated such
Mortgage in whole or in part; released the applicable Mortgaged Property in
whole or in part from the lien of such Mortgage; or executed any instrument of
release, cancellation or satisfaction with respect thereto;

                                       14

<PAGE>

              (xxii)  A lender's policy of title insurance (on an ALTA or CLTA
form) or binder, or other assurance of title customary in the relevant
jurisdiction insuring the first lien priority of the Mortgage Loan in an amount
at least equal to the original Principal Balance of each such Mortgage Loan or a
commitment binder or commitment to issue the same was effective on the date of
the origination of each Mortgage Loan, each such policy is valid and remains in
full force and effect, and each such policy was issued by a title insurer
qualified to do business in the jurisdiction where the Mortgaged Property is
located, which policy insures the Seller and successor owners of indebtedness
secured by the insured Mortgage as to the first priority lien of the Mortgage as
applicable. The Seller is, and such successor owners will be, the sole insured
under such lender's title insurance policy; no claims have been made under such
mortgage title insurance policy; no prior holder of the applicable Mortgage,
including the Seller, has done, by act or omission, anything which would impair
the coverage of such mortgage title insurance policy; and each such policy,
binder or assurance contains all applicable endorsements;

              (xxiii) All of the improvements which were included for the
purpose of determining the Appraised Value of the Mortgaged Property lie wholly
within the boundaries and building restriction lines of such property and no
improvements on adjoining properties encroach upon the Mortgaged Property;

              (xxiv)  No improvement located on or being part of the Mortgaged
Property is in violation of any applicable zoning law or regulation, subdivision
law or ordinance, except where the failure to comply would not have a material
adverse effect on the market value of the Mortgaged Property. All inspections,
licenses and certificates required to be made or issued with respect to all
occupied portions of the Mortgaged Property and, with respect to the use and
occupancy and fire underwriting certificates, have been made or obtained from
the appropriate authorities and the Mortgaged Property is lawfully occupied
under applicable law except where the failure to comply would not have a
material adverse effect on the market value of the Mortgaged Property;

              (xxv)   Each Mortgage Note and the applicable Mortgage are
genuine, and each is the legal, valid and binding obligation of the maker
thereof, enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency, reorganization, moratorium, receivership and other
similar laws relating to creditors' rights generally or by equitable principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law). All parties to the Mortgage Note and the Mortgage had legal capacity
to execute the Mortgage Note and the Mortgage and each Mortgage Note and
Mortgage has been duly and properly executed by such parties;

              (xxvi)  The proceeds of the Mortgage Loans have been fully
disbursed, there is no requirement for future advances thereunder and any and
all requirements as to completion of any on-site or off-site improvements and as
to disbursement of any escrow funds therefor have been complied with. All costs,
fees and expenses incurred in making, closing or recording the Mortgage Loans
were paid and the Mortgagor is not entitled to any refund of amounts paid or due
under the Mortgage Note;

              (xxvii) Each Mortgage contains customary and enforceable
provisions that render the rights and remedies of the holder thereof adequate
for the realization

                                       15

<PAGE>

against the Mortgaged Property of the benefits of the security, including (i) in
the case of a Mortgage designated as a deed of trust, by trustee's sale, and
(ii) otherwise by judicial foreclosure or if applicable, non-judicial
foreclosure. Upon default by a Mortgagor on a Mortgage Loan and foreclosure on,
or trustee's sale of, the Mortgaged Property pursuant to the proper procedures,
the holder of the Mortgage Loan will be able to deliver good and merchantable
title to the property, subject to any applicable rights of redemption;

               (xxviii) With respect to each Mortgage constituting a deed of
trust, either a trustee, duly qualified under applicable law to serve as such,
has been properly designated and currently so serves and is named in such
Mortgage or if no duly qualified trustee has been properly designated and so
serves, the Mortgage contains satisfactory provisions for the appointment of
such trustee by the holder of the Mortgage at no cost or expense to such holder,
and no fees or expenses are or will become payable by the Certificateholders to
the trustee under the deed of trust, except in connection with a trustee's sale
after default by the Mortgagor;

               (xxix)   There exist no deficiencies with respect to escrow
deposits and payments, if such are required, for which customary arrangements
for repayment thereof cannot be made, and no escrow deficits or payments of
other charges or payments due the Seller have been capitalized under the
Mortgage or the applicable Mortgage Note;

               (xxx)    The Mortgage Note is not and has not been secured by any
collateral, pledged account or other security other than real estate securing
the Mortgagor's obligations and no Mortgage Loan is secured by more than one
Mortgaged Property;

               (xxxi)   As of the Closing Date in the case of a Closing Date
Mortgage Loan and as of the related Subsequent Transfer Date in the case of a
Subsequent Mortgage Loan, the improvements upon each Mortgaged Property are
covered by a valid and existing hazard insurance policy substantially acceptable
to FNMA and acceptable to the Seller which policy provides for fire extended
coverage and such other hazards as are customary in the area where the Mortgaged
Property is located representing coverage in an amount not less than the lesser
of (A) the maximum insurable value of the improvements securing such Mortgage
Loan and (B) the outstanding Principal Balance of the related Mortgage Loan; if
the improvement on the Mortgaged Property is a condominium unit, it is included
under the coverage afforded by a blanket policy for the condominium project. All
individual insurance policies contain a standard mortgagee clause naming the
Seller or the original holder of the Mortgage, and its successors in interest,
as mortgagee, and the Seller has received no notice that any premiums due and
payable thereon have not been paid; the Mortgage obligates the Mortgagor
thereunder to maintain all such insurance at the Mortgagor's cost and expense,
and upon the Mortgagor's failure to do so, authorizes the holder of the Mortgage
to obtain and maintain such insurance at the Mortgagor's cost and expense and to
seek reimbursement therefor from the Mortgagor. There has been no act or
omission which would impair the coverage of any such policy, the benefits of the
endorsement provided for herein, or the validity and binding effect of either;

               (xxxii)  If the Mortgaged Property is in an area identified in
the Federal Register by the Federal Emergency Management Agency as having
special flood hazards, a flood insurance policy in a form meeting the
requirements of the current guidelines of

                                       16

<PAGE>

the Flood Insurance Administration is in effect with respect to such Mortgaged
Property with a generally acceptable carrier in an amount representing coverage
not less than the least of (A) the outstanding Principal Balance of the Mortgage
Loan, (B) the minimum amount required to compensate for damage or loss on a
replacement cost basis and (C) the maximum amount of flood coverage that is
available under federal law;

               (xxxiii)  Except for the Mortgage Loan referred to in clause
(xii) as being delinquent, there is no material monetary default, breach,
violation or event of acceleration existing under the Mortgage or the applicable
Mortgage Note; and no material event which, with the passage of time or with
notice and the expiration of any grace or cure period, would constitute a
material default, breach, violation or event of acceleration, and neither the
Seller, any of its affiliates nor any servicer or subservicer of any related
Mortgage Loan has waived any default, breach, violation or event of
acceleration; no foreclosure action is threatened or has been commenced with
respect to the Mortgage Loan;

               (xxxiv)   Each Mortgage Loan is being serviced by the Servicer;

               (xxxv)    There is no obligation on the part of the Seller or any
other party to make any payments with respect to the related Mortgage Loan in
addition to the Monthly Payments required to be made by the applicable
Mortgagor;

               (xxxvi)   Any future advances made prior to the Cut-off Date in
the case of a Closing Date Mortgage Loan and as of the related Subsequent
Transfer Date in the case of a Subsequent Mortgage Loan, with respect to any
Mortgage Loan have been consolidated with the outstanding principal amount
secured by such Mortgage, and the secured principal amount, as consolidated,
bears a single interest rate and single repayment term reflected on the Mortgage
Loan Schedule. The consolidated principal amount does not exceed the original
principal amount of the Mortgage Loan. The Mortgage Note with respect to any
Mortgage Loan does not permit or obligate the Servicer to make future advances
to the Mortgagor at the option of the Mortgagor;

               (xxxvii)  The Seller has caused or will cause to be performed any
and all acts required to preserve the rights and remedies of the Company and the
Trustee evidencing an interest in the Mortgage Loans in any insurance policies
applicable to the Mortgage Loans including, without limitation, any necessary
notifications of insurers, assignments of policies or interests therein, and
establishments of coinsured, joint loss payee and mortgagee rights in favor of
Trustee;

               (xxxviii) Except as set forth in clause (xlii), there are no
defaults by the Mortgagor in complying with the terms of any Mortgage, and all
taxes, governmental assessments, insurance premiums, water, sewer and municipal
charges which previously became due and owing have been paid, or, if required by
the terms of the Mortgage Loan, an escrow of funds has been established in an
amount sufficient to pay for every such item which remains unpaid and which has
been assessed, but is not yet due and payable. Except for (A) payments in the
nature of escrow payments and (B) interest accruing from the date of the
Mortgage Note or date of disbursement of the Mortgage proceeds to the day which
precedes by one month the Due Date of the first installment of principal and
interest, including, without limitation, taxes and

                                       17

<PAGE>

insurance payments, the Servicer has not advanced funds, or induced, solicited
or knowingly received any advance of funds by a party other than the Mortgagor,
directly or indirectly, for the payment of any amount required by the Mortgage;

               (xxxix) At the time of origination, each Mortgaged Property was
the subject of an appraisal which conforms to the underwriting requirements of
the related originator; and the Mortgage File contains an appraisal of the
applicable Mortgaged Property;

               (xl)    None of the Mortgage Loans are graduated payment Mortgage
Loans or growth equity Mortgage Loans;

               (xli)   91.09% and 92.92% of the adjustable rate Group I Closing
Date ARM Mortgage Loans and the adjustable rate Group II Closing Date ARM
Mortgage Loans, respectively, (by Cut-off Date Principal Balance) are
Convertible Mortgage Loans;

               (xlii)  (a) Except with respect to no more than 1.93% and 0.35%
of the Closing Date Mortgage Loans in Group I and the Closing Date Mortgage
Loans in Group II, respectively, none of the payments of principal of or
interest on or in respect of any Closing Date Mortgage Loans (by Cut-off Date
Principal Balance) shall be 30 days or more but less than 60 days past due as of
the Cut-off Date; none of the payments of principal or interest on or in respect
of any Closing Date Mortgage Loans shall be 60 days or more but less than 90
days past due as of the Cut-off Date; and no Closing Date Mortgage Loan was 90
days or more past due as of the Cut-off Date; (b) except as set forth in clause
(a) above, no Closing Date Mortgage Loan has been contractually delinquent for
more than one monthly installment period during the twelve months preceding the
Cut-off Date; (c) except as set forth in clause (a) above, all payments required
to be made by the Mortgagor under the terms of the Mortgage Note have been made
and credited; and (d) to the Seller's knowledge, there was no delinquent
recording, tax or assessment lien against the property subject to any Mortgage,
except where such lien was being contested in good faith and a stay had been
granted against levying on the property;

               (xliii) Upon payment of the Purchase Price for the Mortgage Loans
by the Company or the Trustee, as applicable, pursuant to this Purchase
Agreement, the Seller has transferred to the Company in the case of a Closing
Date Mortgage Loan and to the Trustee in the case of a Subsequent Mortgage Loan,
good and marketable title to each Mortgage Note and Mortgage free and clear of
any and all liens, claims, encumbrances, participation interests, equities,
pledges, charges or security interests of any nature and has or had full right
and authority, subject to no participation of or agreement with any other
person, to sell and assign the same, and following the sale of each Closing Date
Mortgage Loan, the Company or the Trustee, as applicable, will own such Mortgage
Loan free and clear of any encumbrance, equity interest, participation interest,
lien, pledge, charge, claim or security interest;

               (xliv)  The Seller acquired any right, title and interest in and
to the Mortgage Loans in good faith and without notice of any adverse claim;

               (xlv)   The Mortgage Note, the Mortgage, the related Assignment
of Mortgage and any other documents required to be delivered by the Seller have
been delivered to the Custodian. The Custodian is in possession of a complete,
true and accurate Mortgage File

                                       18

<PAGE>

in accordance with Section 2.01 hereof. Substantially all Mortgage Loans have
monthly payments due on the first day of each month and each Mortgage Loan had
an original term to maturity of no greater than 30 years;

               (xlvi)   Each Mortgage Loan contains a due-on-sale provision,
although each Mortgage Loan may be assumable if permitted by the Servicer under
certain circumstances;

               (xlvii)  Each of the Mortgage and the Assignment of Mortgage is
in recordable form and is acceptable for recording under the laws of the
jurisdiction in which the Mortgaged Property is located;

               (xlviii) The Mortgagor has not notified the Seller, and the
Seller has no knowledge of any relief requested or allowed to the Mortgagor
under the Soldiers' and Sailors' Civil Relief Act of 1940;

               (xlix)   To the best of the Seller's knowledge, there exists no
violation of any local, state, or federal environmental law, rule or regulation
in respect of the Mortgaged Property which violation has or could have a
material adverse effect on the market value of such Mortgaged Property. The
Seller has no knowledge of any pending action or proceeding directly involving
the related Mortgaged Property in which compliance with any environmental law,
rule or regulation is in issue; and, to the best of the Seller's knowledge,
nothing further remains to be done to satisfy in full all requirements of each
such law, rule or regulation constituting a prerequisite to the use and
employment of such Mortgaged Property;

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

               (li)     Immediately prior to the transfer to the Company or the
Trustee, as applicable, the Seller had good and marketable title thereto, and
the Seller is the sole owner of beneficial title to and holder of the Mortgage
Loan. The Seller is conveying the same to the Company or the Trustee, as
applicable, free and clear of any and all liens, claims, encumbrances,
participation interests, equities, pledges, charges or security interests of any
nature and has full right and authority to sell and assign the same pursuant to
this Purchase Agreement, except for liens which will be released simultaneously
with such conveyance;

               (lii)    For each Mortgage Loan, the related Mortgage File
contains a true, accurate and correct copy of each of the documents and
instruments required to be included therein;

               (liii)   The Servicer meets all applicable requirements under the
Pooling and Servicing Agreement, is properly qualified to service each Mortgage
Loan and has been servicing each Mortgage Loan prior to the Cut-off Date or the
related Subsequent Cut-off Date, as the case may be;

               (liv)    No instrument of release or waiver has been executed in
connection with the Mortgage Loans, and no Mortgagor has been released, in whole
or in part

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<PAGE>

from its obligations in connection with a Mortgage Loan except in connection
with an assumption agreement which has been delivered to the Trustee;

               (lv)    On the basis of a representation by the Mortgagor at the
time of origination of the Mortgage Loans, at least 93.76% and 97.22% of the
Closing Date Mortgage Loans in Group I and Closing Date Mortgage Loans in Group
II, respectively, (by Cut-off Date Principal Balance) will be secured by
Mortgages on owner-occupied primary residence properties;

               (lvi)   9.70% and 9.78% of the Closing Date Mortgage Loans in
Group I and the Closing Date Mortgage Loans in Group II, respectively, (by
Cut-off Date Principal Balance) provide for a balloon payment and each Mortgage
Note with respect to each such Mortgage Loan requires monthly payments of
principal based on 30 year amortization schedules and have scheduled maturity
dates of 15 years from the due date of the first monthly payment;

               (lvii)  No Mortgage Loan was originated based on an appraisal of
the related Mortgaged Property made prior to completion of construction of the
improvements thereon;

               (lviii) None of the Mortgage Loans is a "buy down" mortgage loan;

               (lix)   None of the Mortgage Loans originated in Georgia are
subject to the Georgia Fair Lending Act, as amended;

               (lx)    No Mortgage Loan originated on or after October 1, 2002
and secured by a Mortgaged Property located in the State of Georgia is a "home
loan" as defined in the Georgia Fair Lending Act, as amended.

               (lxi)   None of the Mortgage Loans in Group I are subject to the
Home Ownership and Equity Protection Act of 1994, as amended, or any comparable
state law; no proceeds from any Mortgage Loan in Group I were used to finance
any single premium credit insurance policies; none of the Mortgage Loans in
Group I (by Cut-off Date Principal Balance) require a mortgagor to pay a
Prepayment Charge if the mortgagor prepays a Mortgage Loan more than five years
after the date the Mortgage Loan was originated.

               (lxii)  No Group I Mortgage Loan secured by a single-family
residence has a Principal Balance at origination in excess of $322,700; no Group
I Mortgage Loan secured by a two-family residence has a Principal Balance at
origination in excess of $413,100; no Group I Mortgage Loan secured by a
three-family residence has a Principal Balance at origination in excess of
$499,300; and no Group I Mortgage Loan secured by a four-family residence has a
Principal Balance at origination in excess of $620,500;

               (lxiii) No selection procedure reasonably believed by the Seller
to be adverse to the interests of the Certificateholders was utilized in
selecting the Mortgage Loans;

                                       20

<PAGE>

              (lxiv)   The terms of the Mortgage Note related to each Adjustable
Rate Mortgage Loan provide that, following an initial period of two or three
years following the month in which such Mortgage Loan was originated and
semiannually or annually thereafter (each such date, an "Adjustment Date"), the
Mortgage Rate on such Mortgage Loan will be adjusted to equal the sum of (a) the
related Index and (b) a fixed percentage amount specified in the related
Mortgage Note (each, a "Gross Margin"); provided, however, that the Mortgage
Rate generally will not increase or decrease by the related Periodic Rate Cap,
and will not increase above a specified maximum Mortgage Rate over the life of
the Adjustable Rate Mortgage Loan (the "Maximum Mortgage Rate") or decrease
below a specified minimum Mortgage Rate over the life of the Adjustable Rate
Mortgage Loan (the "Minimum Mortgage Rate");

              (lxv)    None of the Closing Date Mortgage Loans (by Cut-off Date
Principal Balance) are negative amortization loans, and none of the Subsequent
Mortgage Loans shall be negative amortization loans;

              (lxvi)   No material misrepresentation, fraud or similar
occurrence with respect to a Mortgage Loan has taken place on the part of the
Seller, its affiliates or employees or any other person involved in the
origination of the Mortgage Loan or in the application for any insurance,
including, but not limited to the MI Policy, in relation to such Mortgage Loan;

              (lxvii)  Each Mortgage Loan was originated by a mortgagee approved
by the Secretary of Housing and Urban Development pursuant to Sections 203 and
211 of the Act, a savings and loan association, a savings bank, a commercial
bank, credit union, insurance company or similar institution which is supervised
and examined by a federal or state authority;

              (lxviii) With respect to each Mortgage Loan secured by
manufactured housing, such manufactured housing is permanently affixed to a
foundation and constitutes real estate under applicable state law;

              (lxix)   No Mortgage Loans are date of payment or simple interest
loans;

              (lxx)    The sale, transfer, assignment and conveyance of Mortgage
Loans by the Seller pursuant to this Purchase Agreement is not subject to and
will not result in any tax, fee or governmental charge payable by the Company,
the Custodian or the Trustee to any federal, state or local government
("Transfer Taxes") other than Transfer Taxes which have or will be paid by the
Seller as due; and

              (lxxi)   [Reserved]

              (lxxii)  Approximately 68.60% of the Closing Date Mortgage Loans
(by Cut-off Date Principal Balance) with a Loan-to-Value Ratio greater than 60%
are covered by an MI Policy issued by an MI Insurer;

              (lxxiii) Approximately 63.79% of the Closing Date Mortgage Loans
that is identified on Schedule 1 hereto is covered by a MI Policy issued by the
MI Insurer;

                                       21

<PAGE>

              (lxxiv) All requirements for the valid transfer of each MI Policy,
including any assignments or notices required in each MI Policy, have been
satisfied; and

              (lxxv)  As of the Closing Date with respect to each Closing Date
Mortgage Loan that is subject to a MI Policy and as of each Subsequent Transfer
Date with respect to each Subsequent Mortgage Loan that is subject to a MI
Policy, the Seller is unaware of any existing circumstances which would cause
the MI Insurer to deny a claim with respect to such Mortgage Loan.

         Upon discovery by the Seller or upon notice from the Company, the
Trustee, or the Custodian, as applicable, of a breach of any representation or
warranty in subsection (a) of this Section which materially and adversely
affects the interests of the Certificateholders the Seller shall, within 45 days
of its discovery or its receipt of notice of such breach, either (i) cure such
breach in all material respects or (ii) to the extent that such breach is with
respect to a Mortgage Loan or a Related Document, either (A) repurchase such
Mortgage Loan from the Trustee at the Repurchase Price, or (B) substitute one or
more Eligible Substitute Mortgage Loans for such Mortgage Loan, in each case in
the manner and subject to the conditions and limitations set forth below.

         Upon discovery by the Seller or upon notice from the Company, the
Trustee, or the Custodian, as applicable, of a breach of any representation or
warranty in this subsection (b) with respect to any Mortgage Loan or upon the
occurrence of a Repurchase Event, which materially and adversely affects the
value of the related Mortgage Loan or the interests of any Certificateholders or
of the Company or the Trustee in such Mortgage Loan (notice of which shall be
given to the Company and the Trustee by the Seller, if it discovers the same)
the Seller shall, within 90 days after the earlier of its discovery or receipt
of notice thereof, either cure such breach or Repurchase Event in all material
respects or either (i) repurchase such Mortgage Loan from the Trustee at the
Repurchase Price, or (ii) substitute one or more Eligible Substitute Mortgage
Loans for such Mortgage Loan, in each case in the manner and subject to the
conditions set forth below. The Repurchase Price for any such Mortgage Loan
repurchased by the Seller shall be deposited or caused to be deposited by the
Servicer in the Collection Account maintained by it pursuant to Section 3.06 of
the Pooling and Servicing Agreement.

         In the event that the Seller elects to substitute an Eligible
Substitute Mortgage Loan or Loans for a Deleted Mortgage Loan pursuant to this
Section 3.01, the Seller shall deliver to the Custodian on behalf of the
Trustee, with respect to such Eligible Substitute Mortgage Loan or Loans, the
original Mortgage Note and all other documents and agreements as are required by
Section 2.01 hereof, with the Mortgage Note endorsed as required by such Section
2.01 hereof. No substitution will be made in any calendar month after the
Determination Date for such month. Monthly Payments due with respect to Eligible
Substitute Mortgage Loans in the month of substitution shall not be part of the
Trust Fund and will be retained by the Servicer and remitted by the Servicer to
the Seller on the next succeeding Payment Date. For the month of substitution,
distributions to the Payment Account pursuant to the Pooling and Servicing
Agreement will include the Monthly Payment due on a Deleted Mortgage Loan for
such month and thereafter the Seller shall be entitled to retain all amounts
received in respect of such Deleted Mortgage Loan. The Servicer shall amend or
cause to be amended the Mortgage Loan Schedule to reflect the removal of such
Deleted Mortgage Loan and the substitution of the Eligible

                                       22

<PAGE>

Substitute Mortgage Loan or Loans and the Servicer shall deliver the amended
Mortgage Loan Schedule to the Custodian and the Trustee. Upon such substitution,
the Eligible Substitute Mortgage Loan or Loans shall be subject to the terms of
this Purchase Agreement and the Pooling and Servicing Agreement in all respects,
the Seller shall be deemed to have made the representations and warranties with
respect to the Eligible Substitute Mortgage Loan contained herein set forth in
this Section 3.01(b), to the extent set forth in the definition of "Eligible
Substitute Mortgage Loan", as of the date of substitution, and the Seller shall
be obligated to repurchase or substitute for any Eligible Substitute Mortgage
Loan as to which a Repurchase Event has occurred as provided herein. In
connection with the substitution of one or more Eligible Substitute Mortgage
Loans for one or more Deleted Mortgage Loans, the Servicer will determine the
amount (such amount, a "Substitution Adjustment Amount"), if any, by which the
aggregate principal balance of all such Eligible Substitute Mortgage Loans as of
the date of substitution is less than the aggregate principal balance of all
such Deleted Mortgage Loans (after application of the principal portion of the
Monthly Payments due in the month of substitution that are to be distributed to
the Payment Account in the month of substitution). The Seller shall pay the
amount of such shortfall to the Servicer for deposit into the Collection Account
on the day of substitution, without any reimbursement therefor.

         Upon receipt by the Trustee of written notification, signed by a
Servicing Officer, of the deposit of such Repurchase Price or of such
substitution of an Eligible Substitute Mortgage Loan and deposit of any
applicable Substitution Adjustment Amount as provided above, the Custodian
shall, on behalf of the Trustee, cause to be released to the Seller the related
Mortgage File for the Mortgage Loan being repurchased or substituted for and the
Trustee shall execute and deliver such instruments of transfer or assignment
prepared by the Servicer, in each case without recourse, as shall be necessary
to vest in the Seller or its designee such Mortgage Loan released pursuant
hereto and thereafter such Mortgage Loan shall not be an asset of the Trustee.

         It is understood and agreed that the obligation of the Seller to cure
any breach with respect to or to repurchase or substitute for, any Mortgage Loan
as to which such a breach has occurred and is continuing shall, except to the
extent provided in Section 6.01 of this Purchase Agreement, constitute the sole
remedy respecting such breach available to the Company, the Trustee, the
Certificateholders or the Custodian against the Seller.

         It is understood and agreed that the representations and warranties set
forth in this Section 3.01 shall survive delivery of the respective Mortgage
Files to the Custodian on behalf of the Trustee.

         Section 3.02 Company Representations and Warranties.

         The Company hereby represents and warrants to the Seller and the
Trustee as of the date hereof and as of the Closing Date that:

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

                                       23

<PAGE>

         (b) The Company is duly qualified to do business as a foreign
corporation in good standing and has obtained all necessary licenses and
approvals in all jurisdictions in which the ownership or lease of its property
or the conduct of its business shall require such qualifications and in which
the failure to so qualify would have a material adverse effect on the business,
properties, assets or condition (financial or other) of the Company and the
ability of the Company to perform under this Purchase Agreement.

         (c) The Company has the power and authority to execute and deliver this
Purchase Agreement and to carry out its terms; the Company has full power and
authority to purchase the property to be purchased from the Seller and the
Company has duly authorized such purchase by all necessary corporate action; and
the execution, delivery and performance of this Purchase Agreement have been
duly authorized by the Company by all necessary corporate action.

         (d) The consummation of the transactions contemplated by this Purchase
Agreement and the fulfillment of the terms hereof do not conflict with, result
in any breach of any of the terms and provisions of, or constitute (with or
without notice or lapse of time) a default under, the articles of incorporation
or bylaws of the Company, or any indenture, agreement or other instrument to
which the Company is a party or by which it is bound; nor result in the creation
or imposition of any Lien upon any of its properties pursuant to the terms of
any such indenture, agreement or other instrument (other than pursuant to the
Basic Documents); nor violate any law or, to the best of the Company's
knowledge, any order, rule or regulation applicable to the Company of any court
or of any federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Company or its
properties.

         (e) The Company (A) is a solvent entity and is paying its debts as they
become due and (B) after giving effect to the transfer of the Mortgage Loans,
will be a solvent entity and will have sufficient resources to pay its debts as
they become due.

         Section 3.03 [Reserved]

                                   ARTICLE IV

                               SELLER'S COVENANTS

         Section 4.01 Covenants of the Seller.

         The Seller hereby covenants as of the date hereof and as of the Closing
Date that, except for the transfer hereunder, on and after the Closing Date, the
Seller will not sell, pledge, assign or transfer to any other Person, or grant,
create, incur or assume any Lien on, any Mortgage Loan, whether now existing or
hereafter created, or any interest therein; the Seller will notify the Custodian
and the Trustee of the existence of any such Lien on any Mortgage Loan
immediately upon discovery thereof; and the Seller will defend the right, title
and interest of the Trustee, on its own behalf and as assignee of the Company,
in, to and under the Mortgage Loans, whether now existing or hereafter created,
against all claims of third parties claiming through or under the Seller.

                                       24

<PAGE>

         In the event that the Custodian or the Trustee receives actual notice
of any Transfer Taxes arising out of the transfer, assignment and conveyance of
the Mortgage Loans, on written demand by the Custodian, or upon the Seller's
otherwise being given notice thereof by the Custodian, the Seller shall pay any
and all such Transfer Taxes (it being understood that the Holders of the
Certificates, the Company, the Custodian and the Trustee shall have no
obligation to pay such Transfer Taxes).

         Section 4.02 Payment of Expenses.

         (a) The Seller will pay on the Closing Date all expenses incident to
the performance of its obligations under this Purchase Agreement and the
Underwriting Agreement, including (i) the preparation, printing and any filing
of the preliminary prospectus, Prospectus Supplement and Prospectus (including
any schedules or exhibits and any document incorporated therein by reference)
originally filed and of each amendment or supplement thereto, (ii) the
preparation, printing and delivery to the Underwriters of this Purchase
Agreement and the Underwriting Agreement, the Pooling and Servicing Agreement
and such other documents as may be required in connection with the offering,
purchase, sale and delivery of the Certificates, (iii) the preparation, issuance
and delivery of the certificates for the Class A Certificates to the
Underwriters, including any charges of DTC, CEDEL, S.A. and the Euroclear System
in connection therewith; (iv) the qualification of the Class A Certificates and
Mezzanine Certificates under securities laws in accordance with the provisions
of Section 3(f) of the Underwriting Agreement, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in connection
therewith and in connection with the preparation of the Blue Sky Survey and any
supplement thereto for delivery to potential investors, (v) in addition to the
initial printing and filing costs under (i) above, the printing and delivery to
the Underwriters of copies of each preliminary prospectus and of the Prospectus
and any amendments or supplements thereto for delivery to potential investors,
(vi) the fees and expenses of the Trustee and the Custodian, including the fees
and disbursements of counsel for the Trustee and the Custodian in connection
with the Pooling and Servicing Agreement, the Purchase Agreement and the
Certificates and (vii) any fees payable in connection with the rating of the
Certificates.

         (b) If the Underwriting Agreement is terminated by the Underwriters in
accordance with the provisions of Section 5 or Section 9(a)(i) thereof, the
Seller shall reimburse the Underwriters for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Underwriters.

                                   ARTICLE V

                CONDITIONS TO CLOSING DATE MORTGAGE LOAN PURCHASE

         Section 5.01 Conditions of Company's Obligations.

         The Company's obligations to purchase the Closing Date Mortgage Loans
which each accepts for purchase hereunder shall be subject to each of the
following conditions:

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<PAGE>

                      (i) the Mortgage File for each Closing Date Mortgage Loan
shall have been delivered in accordance with this Purchase Agreement;

                      (ii) the representations and warranties set forth in
Section 3.01(b) hereof with respect to each Closing Date Mortgage Loan shall be
true as of the Closing Date;

                      (iii) the Underwriters or their affiliates shall have had
an opportunity to perform a due diligence review of each Mortgage Loan; and

                      (iv) the Seller shall have provided to the Underwriters or
their affiliates such other documents which are then required to have been
delivered under this Purchase Agreement or which are reasonably requested by the
Underwriters or their affiliates, which other documents may include UCC
financing statements, a favorable opinion or opinions of counsel with respect to
matters which are reasonably requested by the Underwriters, and/or an Officers'
Certificate.

                                   ARTICLE VI

                          INDEMNIFICATION BY THE SELLER

                       WITH RESPECT TO THE MORTGAGE LOANS

                  Section 6.01 Indemnification With Respect to the Mortgage
Loans.

                  The Seller shall indemnify and hold harmless the Company,
Trustee and the Custodian from and against any loss, liability or expense
arising from the breach by the Seller of its representations and warranties in
Section 3.01 of this Purchase Agreement which materially and adversely affects
the value of any Mortgage Loan or the Company's assignees' interest in any
Mortgage Loan or from the failure by the Seller to perform its obligations under
this Purchase Agreement in any material respect.

                  Section 6.02 Limitation on Liability of the Seller.

                  None of the directors, officers, employees or agents of the
Seller shall be under any liability to the Company, it being expressly
understood that all such liability is expressly waived and released as a
condition of, and as consideration for, the execution of this Purchase
Agreement. Except as and to the extent expressly provided in the Basic
Documents, the Seller shall not be under any liability to the Trustee, the
Custodian or the Certificateholders. The Seller and any director, officer,
employee or agent of the Seller may rely in good faith on any document of any
kind prima facie properly executed and submitted by any Person respecting any
matters arising hereunder.

                                       26

<PAGE>

                                   ARTICLE VII

                                   TERMINATION

                  Section 7.01 Termination.

                  (a) Except as provided in Section 7.01(b) hereof, the
respective obligations and responsibilities of the Seller, the Company, the
Trustee and the Custodian created hereby shall terminate, except for the
Seller's indemnity obligations as provided herein, upon the termination of the
Trust Fund pursuant to the terms of the Pooling and Servicing Agreement.

                  (b) The Company may terminate this Purchase Agreement, by
notice to the Seller, at any time at or prior to the Closing Date:

                      (i)   if the Underwriting Agreement is terminated by the
Underwriters pursuant to the terms of the Underwriting Agreement or if there has
been, since the time of execution of this Purchase Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the financial condition, earnings, business affairs
or business prospects of the Seller, whether or not arising in the ordinary
course of business, or

                      (ii)  if there has occurred any material adverse change in
the financial markets in the United States, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or development
involving a prospective change in national or international political, financial
or economic conditions, in each case the effect of which is such as to make it,
in the judgment of the Underwriters, impracticable to market the Class A
Certificates and Mezzanine Certificates or to enforce contracts for the sale of
the Class A Certificates and Mezzanine Certificates, or

                      (iii) if trading in any securities of the Seller has been
suspended or limited by the Commission or the New York Stock Exchange, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the NASDAQ National Market System has been suspended or limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the National Association of Securities Dealers, Inc. or
any other governmental authority,

                      (iv)  if a banking moratorium has been declared by either
federal or New York authorities,

                      (v)   either (A) a change in control of the Seller shall
have occurred other than in connection with and as a result of the issuance and
sale by the Seller or registered, publicly offered common stock; or (B) the
Underwriters determine in their sole discretion that any material adverse change
has occurred in the management of the Seller,

                      (vi)  there is (A) a material breach by the Seller of any
representation and warranty contained in this Purchase Agreement or the
Underwriting Agreement other than a representation or warranty relating to
particular Mortgage Loans, and the Underwriters have

                                       27

<PAGE>

reason to believe in good faith either that such breach is not curable within
two (2) days or that such breach may not have been cured in all material
respects at the expiration of two (2) days following discovery thereof by the
Seller or (B) a failure by the Seller to make any payment payable by it under
this Purchase Agreement or (C) any other failure by the Seller to observe and
perform in any material respect its material covenants, agreements and
obligations with the Company, including without limitation those contained in
this Purchase Agreement, and the Company has reason to believe in good faith
that such failure may not have been cured in all material respects at the
expiration of two (2) days following discovery thereof by the Seller, or

                      (vii) the Seller fails to provide written notification to
the Underwriters of any change in its loan origination, acquisition or appraisal
guidelines or practices, or the Seller, without the prior consent of the
Underwriters (which shall not be unreasonably withheld), amends in any material
respect its loan origination, acquisition or appraisal guidelines or practices.

                  If this Purchase Agreement is terminated pursuant to this
Section 7.01(b), such termination shall be without liability of any party to any
other party except as provided in Section 4.02 hereof.

                                  ARTICLE VIII

                            MISCELLANEOUS PROVISIONS

                  Section 8.01 Amendment.

                  This Purchase Agreement may be amended from time to time by
the Seller, the Company by written agreement signed by the Seller and the
Company.

                  Section 8.02 Governing Law.

                  This Purchase Agreement shall be governed by and construed in
accordance with the laws of the State of New York and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with
such laws.

                  Section 8.03 Notices.

                  All demands, notices and communications hereunder shall be in
writing and shall be deemed to have been duly given if personally delivered at
or mailed by registered mail, postage prepaid, addressed as follows:

                      (i) if to the Seller:

                          NovaStar Mortgage, Inc.
                          8140 Ward Parkway
                          Suite 300
                          Kansas City, Missouri 64114
                          Attention: Scott F. Hartman

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<PAGE>

or, such other address as may hereafter be furnished to the Company in writing
by the Seller.

                      (ii)  if to the Company:

                            NovaStar Mortgage Funding Corporation
                            8140 Ward Parkway
                            Suite 300
                            Kansas City, Missouri 64114
                            Attention: Matt Kaltenrieder

or such other address as may hereafter be furnished to the Seller in writing by
the Company.

                      (iii) if to the Custodian:

                            Wachovia Bank, National Association
                            4527 Metropolitan Court, Suite C
                            Frederick, Maryland 21704
                            Attention: Edward Aquino

or such other address as may hereafter be furnished to the Seller in writing by
the Custodian.

                      (iv)  if to the Trustee:

                            JPMorgan Chase Bank
                            4 New York Plaza, 6/th/ Floor
                            New York, NY 10004-2477
                            Attention: Institutional Trust Services (NovaStar
                                       Mortgage Funding Trust, Series 2003-1)

or such other address as may hereafter be furnished to the Seller in writing by
the Trustee.

                  Section 8.04 Severability of Provisions.

                  If any one or more of the covenants, agreements, provisions or
terms of this Purchase Agreement shall be held invalid for any reason
whatsoever, then such covenants, agreements, provisions or terns shall be deemed
severable from the remaining covenants, agreements, provisions or terms of this
Purchase Agreement and shall in no way affect the validity or enforceability of
the other provisions of this Purchase Agreement.

                  Section 8.05 Relationship of Parties.

                  Nothing herein contained shall be deemed or construed to
create a partnership or joint venture between the parties hereto, and the
services of the Seller shall be rendered as an independent contractor and not as
agent for the Company.

                                       29

<PAGE>

                  Section 8.06 Counterparts.

                  This Purchase Agreement may be executed in two or more
counterparts and by the different parties hereto on separate counterparts, each
of which, when so executed, shall be deemed to be an original and such
counterparts together shall constitute one and the same agreement.

                  Section 8.07 Further Agreements.

                  The Company and the Seller each agree to execute and deliver
to the other such additional documents, instruments or agreements as may be
necessary or appropriate to effectuate the purposes of this Purchase Agreement.
Each of the Company and the Seller agrees to use its best reasonable efforts to
take all actions necessary to be taken by it to cause the Class A-1 Certificates
to be rated "Aaa" by Moody's and "AAA" by S&P and Fitch, the Class A-2
Certificates to be rated "Aaa" by Moody's and "AAA" by S&P and Fitch, the Class
AIO Certificates to be rated "Aaa" by Moody's and "AAA" by S&P and Fitch, the
Class M-1 Certificates to be rated "Aa2" by Moody's and "AA" by S&P and Fitch,
the Class M-2 Certificates to be rated "A2" by Moody's and "A" by S&P and Fitch,
the Class M-3 Certificates to be rated "Baa2" by Moody's and "BBB" by S&P and
Fitch and the Class P Certificates to be rated "AAA" by S&P and Fitch, and each
party will cooperate with the other in connection therewith.

                  Section 8.08 Intention of the Parties.

                  It is the intention of the parties that (i) the Company is
purchasing on the Closing Date, and the Seller is selling on the Closing Date,
the Closing Date Mortgage Loans, rather than the Company providing to the Seller
a loan secured by the Closing Date Mortgage Loans on the Closing Date, and (ii)
the Trustee is purchasing on the Closing Date, and the Company is selling on the
Closing Date, the Closing Date Mortgage Loans, rather than the Trustee providing
to the Company a loan secured by the Closing Date Mortgage Loans, (iii) the
Company will be purchasing on each Subsequent Transfer Date, and the Seller will
be selling on each Subsequent Transfer Date, the related Subsequent Mortgage
Loans, rather than the Company providing to the Seller a loan secured by the
related Subsequent Mortgage Loans on each Subsequent Transfer Date, and (iv) the
Trustee will be purchasing on each Subsequent Transfer Date, and the Company
will be selling on each Subsequent Transfer Date, the related Subsequent
Mortgage Loans, rather than the Trustee providing to the Company a loan secured
by the related Subsequent Mortgage Loans on each Subsequent Transfer Date.
Accordingly, the parties hereto each intend to treat these transactions as (i) a
sale by the Seller, and a purchase by the Company, of the Closing Date Mortgage
Loans on the Closing Date, and (ii) a sale by the Company, and a purchase by the
Trustee, of the Closing Date Mortgage Loans on the Closing Date, (iii) a sale by
the Seller, and a purchase by the Company, of the related Subsequent Mortgage
Loans on each Subsequent Transfer Date, and (iv) a sale by the Company, and a
purchase by the Trustee, of the related Subsequent Mortgage Loans on each
Subsequent Transfer Date.

                                       30

<PAGE>

                  Section 8.09 Successors and Assigns; Assignment of Purchase
Agreement.

                  This Purchase Agreement shall bind and inure to the benefit of
and be enforceable by the Seller, the Company, the Trustee, the Custodian, and
their respective successors and assigns. The obligations of the Seller under
this Purchase Agreement cannot be assigned or delegated to a third party without
the consent of the Company, which consent shall be at the Company's discretion.
The parties hereto acknowledge that (i) the Company is acquiring the Closing
Date Mortgage Loans for the purpose of selling them to the Trustee, who will
hold the Closing Date Mortgage Loans in trust for the benefit of the
Certificateholders and (ii) the Company is acquiring the Subsequent Mortgage
Loans for the purpose of selling them to the Trustee, who will hold the
Subsequent Mortgage Loans for the benefit of the Certificateholders. As an
inducement to the Company and the Trustee to purchase the Mortgage Loans, the
Seller acknowledges and consents to (i) the assignment by the Company to the
Trustee of all of the Company's rights or remedies against the Seller pursuant
to this Purchase Agreement and to (ii) the enforcement or exercise of any rights
against the Seller pursuant to this Purchase Agreement by the Company and the
Trustee. Such enforcement of a right or remedy by the Trustee, shall have the
same force and effect as if the right or remedy had been enforced or exercised
by the Company directly.

                  Section 8.10 Survival.

                  The representations and warranties made herein by the Seller
and the provisions of Article V hereof shall survive the purchase of the
Mortgage Loans hereunder.

                  Section 8.11 Liability of the Trustee.

                  The Trustee is entering into the Basic Documents to which it
is a party solely as Trustee, hereunder and thereunder, and not in its
individual capacity, and all persons having any claim against the Trustee by
reason of the transactions contemplated by this Agreement or any other Basic
Document shall look only to the Trust Fund for payment or satisfaction thereof.

                                       31

<PAGE>

                  IN WITNESS WHEREOF, the Seller, the Company, the Custodian and
the Trustee have caused their names to be signed to this Mortgage Loan Purchase
Agreement by their respective officers thereunto duly authorized as of the day
and year first above written.

                             NOVASTAR MORTGAGE, INC.
                             as Seller

                             By:    /s/ Matt Kaltenrieder
                                ---------------------------------
                             Name:  Matt Kaltenrieder
                             Title: Vice President

                             NOVASTAR MORTGAGE FUNDING
                             CORPORATION
                             as Company

                             By:    /s/ Matt Kaltenrieder
                                ---------------------------------
                             Name:  Matt Kaltenrieder
                             Title: Vice President

                             WACHOVIA BANK, NATIONAL ASSOCIATION
                             as Custodian

                             By:    /s/ Edwin Aquino
                                ---------------------------------
                             Name:  Edwin Aquino
                             Title: Vice President

                             JPMORGAN CHASE BANK,
                             not in its individual capacity,
                             but solely as Trustee

                             By:    /s/ Patricia Russo
                                ---------------------------------
                             Name:  Patricia Russo
                             Title: Vice President

              [Signature Page to Mortgage Loan Purchase Agreement]

<PAGE>


                                    EXHIBIT 1

                       CLOSING DATE MORTGAGE LOAN SCHEDULE

                       [ON FILE WITH DEWEY BALLANTINE LLP]

                                        2


<PAGE>

                                  EXHIBIT 2(A)

                     SELLER'S SUBSEQUENT TRANSFER INSTRUMENT

         Pursuant to this Seller's Subsequent Transfer Instrument (the "Seller's
Instrument"), dated as of February 1, 2003, between NovaStar Mortgage, Inc. as
seller (the "Seller"), and NovaStar Mortgage Funding Corporation, as company
(the "Company"), and pursuant to the Mortgage Loan Purchase Agreement, dated as
of February 1, 2003 (the "Purchase Agreement"), among the Seller, the Company,
Wachovia Bank, National Association, as Custodian (the "Custodian") and JPMorgan
Chase Bank, as Trustee (the "Trustee"), the Seller and the Company agree to the
sale by the Seller and the purchase by the Company of the subsequent Mortgage
Loans listed on the attached Mortgage Loan Schedule (the "Subsequent Mortgage
Loans") and the related MI Policies.

         Capitalized terms used and not defined herein have their respective
meanings as set forth in the definitions contained in the Pooling and Servicing
Agreement, dated as of February 1, 2003 (the "Pooling and Servicing Agreement"),
between the Trustee, the Custodian, the Company and the Seller/Servicer which
definitions are incorporated by reference herein. All other capitalized terms
used herein shall have the meanings specified herein.

         Section 1. Conveyance of Subsequent Mortgage Loans.

         (a) The Seller does hereby sell, transfer, assign, set over and convey
to the Company, without recourse, all of its right, title and interest in and to
the Subsequent Mortgage Loans and the related MI Policies, all scheduled
payments of principal and interest on the Subsequent Mortgage Loans due after
the Subsequent Cut-off Date, and all other payments of principal and interest on
the Subsequent Mortgage Loans collected after the Subsequent Cut-off Date (minus
that portion of any such payment which is allocable to the period prior to the
Subsequent Cut-off Date); provided, however, that no scheduled payments of
principal and interest due on or before the Subsequent Cut-off Date and
collected after the Subsequent Cut-off Date shall belong to the Company pursuant
to the terms of this Seller's Instrument. The Seller, contemporaneously with the
delivery of this Seller's Instrument, has delivered or caused to be delivered to
the Custodian, at the direction of the Company, each item set forth in Section
2.02(b) of the Purchase Agreement with respect to such Subsequent Mortgage Loans
and the related MI Policies. The transfer to the Company by the Seller of the
Subsequent Mortgage Loans identified on the attached Mortgage Loan Schedule
shall be absolute and is intended by the Seller, the Company, the Custodian, the
Trustee and the Certificateholders to constitute and to be treated as a sale by
the Seller.

         The parties hereto intend that the transactions set forth herein
constitute a sale by the Seller to the Company on the Subsequent Transfer Date
of all the Seller's right, title and interest in and to the Subsequent Mortgage
Loans and the related MI Policies, and other property as and to the extent
described above. In the event the transactions set forth herein shall be deemed
not to be a sale, the Seller hereby grants to the Company as of the Subsequent
Transfer Date a security interest in all of the Seller's right, title and
interest in, to and under the Subsequent Mortgage Loans, and such other
property, to secure all of the Seller's obligations hereunder, and this Purchase
Agreement shall constitute a security agreement under applicable


<PAGE>

law, and in such event, the parties hereto acknowledge that the Custodian, in
addition to holding the Subsequent Mortgage Loans and the related MI Policies on
behalf of the Trustee for the benefit of the Certificateholders, holds the
Subsequent Mortgage Loans and the related MI Policies as designee and agent of
the Company. The Seller agrees to take or cause to be taken such actions and to
execute such documents, including without limitation the filing of all necessary
UCC-1 financing statements filed in the State of Maryland (which shall be
submitted for filing as of the Subsequent Transfer Date), any continuation
statements with respect thereto and any amendments thereto required to reflect a
change in the name or corporate structure of the Seller or the filing of any
additional UCC-1 financing statements due to the change in the state of
incorporation of the Seller as are necessary to perfect and protect the
interests of the Company and its assignees in each Subsequent Mortgage Loan, the
related MI Policies and the proceeds thereof.

         (b) The expenses and costs relating to the delivery of the Subsequent
Mortgage Loans, this Seller's Instrument and such other items required under the
Mortgage Loan Purchase Agreement shall be borne by the Seller.

         (c) Additional terms of the sale are set forth on Attachment A hereto.

         Section 2. Representations and Warranties; Conditions Precedent.

         (a) The Seller hereby affirms the representations and warranties set
forth in Section 3.01 of the Purchase Agreement that relate to the Seller and
the Subsequent Mortgage Loans as of the date hereof. The Seller hereby confirms
that each of the conditions set forth in Section 2.02(b) of the Purchase
Agreement are satisfied as of the date hereof and further represents and
warrants that each Subsequent Mortgage Loan complies with the requirements of
this Seller's Instrument and Section 2.02(c) of the Purchase Agreement.

         (b) The Seller is solvent, is able to pay its debts as they become due
and has capital sufficient to carry on its business and its obligations
hereunder; it will not be rendered insolvent by the execution and delivery of
this Seller's Instrument or by the performance of its obligations hereunder nor
is it aware of any pending insolvency; no petition of bankruptcy (or similar
insolvency proceeding) has been filed by or against the Seller prior to the date
hereof;

         (c) All terms and conditions of the Purchase Agreement are hereby
ratified and confirmed; provided, however, that in the event of any conflict the
provisions of this Seller's Instrument shall control over the conflicting
provisions of the Purchase Agreement.

         Section 3. Recordation of the Seller's Instrument.

         To the extent permitted by applicable law, this Seller's Instrument, or
a memorandum thereof if permitted under applicable law, is subject to
recordation in all appropriate public offices for real property records in all
of the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Servicer, but only when accompanied by an Opinion of Counsel to the effect that
such recordation materially and beneficially affects the interests of the
Certificateholders or is necessary for the administration or servicing of the
Mortgage Loans.

                                        2

<PAGE>

         Section 4. Governing Law.

         This Seller's Instrument shall be construed in accordance with the laws
of the State of New York and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws, without giving
effect to principles of conflicts of law.

         Section 5. Counterparts.

         This Seller's Instrument may be executed in one or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same instrument.

         Section 6. Successors and Assigns.

         This Seller's Instrument shall inure to the benefit of and be binding
upon the Seller and the Company and their respective successors and assigns. The
Custodian and the Trustee shall be express third party beneficiaries hereto.

         IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Seller's Instrument as of the day and year first written above.

                                            NOVASTAR MORTGAGE, INC.,
                                            as Seller

                                            By:_________________________________
                                                Name:
                                                Title:

                                            NOVASTAR MORTGAGE FUNDING
                                            CORPORATION,
                                            as Company

                                            By:_________________________________
                                                Name:
                                                Title:

                                        3

<PAGE>

       NOVASTAR HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 2003-1

             ATTACHMENT A TO SELLER'S SUBSEQUENT TRANSFER INSTRUMENT

                               __________ __, 2003

A.   Profile of Subsequent Mortgage Loans:

          1. Subsequent Cut-off Date: _________ __, 2003

          2. Subsequent Transfer Date: ________ __, 2003

          3. Aggregate Principal Balance of the Subsequent Mortgage Loans as of
the Subsequent Cut-off Date: $_____________

          4. Purchase Price: 100.00%

B.   As to all the Subsequent Mortgage Loans the subject of this Instrument:

     I.    Longest stated term to maturity:                       360 months
     II.   Minimum Mortgage Rate:                                 ____%
     III.  Maximum Mortgage Rate:                                 ____%
     IV.   WAC of all Mortgage Loans:                             ____%
     V.    WAM of all Mortgage Loans:                             ____%
     VI.   Largest Principal Balance:                             $______
     VII.  Non-owner occupied Mortgaged Properties:               ____%
     VIII. California zip code concentration:                     ____%
     IX.   Condominiums:                                          ____%
     X.    Single-family:                                         ____%
     XI.   Weighted average term since origination:               ___ months
     XII.  Mortgage Loans Covered by MI Policies:                 ____%

<PAGE>

                                  EXHIBIT 2(B)

                    COMPANY'S SUBSEQUENT TRANSFER INSTRUMENT

          Pursuant to this Company's Subsequent Transfer Instrument (the
"Company's Instrument"), dated as of _________ __, 2002, between NovaStar
Mortgage Funding Corporation, as company (the "Company"), and JPMorgan Chase
Bank, as trustee (the "Trustee"), and pursuant to the Mortgage Loan Purchase
Agreement, dated as of February 1, 2003 (the "Purchase Agreement"), among
NovaStar Mortgage, Inc., as seller (the "Seller"), the Company, Wachovia Bank,
National Association, as Custodian ("Custodian"), and JPMorgan Chase Bank, as
Trustee (the "Trustee"), the Company and the Trustee agree to the sale by the
Company and the purchase by the Trustee of the subsequent Mortgage Loans listed
on the attached Mortgage Loan Schedule (the "Subsequent Mortgage Loans") and the
related MI Policies, and the pledge of the Subsequent Mortgage Loans by the
Trustee.

          Capitalized terms used and not defined herein have their respective
meanings as set forth in the definitions contained in the Pooling and Servicing
Agreement, dated as of February 1, 2003 (the "Pooling and Servicing Agreement"),
between the Custodian, the Trustee, the Company and the Servicer which
definitions are incorporated by reference herein. All other capitalized terms
used herein shall have the meanings specified herein.

          Section 1. Conveyance of Subsequent Mortgage Loans.

          (a) The Company does hereby sell, transfer, assign, set over and
convey to the Trustee, without recourse, (i) all of its right, title and
interest in and to the Subsequent Mortgage Loans and the related MI Policies,
all scheduled payments of principal and interest on the Subsequent Mortgage
Loans due after the Subsequent Cut-off Date, and all other payments of principal
and interest on the Subsequent Mortgage Loans collected after the Subsequent
Cut-off Date (minus that portion of any such payment which is allocable to the
period prior to the Subsequent Cut-off Date); provided, however, that no
scheduled payments of principal and interest due on or before the Subsequent
Cut-off Date and collected after the Subsequent Cut-off Date shall belong to the
Trustee pursuant to the terms of this Company's Instrument and (ii) all of its
right, title and interest in and to the Seller's Subsequent Transfer Instrument,
dated as of ______ __, 2003 (the "Seller's Instrument"), between the Seller and
the Company. The Company, contemporaneously with the delivery of this Company's
Instrument, has delivered or caused to be delivered to the Custodian each item
set forth in Section 2.02(b) of the Purchase Agreement with respect to such
Subsequent Mortgage Loans. The transfer to the Trustee by the Company of the
Subsequent Mortgage Loans identified on the attached Mortgage Loan Schedule and
the related MI Policies shall be absolute and is intended by the Company, the
Trustee, the Custodian and the Certificateholders to constitute and to be
treated as a sale by the Company.

          The parties hereto intend that the transactions set forth herein
constitute a sale by the Company to the Trustee on the Subsequent Transfer Date
of all the Company's right, title and interest in and to the Subsequent Mortgage
Loans and the related MI Policies, and other property as and to the extent
described above. In the event the transactions set forth herein shall be deemed
not to be a sale, the Company hereby grants to the Trustee as of the Subsequent
Transfer Date a security interest in all of the Company's right, title and
interest in, to and under the

<PAGE>

Subsequent Mortgage Loans, and such other property, to secure all of the
Company's obligations hereunder, and this Company's Instrument shall constitute
a security agreement under applicable law, and in such event, the parties hereto
acknowledge that the Custodian on behalf of the Trustee, in addition to holding
the Subsequent Mortgage Loans and the related MI Policies for the benefit of the
Certificateholders, holds the Subsequent Mortgage Loans and the related MI
Policies as designee and agent of the Trustee. The Company agrees to take or
cause to be taken such actions and to execute such documents, including without
limitation the filing of all necessary UCC-1 financing statements filed in the
State of Delaware (which shall be submitted for filing as of the Subsequent
Transfer Date), any continuation statements with respect thereto and any
amendments thereto required to reflect a change in the name or corporate
structure of the Company or the filing of any additional UCC-1 financing
statements due to the change in the state of incorporation of the Company as are
necessary to perfect and protect the interests of the Trustee and its assignees
in each Subsequent Mortgage Loan, the related MI Policies and the proceeds
thereof.

          (b) The expenses and costs relating to the delivery of the Subsequent
Mortgage Loans, this Company's Instrument and such other items required under
the Purchase Agreement shall be borne by the Company.

          Section 2. Representations and Warranties; Conditions Precedent.

          (a) The Company hereby affirms the representations and warranties set
forth in Section 3.02 of the Purchase Agreement that relate to the Company as of
the date hereof.

          (b) The Company is solvent, is able to pay its debts as they become
due and has capital sufficient to carry on its business and its obligations
hereunder; it will not be rendered insolvent by the execution and delivery of
this Company's Instrument or by the performance of its obligations hereunder nor
is it aware of any pending insolvency; no petition of bankruptcy (or similar
insolvency proceeding) has been filed by or against the Company prior to the
date hereof;

          (c) All terms and conditions of the Purchase Agreement are hereby
ratified and confirmed; provided, however, that in the event of any conflict the
provisions of this Company's Instrument shall control over the conflicting
provisions of the Mortgage Loan Purchase Agreement.

          Section 3. Recordation of Instrument.

          To the extent permitted by applicable law, this Company's Instrument,
or a memorandum thereof if permitted under applicable law, is subject to
recordation in all appropriate public offices for real property records in all
of the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Servicer, but only when accompanied by an Opinion of Counsel to the effect that
such recordation materially and beneficially affects the interests of the
Certificateholders or is necessary for the administration or servicing of the
Mortgage Loans.

          Section 4. Governing Law.

<PAGE>

          This Company's Instrument shall be construed in accordance with the
laws of the State of New York and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws, without
giving effect to principles of conflicts of law.

          Section 5. Counterparts.

          This Company's Instrument may be executed in one or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same instrument.

          Section 6. Successors and Assigns.

          This Company's instrument shall inure to the benefit of and be binding
upon the Company, the Custodian and the Trustee and their respective successors
and assigns.

<PAGE>

          IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Company's Instrument as of the day and year first written above.

                            NOVASTAR MORTGAGE FUNDING
                            CORPORATION,
                            as Company


                            By:_________________________________
                                Name:
                                Title:

                            JPMORGAN CHASE BANK,
                            as Trustee


                            By:_________________________________
                                Name:
                                Title:

                            WACHOVIA BANK, NATIONAL ASSOCIATION,
                            as Custodian

                            By:_________________________________
                                Name:
                                Title: