<PAGE>
 
                                                                   EXHIBIT 10.87

                ASSIGNMENT, ASSUMPTION AND RECOGNITION AGREEMENT
                ------------------------------------------------


          This Assignment, Assumption and Recognition Agreement (the
"Agreement") is made and entered into on August 14, 1998, by Countrywide Home
Loans, Inc., a New York corporation, having an address at 4500 Park Granada
Boulevard, Calabasas, California 91302 (the "Seller"), Associates Home Equity
Services, Inc., having an address at 250 Carpenter Freeway, Building 6 Decker,
Irving, Texas 75062 (the "Purchaser") and Pan American Bank, FSB, having an
address at 625 The City Drive, Orange, California 92868 (the "Company").

     In consideration of the mutual promises and agreements contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:

          1.   Assignment and Assumption.  Except as expressly provided for
               -------------------------                                   
herein, the Seller hereby grants, transfers and assigns to the Purchaser (a) all
of its right, title and interest as "Purchaser" in, to and under that certain
Mortgage Loan Purchase and Interim Servicing Agreement dated as of August 14,
1998, and duly executed by the Company and the Seller (attached hereto as
Exhibit A, the "Purchase Agreement"), with respect to the Mortgage Loans (as
---------                                                                   
defined herein), (b) all of its right, title and interest in and to each of the
mortgage loans identified in Exhibit B hereto (the "Mortgage Loans"), and (c)
                             ---------                                       
all servicing rights relating to the Mortgage Loans.  Except for the provisions
pertaining to the payment of the purchase price, the Purchaser hereby assumes
all of the Seller's obligations as "Purchaser" under the Purchase Agreement with
respect to the Mortgage Loans from and after the date hereof, and the Seller
shall be relieved and released by the Company of all of its obligations under
the Purchase Agreement from and after the date hereof, with respect to the
Mortgage Loans.  Except as is otherwise expressly provided herein, the Seller
makes no representations, warranties or covenants to the Purchaser and the
Purchaser acknowledges that the Seller has no obligations to the Purchaser under
the terms of the Purchase Agreement or otherwise relating to the transaction
contemplated herein (including but not limited to any obligation to repurchase
any of the Mortgage Loans or to indemnify the Purchaser).

          2.   Consideration.  In consideration for the transfers and
               -------------                                         
assignments set forth in paragraph 1 of this Agreement, the Purchaser agrees to
pay to the Seller the amounts referenced in that certain Funding Schedule dated
as of August 14, 1998 (the "Funding Schedule") and duly executed by the Seller
and the Purchaser (the "Purchase Price").  The purchaser agrees to wire the
agreed upon Purchase Price to the Seller to the account designated below:

               Bank of New York
               ABA - 021000018
               Countrywide Home Loans
               ACCT - 8900038632
               REF - Stuart Levitt

          3.   Recognition of the Purchaser by the Company.  From and after the
               -------------------------------------------                     
date hereof, the Company shall recognize the Purchaser as the owner of the
Mortgage Loans and the "Purchaser" under the Purchase Agreement with respect to
such Mortgage Loans.

          4.   Servicing of the Mortgage Loans.  From and after the date hereof,
               -------------------------------                                  
the Company shall interim service the Mortgage Loans for the Purchaser in
accordance with the terms and conditions of the Purchase Agreement, as if the
Purchaser and Company had entered into the Purchase Agreement. The address of
the Purchaser set forth in Section 6.1 of the Purchase Agreement shall be
changed to read as follows:
<PAGE>
 
               Associates Home Equity Services, Inc.
               250 Carpenter Freeway
               Building 6 Decker
               Irving, Texas 75062
               Attn: Ms. Marilyn Mocilnikar

          5.   Status of Purchase Agreement.  The Company and the Seller
               ----------------------------                             
represent and warrant that with respect to each of the Mortgage Loans (a) the
Purchase Agreement is in full force and effect as of the date hereof, (b) the
Purchase Agreement has not been amended or modified in any respect, and (c)
there has been no waiver or any agreement to waive any provision, nor has any
notice of termination been given, under the Purchase Agreement.

          6.   No Claims.  The Company represents and warrants that it has no
               ---------                                                     
offsets, counterclaims or other defenses available to it with respect to the
Purchase Agreement.

          7.   Covenants, Representations and Warranties of the Seller.  The
               -------------------------------------------------------      
Seller represents and warrants to, and covenants with, the Purchaser that:

               a. The Seller is a corporation duly organized, validly existing
                  and in good standing under the laws of the jurisdiction of its
                  incorporation, and has all requisite corporate power and
                  authority to acquire, own and sell the Mortgage Loans;

               b. The Seller has full corporate power and authority to execute,
                  deliver and perform under this Agreement, and to consummate
                  the transactions set forth herein. The execution, delivery and
                  performance of the Seller of this Agreement, and the
                  consummation by it of the transactions contemplated hereby,
                  have been duly authorized by all necessary corporate action of
                  the Seller. This Agreement has been fully executed and
                  delivered by the Seller and constitutes the valid and legally
                  binding obligation of the Seller enforceable against the
                  Seller in accordance with its respective terms;

               c. No material consent, approval, order or authorization of, or
                  declaration, filing or registration with, any governmental
                  entity is required to be obtained or made by the Seller in
                  connection with the execution, delivery or performance by the
                  Seller of this Agreement, or the consummation by it of the
                  transaction contemplated hereby;

               d. There is no action, suit, proceeding, investigation or
                  litigation pending or, to the Seller's knowledge, threatened,
                  which either in any instance or in the aggregate, if
                  determined adversely to the Seller, would adversely affect the
                  sale of the Mortgage Loans to the Purchaser, the execution,
                  delivery or enforceability of this Agreement, or the Seller's
                  ability to perform its obligations under this Agreement; and

               e. Immediately prior to payment of the purchase price for the
                  Mortgage Loans, the Seller is the lawful owner of the Mortgage
                  Loans with the full right to transfer the Mortgage Loans free
                  from any and all claims and encumbrances whatsoever.

                                       2
<PAGE>
 
          8.   Covenants, Representations and Warranties of Purchaser.  The
               ------------------------------------------------------      
Purchaser represents and warrants to, and covenants with, the Seller and the
Company that except for the provisions pertaining to the payment of the purchase
price thereunder, the Purchaser agrees to be bound as "Purchaser" by all of the
terms, covenants and conditions of the Purchase Agreement, and from and after
the date hereof, the Purchaser assumes for the benefit of the Seller and the
Company all of the Seller's obligations as "Purchaser" thereunder.

          9.   Governing Law.  This Agreement shall be construed in accordance
               -------------                                                  
with the laws of the State of California and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance with the
laws of the State of California, except to the extent preempted by federal law.

          10.  Confidentiality.  The Seller and the Purchaser hereby acknowledge
               ---------------                                                  
and agree that this Agreement shall be kept confidential and its contents will
not be divulged to any party without the other party's consent except to the
extent that it is appropriate for the Seller or the Purchaser to do so in
working with legal counsel, auditors, taxing authorities or other governmental
agencies.

          11.  Conflict with Purchase Agreement.  To the extent there is any
               --------------------------------                             
conflict between the terms of the Purchase Agreement and this Agreement, the
latter shall be controlling, notwithstanding anything to the contrary contained
in the Purchase Agreement.

          12.  Capitalized Terms.  All capitalized terms used herein and not
               -----------------                                            
otherwise defined herein shall have the meanings assigned to such terms in the
Purchase Agreement.

          13.  Counterparts.  This Agreement may be executed in any number of
               ------------                                                  
counterparts. Each counterpart shall be deemed to be an original and all such
counterparts shall constitute one and the same instrument.

          14.  Additional Mortgage Loans.  The parties acknowledge that the
               -------------------------                                   
Mortgage Loans being transferred and assigned by the Seller to the Purchaser
pursuant to this Agreement are not all of the mortgage loans which were
purchased by the Seller from the Company under the Purchase Agreement. The
remaining mortgage loans are identified in Exhibit C hereto (the "Additional
                                           ---------                        
Mortgage Loans").  The Seller and the Purchaser shall consummate the purchase
and sale of the Additional Mortgage Loans on or before August 19, 1998;
provided, however, the Mortgage Loans in Exhibit C are not thirty (30) or more
                                         ---------                            
days contractually delinquent and such sale and purchase will be pursuant to all
of the terms and conditions set forth in the Purchase Agreement and this
Agreement provided, further, however, that the purchase price relating to such
additional Mortgage Loans shall be as set forth in a separate funding agreement
to be executed by the parties on the date hereof.

                            [Signature page follows]

                                       3
<PAGE>
 
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first above written.

                                    COUNTRYWIDE HOME LOANS, INC.,
                                    the Seller


                                         /s/  Michael W. Schloessmann
                                    By _________________________________
                                       Michael W. Schloessmann
                                       Vice President

                                    ASSOCIATES HOME EQUITY SERVICES,
                                    INC.,
                                    the Purchaser


                                         /s/  [Signature Illegible]
                                    By ________________________________
                                       Name:
                                       Title:

                                    PAN AMERICAN BANK, FSB
                                    the Company

                                         /s/  Blair F. Kenny
                                    By _________________________________
                                       Name:  Blair F. Kenny
                                       Title:  Senior Vice President

                                       4
<PAGE>
 
                                   EXHIBIT A

                                 MORTGAGE LOAN
                         PURCHASE AND INTERIM SERVICING
                                   AGREEMENT

                                   (attached)

                                       5
<PAGE>
 
             MORTGAGE LOAN PURCHASE AND INTERIM SERVICING AGREEMENT
             ------------------------------------------------------


          This Mortgage Loan Purchase and Interim Servicing Agreement is dated
and effective as of August 14, 1998 (the "Agreement"), between Pan American
Bank, FSB, having an address at 625 The City Drive, Orange, California 92868
(the "Seller"), and Countrywide Home Loans, Inc., having an address at 4500 Park
Granada, Calabasas, California 91302 (the "Purchaser").


                                R E C I T A L S
                                - - - - - - - -

          The Seller desires to sell and transfer to the Purchaser, and the
Purchaser desires to purchase from the Seller, those certain mortgage loans
identified on Exhibit A hereto, including all servicing rights relating thereto
              ---------                                                        
(the "Mortgage Loans") upon such terms as are set forth below.

          In consideration of the promises and the mutual agreements and
undertakings set forth herein, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

                                   ARTICLE I

                                  Definitions
                                  -----------

          Whenever used herein, the following words and phrases, unless the
context otherwise requires, shall have the following meanings:

          ACCRUED INTEREST:  Accrued interest owing to the Seller on the Stated
          ----------------                                                     
Principal Balance of each Mortgage Loan at a rate equal to the Mortgage Interest
Rate of each such Mortgage Loan, from the date through which interest has last
been paid (as of Cut-off Date) through the day prior to the Closing Date,
inclusive; provided, however, with respect to those Mortgage Loans for which
interest has been paid through a date beyond the Cut-off Date, such accrued
interest owing to Seller shall be reduced by the amount of interest accruing on
the Stated Principal Balance of each such Mortgage Loan at a rate equal to the
Mortgage Interest Rate of such Mortgage Loan, from the Closing Date to the day
prior to the interest paid through date for such Mortgage Loan, inclusive.

          AGENCIES:  Both FNMA or FHLMC.
          --------                      

          AGREEMENT:  This Mortgage Loan Purchase and Interim Servicing
          ---------                                                    
Agreement, including all exhibits and supplements hereto, and all amendments
hereof.

          APPRAISED VALUE:  With respect to any Mortgage Loan, the value of the
          ---------------                                                      
related Mortgaged Property based upon the lesser of (i) the appraisal made for
the originator at the time of origination of the Mortgage Loan or (ii) the
purchase price of the Mortgaged Property at the time of origination of the
Mortgage Loan, provided, however, that in the case of a refinanced Mortgage
Loan, such value is based solely upon the appraisal made at the time of
origination of such refinanced Mortgage Loan and in the case of a Mortgage Loan
originated under the streamlined documentation program, such value shall be
based on an appraisal obtained at the time the original loan was originated.

          ASSIGNMENT OF MORTGAGE:  An assignment of the Mortgage, notice of
          ----------------------                                           
transfer or equivalent instrument in recordable form, sufficient under the laws
of the jurisdiction wherein the related Mortgaged Property is located to reflect
the sale of the Mortgage to the Purchaser.

                                       1
<PAGE>
 
          BUSINESS DAY:  Any day other than (i) a Saturday or Sunday, or (ii) a
          ------------                                                         
day on which banking and savings and loan institutions in the State of
California, are authorized or obligated by law or executive order to be closed.

          CLOSING DATE:  August 14, 1998, or such other date as may be mutually
          ------------                                                         
agreed upon by the Seller and the Purchaser.

          CUT-OFF DATE:  August 7, 1998.
          ------------                  

          DUE DATE:  The day of the month on which a Monthly Payment is due on a
          --------                                                              
Mortgage Loan, exclusive of any days of grace.

          ESCROW ACCOUNT:  An account or accounts maintained by the Seller, or
          --------------                                                      
the Seller's predecessor in interest, maintained for the deposit of Escrow
Payments received in respect of one or more Mortgage Loans.

          ESCROW PAYMENTS:  The amounts held in Escrow Accounts which include
          ---------------                                                    
amounts being held for payment of taxes, assessments, water rates, mortgage
insurance premiums, fire and hazard insurance premiums and other payments
required to be escrowed by the Mortgagor pursuant to any Mortgage Loan.

          FHLMC:  The Federal Home Loan Mortgage Corporation, or any successor
          -----                                                               
thereto.

          FNMA:  The Federal National Mortgage Association or any successor
          ----                                                             
thereto.

          GROSS MARGIN:  The fixed percentage amount set forth in the related
          ------------                                                       
Mortgage Note which amount is added to the Index in accordance with the terms of
the related Mortgage Note to determine the Mortgage Interest Rate for such
Mortgage Loan.

          HMDA:  The Home Mortgage Disclosure Act, as amended.
          ----                                                

          HUD:  The Department of Housing and Urban Development or any successor
          ---                                                                   
thereto.

          INDEX:  On each Interest Adjustment Date, the Index shall mean the
          -----                                                             
rate per annum equal to the average of interbank offered rates for six-month
U.S. dollar denominated deposits in the London market (LIBOR), as published in
the Wall Street Journal as of the first Business Day of the month immediately
preceding the month in which such Interest Adjustment Date occurs.

          INTEREST ADJUSTMENT DATE:  With respect to each Mortgage Loan, the
          ------------------------                                          
date on which an adjustment to the Mortgage Interest Rate on a Mortgage Note
becomes effective.

          INTERIM SERVICING PERIOD:  The period commencing with the Closing Date
          ------------------------                                              
and ending with the Servicing Transfer Date.

          LIFETIME MORTGAGE INTEREST RATE CAP:  The absolute maximum Mortgage
          -----------------------------------                                
Interest Rate payable for a Mortgage Loan, above which the Mortgage Interest
Rate shall not be adjusted, as provided in the Mortgage Loan Schedule.

          LOAN-TO-VALUE RATIO OR LTV:  With respect to any Mortgage Loan, the
          --------------------------                                         
ratio of the original outstanding principal amount to the Appraised Value of the
Mortgage Loan.

                                       2
<PAGE>
 
          MONTHLY PAYMENT:  The scheduled monthly payment of principal and
          ---------------                                                 
interest on a Mortgage Loan.


          MORTGAGE:  The mortgage, deed of trust or other such instrument
          --------                                                       
securing a Mortgage Note, which creates a first lien on an unsubordinated estate
in fee simple in real property securing the Mortgage Note or a first lien, upon
a leasehold estate of Mortgagor, as the case may be.

          MORTGAGE FILE:  The file containing the Mortgage Loan Documents, all
          -------------                                                       
other documents in connection with the origination of a particular Mortgage Loan
and all documents, files and other information reasonably necessary to service
the Mortgage Loans, including, but not limited to, good faith estimate, HUD 1
Settlement Statement, Truth in Lending Disclosure Statement, and Truth in
Lending Notice of Right to Cancel (if required by law).

          MORTGAGE INTEREST RATE:  The annual rate at which interest accrues on
          ----------------------                                               
any Mortgage Loan, exclusive of any primary mortgage insurance, as adjusted from
time to time in accordance with the provisions of the related Mortgage Note, if
applicable.

          MORTGAGE LOAN:  A mortgage loan identified in the Mortgage Loan
          -------------                                                  
Schedule which is sold pursuant to this Agreement, which Mortgage Loan includes
without limitation the Mortgage File, the Monthly Payments, Principal
Prepayments and all other rights, benefits, proceeds and obligations arising
from or in connection with such Mortgage Loan.

          MORTGAGE LOAN DOCUMENTS:  The following documents pertaining to any
          -----------------------                                            
Mortgage Loan:

          (a) The original Mortgage Note bearing all intervening endorsements,
              endorsed "Pay to the order of _________ " and signed in the name
              of the Seller by an authorized officer;

          (b) The original Assignment of Mortgage for each Mortgage Loan in
              blank;

          (c) The original Mortgage with evidence of recording thereon;

          (d) The originals of all intervening assignments of mortgage with
              evidence of recording thereon; and

          (e) The original mortgagee title insurance policy.

          MORTGAGE LOAN SCHEDULE:  The schedule of Mortgage Loans set forth on
          ----------------------                                              
Exhibit A hereto.
---------        

          MORTGAGE NOTE:  The note or other evidence of the indebtedness of a
          -------------                                                      
Mortgagor secured by a Mortgage.

          MORTGAGED PROPERTY:  The real property securing repayment of the debt
          ------------------                                                   
evidenced by a Mortgage Note.

          MORTGAGOR:  The obligor on a Mortgage Note.
          ---------                                  

                                       3
<PAGE>
 
          NET ESCROW PAYMENTS:  Escrow Payment balances remaining after advances
          -------------------                                                   
by the Seller for taxes and insurance to the extent documented under a detailed
statement provided to the Purchaser.

          PERIODIC MORTGAGE INTEREST RATE CAP:  The provision of a Mortgage Note
          -----------------------------------                                   
which provides for an absolute maximum amount by which the Mortgage Interest
Rate therein may increase or decrease on an Interest Adjustment Date above the
Mortgage Interest Rate previously in effect, equal to the rate set forth in the
Mortgage Loan Schedule, if applicable.

          PRIMARY MORTGAGE INSURANCE POLICY:  A policy of primary mortgage
          ---------------------------------                               
guaranty insurance issued by a Qualified Insurer, providing coverage at least
equal to the level of coverage required by the Agencies at the time the related
Mortgage Loan was originated if such Mortgage Loan was to be eligible for sale
to, and securitization by, either FNMA or FHLMC.

          PRINCIPAL PREPAYMENT:  Any payment or other recovery of principal on a
          --------------------                                                  
Mortgage Loan which is received in advance of its scheduled Due Date, including
any prepayment penalty or premium thereon, which is not accompanied by an amount
of interest representing scheduled interest due on any date or dates in any
month or months subsequent to the month of prepayment.

          PURCHASE PRICE:  The purchase price to be paid by the Purchaser for
          --------------                                                     
the Mortgage Loans (including the Servicing Rights relating thereto) which shall
equal the product of (a) the Purchase Price Percentage, times (b) the Stated
Principal Balance of the Mortgage Loans.

          PURCHASE PRICE PERCENTAGE:  The purchase price percentage set forth in
          -------------------------                                             
the a separate funding schedule.

          PURCHASE PROCEEDS:  The aggregate of the Purchase Price and the
          -----------------                                              
Accrued Interest.

          PURCHASER:  Any entity which purchases the Mortgage Loans pursuant to
          ---------                                                            
this Agreement or its successor in interest or any successor or assign to the
Purchaser under this Agreement as herein provided.  Unless the context requires
otherwise, all references to "Purchaser" in this Agreement shall be deemed to
include such Purchaser's successors in interest, assignees or designees.

          QUALIFIED INSURER:  An insurance company duly qualified as such under
          -----------------                                                    
the laws of the states in which the Mortgaged Properties are located, duly
authorized and licensed in such states to transact the applicable insurance
business and to write the insurance provided, approved as an insurer by the
Agencies and whose claims paying ability is rated in the two highest rating
categories by the Standard & Poor's Ratings Group or Moody's Investors Service
with respect to primary mortgage insurance and in the two highest rating
categories by Best's with respect to hazard and flood insurance.

          REPURCHASE PRICE:  With respect to any Mortgage Loan, a price equal to
          ----------------                                                      
the sum of (a) the product of (i) the unpaid principal balance of the Mortgage
Loan at the time of repurchase, and (ii) the greater of par or the Purchase
Price Percentage, and (b) interest on such unpaid principal balance at the
Mortgage Interest Rate from the last date through which interest has been paid
and distributed to the Purchaser to the date of repurchase.

          SEGMENT(S):  One or more segments of Mortgage Loans (each, a
          ----------                                                  
"Segment") comprising the Segment A Mortgage Loans, and the Segment B Mortgage
Loans, whether individually or in the aggregate, as applicable.  Each such
Segment and the Mortgage Loans relating thereto are identified on Exhibit A and
                                                                  ---------    
may hereafter be referred to as Segments A and B, respectively.

                                       4
<PAGE>
 
          SEGMENT A MORTGAGE LOANS:  The Mortgage Loans identified under Segment
          ------------------------                                              
A of the Mortgage Loan Schedule.

          SEGMENT B MORTGAGE LOANS:  The Mortgage Loans identified under Segment
          ------------------------                                              
B of the Mortgage Loan Schedule.

          SERVICING RIGHTS:  With respect to each Mortgage Loan, any and all of
          ----------------                                                     
the following: (a) all rights to service the Mortgage Loans; (b) any payments or
monies payable or received for servicing the Mortgage Loans; (c) any late fees,
assumption fees, penalties or similar payments with respect to the Mortgage
Loans; (d) all agreements or documents creating, defining or evidencing any such
Servicing Rights and all rights of the Seller thereunder, including, but not
limited to, any clean-up calls and termination options; (e) Escrow Payments or
other similar payments with respect to the Mortgage Loans and any amounts
actually collected with respect thereto; (f) all accounts and other rights to
payments related to any of the property described in this paragraph; (g)
possession and use of any and all Mortgage Files pertaining to the Mortgage
Loans or pertaining to the past, present, or prospective servicing of the
Mortgage Loans; and (h) all rights, powers and, privileges incident to any of
the foregoing.

          SERVICING TRANSFER DATE:  September 21, 1998, or such other date the
          -----------------------                                             
Purchaser may select upon reasonable notice to the Seller.

          STATED PRINCIPAL BALANCE:  The unpaid principal balance of the
          ------------------------                                      
Mortgage Loans at the Cut-off Date.


                                   ARTICLE II

                           SALE OF THE MORTGAGE LOANS
                           --------------------------

          SECTION 2.1  AGREEMENT OF SALE.  The Seller does hereby agree to sell,
                       -----------------                                        
convey, transfer and assign to the Purchaser on the Closing Date all right,
title and interest in and to the Mortgage Loans, the Servicing Rights, the
Mortgage Loan Documents, the Mortgage Files and the Escrow Accounts relating to
the Mortgage Loans, all in accordance with the terms and conditions set forth
herein.

          SECTION 2.2  PAYMENT OF THE PURCHASE PROCEEDS.  No later than 1:00
                       --------------------------------                     
p.m. (Pacific time) on the Closing Date, the Purchaser shall pay to the Seller
the Purchase Proceeds, by wire transfer in immediately available funds to the
account designated by the Seller.  Upon completion of the wire transfer to the
Seller's designated account, the Purchaser shall own the Mortgage Loans and the
Servicing Rights, free and clear of any lien or encumbrance whatsoever.

          SECTION 2.3  ENTITLEMENT TO PAYMENT ON THE MORTGAGE LOANS. The
                       --------------------------------------------     
Purchaser shall be entitled to all collections and recoveries of principal and
interest received or applied to any Mortgagor's account after the Cut-off rate.
All payments and remittances on the Mortgage Loans received by the Seller after
the Closing Date and payable to the Purchaser shall be paid promptly to the
Purchaser in accordance to the terms set forth in Article IV or Article V, as
applicable.

          SECTION 2.4    EXAMINATION OF MORTGAGE LOAN DOCUMENTS BY THE
                         ---------------------------------------------
PURCHASER. Prior to the Closing Date, the Purchaser shall have the right to
review the Mortgage File and, based on its review, decline to purchase any
Mortgage Loan which the Purchaser, in its sole discretion, determines not to be
in compliance with each of the representations and warranties contemplated
hereby or which is otherwise unsatisfactory to the Purchaser in its reasonable
discretion.  The Seller agrees to deliver 

                                       5
<PAGE>
 
or make available to the Purchaser a complete Mortgage File for each Mortgage
Loan on or before such date as may be reasonably requested by the Purchaser. The
fact that the Purchaser has conducted or has failed to conduct any partial or
complete examination of the Mortgage Files shall not affect the Purchaser's
right to demand repurchase or to avail itself of any other remedy available
hereunder. Notwithstanding anything contained herein to the contrary, should
there be a material adverse change in the characteristics of the Mortgage Loans
remaining after the exclusion or rejection of one or more Mortgage Loans by the
Purchaser as contemplated above, the Purchaser may, in its sole discretion,
elect not to purchase the remaining Mortgage Loans and the Purchaser shall have
no liability therefor.

          SECTION 2.5  DELIVERY OF MORTGAGE LOAN DOCUMENTS.  At least two (2)
                       -----------------------------------                   
Business Days prior to the Closing Date, the Seller shall deliver the Mortgage
Loan Documents with respect to each Mortgage Loan to the Purchaser or a bonded
third party custodian (the "Custodian") and, in the case of the latter, shall
cause the Custodian to deliver to the Purchaser a custodian's certification
pursuant to which the Custodian certifies to the Purchaser that (i) with respect
to each Mortgage Loan, it has in its possession originals of each of the
Mortgage Loan Documents, (ii) all of the Mortgage Loan Documents appear on their
face to be genuine originals or copies, as applicable, and (iii) upon the
Purchaser's wiring of the Purchase Proceeds to the Seller, that the Custodian
shall hold the Mortgage Loan Documents with respect to each Mortgage Loan in
trust for the Purchaser and will, subsequent thereto, act only in a manner
consistent with the Purchaser's instructions with respect thereto. In the event
that any of the Mortgage Loan Documents set forth in clauses (c) through (e) of
the definition of Mortgage Loan Documents in Article I have not been delivered
to the Purchaser in the time specified above (the "Missing Documents") either
                                                   -----------------   
because such Missing Documents have not been returned by the applicable public
recording office with respect to items (c) and (d), or because the final
original title policy has not yet been issued by the title company with respect
to item (e), then the Seller shall deliver to the Purchaser certified true and
correct copies of the same and shall further deliver the originals of any such
Missing Documents promptly upon its receipt thereof, but in no event later than
one hundred and twenty (120) days from the Closing Date. If the Seller fails to
deliver any of the Missing Documents relating to a Mortgage Loan within the time
specified above, the Seller shall, upon written request from the Purchaser,
repurchase such Mortgage Loan in accordance with Section 3.3.
                                                 ----------- 

          SECTION 2.6  CONDITIONS TO CLOSING.  The Purchaser's obligations
                       ---------------------                              
hereunder are subject to the fulfillment of the following conditions precedent.
In the event that any of the conditions set forth below are not satisfied in all
material respects, the Purchaser shall not have any obligation to purchase any
of the Mortgage Loans or to pay the Purchase Proceeds as contemplated hereunder
and shall instead be entitled, in its sole discretion, to terminate this
Agreement in its entirety.

          (a) Each of the representations and warranties made by the Seller
              hereunder shall be true and correct in all material respects as of
              the Closing Date and no event shall have occurred which, with
              notice or the passage of time, would constitute a default under
              this Agreement.

          (b) The Seller shall have delivered to the Purchaser all of the
              Mortgage Loan Documents in accordance with Section 2.5 and a  
                                                         -----------  
              complete Mortgage File with respect to each Mortgage Loan.

          (c) Each of the terms and conditions set forth herein which are
              required to be satisfied on or before the Closing Date shall have
              been satisfied unless waived by the prejudiced party(ies).


                                       6
<PAGE>
 
          (d) The Seller shall have delivered to the Purchaser on or before the
              Closing Date the following documents:

               (1) a fully executed Agreement;

               (2) the Mortgage Loan Schedule, which shall include, without
                   limitation, the Stated Principal Balance of each Mortgage
                   Loan;

               (3) an executed Funding Schedule, in the form of Exhibit B
                                                                ---------
                   hereto;

               (4) an Officer's Certificate, in the form of Exhibit C hereto;
                                                            ---------        
                   and

               (5) such other documents related to the purchase and sale of the
                   Mortgage Loans and the Servicing Rights as the Purchaser may
                   reasonably request.

          SECTION 2.7  RECORD TITLE.  Record title to each Mortgage and the
                       ------------                                        
related Mortgage Note shall be transferred by the Seller to the Purchaser. The
Seller shall, at the option of the Purchaser, either (i) prepare and cause to be
recorded the Assignment of Mortgage for each Mortgage Loan and shall, promptly
upon its receipt of each original recorded Assignment of Mortgage from the
applicable recording office, deliver the same to the Purchaser, or (ii) prepare
and deliver to the Purchaser an original Assignment of Mortgage in blank, in
each case, within the time and in the manner specified in Section 2.5.  
                                                          ----------- 
The Seller shall bear the cost and expense related to (i) providing all
Assignments of Mortgages and endorsements of Mortgage Notes for any transfer of
record title required hereunder with respect to the obligations of the Mortgage
Notes and the underlying security interest related to each Mortgage Loan and
(ii) recording title of the Mortgage Loans including, but not limited to,
recording fees and fees for title policy endorsements.


                                  ARTICLE III

                        REPRESENTATIONS AND WARRANTIES
                        ------------------------------

          SECTION 3.1    REPRESENTATIONS AND WARRANTIES RESPECTING THE SELLER.
                         ----------------------------------------------------  
The Seller represents, warrants and covenants to the Purchaser that, as of the
Closing Date:

          (a) The Seller is duly organized, validly existing and in good
              standing under the laws of the jurisdiction of its incorporation
              and is qualified to transact business in and is in good standing
              under the laws of each state where a Mortgaged Property is located
              or is otherwise exempt under applicable law from such
              qualification or is otherwise not required under applicable law to
              effect such qualification and no demand for such qualification has
              been made upon the Seller by any state having jurisdiction and in
              any event the Seller is or will be in compliance with the laws of
              any such state to the extent necessary to insure the
              enforceability of each Mortgage Note and the sale of the Mortgage
              Loans and Servicing Rights as contemplated by this Agreement;

          (b) The Seller has the full power and authority to perform, and to
              enter into and consummate, all transactions contemplated by this
              Agreement. As of the Closing Date, the Seller has the full power
              and authority to hold each Mortgage Loan and to sell each Mortgage
              Loan and the Servicing Rights;

                                       7
<PAGE>
 
          (c) Neither the acquisition or origination of the Mortgage Loans by
              the Seller, the sale of the Mortgage Loans or the Servicing Rights
              to the Purchaser, the consummation of the transactions
              contemplated hereby, nor the fulfillment of or compliance with the
              terms and conditions of this Agreement, will conflict with or
              result in a breach of any of the terms, conditions or provisions
              of the Seller's certificate of incorporation or bylaws or result
              in a material breach of any legal restriction or any agreement or
              instrument to which the Seller is now a party or by which it is
              bound, or constitute a material default or result in an
              acceleration under any of the foregoing, or result in the
              violation of any law, rule, regulation, order, judgment or decree
              to which the Seller or its property is subject;

          (d) The Seller is an approved seller/servicer for the Agencies, in
              good standing with each such agency, and is a mortgagee approved
              by the Secretary of HUD. No event has occurred, including but not
              limited to, a change in insurance coverage, which would make the
              Seller unable to comply with FNMA, FHLMC or HUD eligibility
              requirements or which would require notification to the Agencies
              or HUD;

          (e) The Seller does not believe, nor does it have any reason or cause
              to believe, that it cannot perform each and every covenant
              contained in this Agreement;

          (f) There is no action, suit, proceeding, investigation or litigation
              pending or, to the best of the Seller's knowledge, threatened,
              which either in any one instance or in the aggregate, if
              determined adversely to the Seller, would adversely affect the
              sale of the Mortgage Loans or the Servicing Rights to the
              Purchaser, or the Seller's ability to perform its obligations
              under this Agreement;

          (g) No consent, approval, authorization or order of any court or
              governmental agency or body is required for the execution,
              delivery and performance by the Seller of or compliance by the
              Seller with this Agreement or the terms of the Mortgage Loans, the
              delivery of the Mortgage Files to the Purchaser, the sale of the
              Mortgage Loans and the Servicing Rights to the Purchaser or the
              consummation of the transactions contemplated by this Agreement,
              or if required, such consent, approval, authorization or order has
              been obtained prior to the Closing Date; and

          (h) The consummation of the transactions contemplated by this
              Agreement are in the ordinary course of business of the Seller,
              and the transfer, assignment and conveyance of the Mortgage Notes,
              the Mortgages and/or the Servicing Rights by the Seller pursuant
              to this Agreement are not subject to the bulk transfer or any
              similar statutory provisions in effect and applicable to this
              transaction.

          SECTION 3.2    REPRESENTATIONS AND WARRANTIES REGARDING INDIVIDUAL
                         ---------------------------------------------------
MORTGAGE LOANS.  With respect to each Mortgage Loan, the Seller represents and
--------------                                                                
warrants to the Purchaser that as of the Closing Date:

          (a) The information set forth in the Mortgage Loan Schedule and in
              each Mortgage File is complete, true and correct;

          (b) All payments required under the terms of the Mortgage Note to be
              made on or prior to the Closing Date have been made; the Seller
              has not advanced funds, or induced, solicited or knowingly
              received any advance of funds from a party 

                                       8
<PAGE>
 
              other than the owner of the Mortgaged Property subject to the
              Mortgage, directly or indirectly, for the payment of any amount
              required under the Mortgage Loan; and there has been no
              delinquency of thirty (30) days or more in any payment by the
              Mortgagor thereunder during the last twelve (12) months. No
              Mortgage Loan is subject to any pending foreclosure, bankruptcy,
              insolvency, or reorganization proceeding. Nothing contained in
              this Section 3.2(b) shall in any way limit any other rights of the
                   --------------    
              Purchaser as provided hereunder;

          (c) There are no delinquent taxes, water charges, sewer rents,
              assessments, insurance premiums, leasehold payments, including
              assessments currently due and owing in future installments, or
              other outstanding charges affecting the related Mortgaged
              Property;

          (d) The terms of the Mortgage Note and the Mortgage have not been
              impaired, waived, altered or modified in any respect, except by
              written instruments which are in the Mortgage File and have been
              or will be recorded, if necessary to protect the interests of the
              Purchaser, and which have been delivered to the Purchaser, all in
              accordance with this Agreement. The substance of any such waiver,
              alteration or modification has been approved by the primary
              mortgage guaranty insurer, if any, and by the title insurer, to
              the extent required by the related policy, and its terms are
              reflected on the Mortgage Loan Schedule. No Mortgagor has been
              released, in whole or in part, except in connection with an
              assumption agreement approved by the primary mortgage insurer, if
              any, and title insurer, to the extent required by the policy, and
              which assumption agreement is part of the Mortgage File and the
              terms of which are reflected in the Mortgage Loan Schedule, if
              executed prior to the Closing Date;

          (e) The Mortgage Note and the Mortgage are not subject to any right of
              rescission, set-off, counterclaim or defense, including the
              defense of usury, nor will the operation of any of the terms of
              the Mortgage Note and the Mortgage, or the exercise of any right
              thereunder, render the Mortgage unenforceable, in whole or in
              part, or subject to any right of rescission, set-off, counterclaim
              or defense, including the defense of usury and no such right of
              rescission, set-off, counterclaim or defense has been asserted
              with respect thereto;

          (f) All buildings upon, or comprising part of, the Mortgaged Property
              are insured by an insurer acceptable to the Agencies against loss
              by fire, hazards of extended coverage and such other hazards as
              are customary in the area where the Mortgaged Property is located,
              and such insurer is licensed to do business in the state where the
              Mortgaged Property is located. All such insurance policies
              (collectively, the "hazard insurance policy") contain a standard
              mortgagee clause naming the Seller, its successors and assigns as
              mortgagee and all premiums thereon have been paid. If upon
              origination of the Mortgage Loan, the Mortgaged Property was, or
              was subsequently deemed to be, in an area identified in the
              Federal Register by the Federal Emergency Management Agency as
              having special flood hazards (and such flood insurance has been
              made available), which require under applicable law that a flood
              insurance policy meeting the requirements of the current
              guidelines of the Federal Insurance Administration (or any
              successor thereto) be obtained, such flood insurance policy is in
              effect which policy conforms to the requirements of the Agencies.
              The Mortgage obligates the Mortgagor thereunder to maintain 

                                       9
<PAGE>
 
              all such insurance at Mortgagor's cost and expense and, on the
              Mortgagor's failure to do so, authorizes the holder of the
              Mortgage to maintain such insurance at Mortgagor's cost and
              expense and to obtain reimbursement therefor from the Mortgagor.
              Each Mortgage Loan has in place a fully-paid life of loan flood
              certification from a FNMA or FHLMC-approved vendor, assigned in
              care of the Purchaser, which provides for notification to the
              Purchaser of changes in designated flood areas which would affect
              such Mortgage Loan;

          (g) Any and all requirements of any federal, state or local law
              including, without limitation, usury, truth in lending, real
              estate settlement procedures including, without limitation, the
              Real Estate Settlement Procedures Act of 1974, as amended,
              consumer credit protection, equal credit opportunity or disclosure
              laws applicable to the Mortgage Loan have been complied with in
              all material respects;

          (h) The Mortgage has not been satisfied, canceled, subordinated, or
              rescinded, in whole or in part, and the Mortgaged Property has not
              been released from the lien of the Mortgage, in whole or in part,
              nor has any instrument been executed that would effect any such
              release, cancellation, subordination or rescission;

          (i) The Mortgage is a valid, existing and enforceable first lien on
              the Mortgaged Property, including all improvements on the
              Mortgaged Property, if any, subject only to (a) the lien of
              current real property taxes and assessments not yet due and
              payable, (b) covenants, conditions and restrictions, rights of
              way, easements and other matters of the public record as of the
              date of recording being acceptable to mortgage lending
              institutions generally and specifically referred to in the
              lender's title insurance policy delivered to the originator of the
              Mortgage Loan and which do not adversely affect the Appraised
              Value (as defined in clause (i) of such definition) of the
              Mortgaged Property, and (c) other matters to which like properties
              are commonly subject which do not materially interfere with the
              benefits of the security intended to be provided by the Mortgage
              or the use, enjoyment, value or marketability of the related
              Mortgaged Property. The Seller has full right to sell and assign
              the Mortgage to the Purchaser;

          (j) The Mortgage Note and the related Mortgage are genuine and each is
              the legal, valid and binding obligation of the maker thereof,
              enforceable in accordance with its terms, except as the
              enforceability thereof may be limited by bankruptcy, insolvency or
              reorganization;

          (k) All parties to the Mortgage Note and the Mortgage had the legal
              capacity to enter into the Mortgage Loan transaction and to
              execute and deliver the Mortgage Note and the Mortgage, and the
              Mortgage Note and the Mortgage have been duly and properly
              executed by such parties;

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

                                      10
<PAGE>
 
          (m) The Seller is the sole owner and holder of the Mortgage Loan and
              the related Servicing Rights and is the custodian of the related
              Escrow Account, if applicable. The Mortgage Loan has neither been
              assigned nor pledged, and the Seller has good and marketable title
              thereto, and has full right to transfer and sell the Mortgage Loan
              and the related Servicing Rights to the Purchaser free and clear
              of any encumbrance, equity, lien, pledge, charge, claim or
              security interest and has full right and authority subject to no
              interest or participation of, or agreement with, any other party,
              to sell and assign each Mortgage Loan and the related Servicing
              Rights to the Purchaser pursuant to the terms of this Agreement;

          (n) All parties which have had any interest in the Mortgage, whether
              as mortgagee, assignee, pledgee or otherwise, are (or, during the
              period in which they held and disposed of such interest, were) (a)
              in compliance with any and all applicable licensing requirements
              of the laws of the state wherein the Mortgaged Property is
              located, and (b) (i) organized under the laws of such state, or
              (ii) qualified to do business in such state, or (iii) a federal
              savings and loan association or national bank, or (iv) not deemed
              to be doing business in such state under applicable law;

          (o) The Mortgage Loan is covered by an ALTA lender's title insurance
              policy acceptable to the Agencies, issued by a title insurer
              acceptable to the Agencies and qualified to do business in the
              jurisdiction where the Mortgaged Property is located, insuring
              (subject to the exceptions contained in (i)(a) and (b) above) the
              Seller, its successors and assigns as to the first priority lien
              of the Mortgage in the original principal amount of the Mortgage
              Loan and against any loss by reason of the invalidity or
              unenforceability of the lien resulting from the provisions of the
              Mortgage Note and/or Mortgage providing for adjustment in the
              Mortgage Interest Rate and Monthly Payment. Additionally, such
              lender's title insurance policy affirmatively insures ingress and
              egress, and against encroachments by or upon the Mortgaged
              Property or any interest therein. The Seller is the sole insured
              of such lender's title insurance policy, and such lender's title
              insurance policy is in full force and effect and will be in full
              force and effect upon the consummation of the transactions
              contemplated by this Agreement. No claims have been made under
              such lender's title insurance policy, and no prior holder of the
              related Mortgage, including the Seller, has done, by act or
              omission, anything which would impair the coverage of such
              lender's title insurance policy;

          (p) There is no default, breach, violation or event of acceleration
              existing under the Mortgage or the Mortgage Note and no event
              which, with the passage of time or with notice and the expiration
              of any grace or cure period, would constitute a default, breach,
              violation or event of acceleration, and the Seller has nor waived
              any default, breach, violation or event of acceleration;

          (q) There are no mechanics' or similar liens or claims which have been
              filed for work, labor or material (and no rights are outstanding
              that under law could give rise to such lien) affecting the related
              Mortgaged Property which are or may be liens prior to or equal
              with, the lien of the related Mortgage;

          (r) All improvements which were considered in determining the
              Appraised Value (as defined in clause (i) of said definition) of
              the related Mortgaged Property 

                                      11
<PAGE>
 
              lay wholly within the boundaries and building restriction lines of
              the Mortgaged Property, and no improvements on adjoining
              properties encroach upon the Mortgaged Property;

          (s) The Mortgage Loan was originated by the Seller or by a FNMA-
              approved or FHLMC-approved mortgage banker (which mortgage banker
              is a mortgagee approved by HUD), or savings and loan association,
              a savings bank, a commercial bank or similar banking institution
              which is supervised and examined by a federal or state authority,
              or by another mortgagee approved by the Secretary of HUD;

          (t) The origination, servicing and collection practices with respect
              to each Mortgage Note and Mortgage including, without limitation,
              the establishment, maintenance and servicing of the Escrow
              Accounts and Escrow Payments, if any, since origination, have been
              conducted in all respects in accordance with the terms of Mortgage
              Note and in compliance with all applicable laws and regulations
              and, unless otherwise required by law or FNMA/FHLMC standard, in
              accordance with the proper, prudent and customary practices in the
              mortgage origination and servicing business. With respect to the
              Escrow Accounts and Escrow Payments, if any, all such payments are
              in the possession or under the control of the Seller and there
              exists no deficiencies in connection therewith for which customary
              arrangements for repayment thereof have not been made. No escrow
              deposits or Escrow Payments or other charges or payments due the
              Seller have been capitalized under any Mortgage or the related
              Mortgage Note. All Mortgage Interest Rate adjustments have been
              made in strict compliance with state and federal law and the terms
              of the related Mortgage Note. Any interest required to be paid
              pursuant to state and local law has been properly paid and
              credited;

          (u) The Mortgaged Property is free of material damage and waste and
              there is no proceeding pending for the total or partial
              condemnation thereof;

          (v) The Mortgage contains customary and enforceable provisions to
              render the rights and remedies of the holder thereof adequate for
              the realization against the Mortgaged Property of the benefits of
              the security intended to be provided thereby, including, (a) in
              the case of a Mortgage designated as a deed of trust, by trustee's
              sale, and (b) otherwise by judicial foreclosure. There is no other
              exemption available to the Mortgagor which would interfere with
              the right to sell the Mortgaged Property at a trustee's sale or
              the right to foreclose the Mortgage. 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;

          (w) The Mortgage Note is not and has not been secured by any
              collateral except the lien of the applicable Mortgage;

          (x) The Mortgage File contains an appraisal of the related Mortgaged
              Property signed prior to the approval of the Mortgage Loan
              application by an appraiser who meets the minimum requisite
              qualifications of the Agencies for appraisers, duly appointed by
              the originator, who had no interest, direct or indirect, in the
              Mortgaged Property or in any loan made on the security thereof,
              and whose compensation is not affected by the approval or
              disapproval of the Mortgage 

                                      12
<PAGE>
 
                Loan; the appraisal is in a form acceptable to the Agencies,
                with such riders as are acceptable to the Agencies;

          (y)   In the event the Mortgage constitutes a deed of trust, a
                trustee, duly qualified under applicable law to serve as such,
                has been properly designated and currently so serves and is
                named in the Mortgage, and no fees or expenses are or will
                become payable by the Purchaser to the trustee under the deed of
                trust, except in connection with a trustee's sale after default
                by the Mortgagor;

          (z)   No Mortgage Loan contains a permanent or temporary "buydown"
                provision;

          (aa)  The Mortgagor has executed one or more statements to the effect
                that the Mortgagor has received all disclosure materials
                required by applicable law with respect to the making of the
                Mortgage Loan. The Seller shall maintain all such statements in
                the Mortgage File;

          (bb)  No Mortgage Loan was made in connection with (a) the
                construction or rehabilitation of a Mortgaged Property or (b)
                facilitating the trade-in or exchange of a Mortgaged Property;

          (cc)  [Intentionally left blank];

          (dd)  To the best of Seller's knowledge, the Mortgaged Property is
                lawfully occupied under applicable law and 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 of the same, including but
                not limited to certificates of occupancy, have been made or
                obtained from the appropriate authorities;

          (ee)  [Intentionally left blank];

          (ff)  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;

          (gg)  Any future advances made to the Mortgagor prior to the Closing
                Date have been consolidated with the outstanding principal
                amount secured by the Mortgage, and the secured principal
                amount, as consolidated, bears a single interest rate and single
                repayment term. The lien of the Mortgage securing the
                consolidated principal amount is expressly insured as having
                first lien priority by a title insurance policy, an endorsement
                to the policy insuring the mortgagee's consolidated interest or
                by other title evidence acceptable to the Agencies. The
                consolidated principal amount does not exceed the original
                principal amount of the Mortgage Loan;

          (hh)  If the Mortgaged Property is a condominium unit or a planned
                unit development, such condominium or planned unit development
                project meets the eligibility requirements of the Agencies;

          (ii)  The Mortgage Note and Mortgage are on forms acceptable to either
                of the Agencies;

                                      13
<PAGE>
 
          (jj)  The Mortgaged Property is located in the state indicated on the
                Mortgage Loan Schedule, and consist of a single parcel of real
                property with a detached single family residence erected
                thereon, or an individual condominium unit, or a 2-4 family
                dwelling or an individual unit in a planned unit development as
                defined by FNMA, none of which is a mobile home or manufactured
                dwelling;

          (kk)  There are no circumstances or conditions with respect to the
                Mortgage, the Mortgage Property, the Mortgagor, the Mortgage
                File or the Mortgagor's credit standing that can reasonably be
                expected to cause private institutional investors to regard the
                Mortgage Loan as an unacceptable investment, cause the Mortgage
                Loan to become delinquent, or adversely affect the value or
                marketability of the Mortgage Loan;

          (ll)  The Mortgage contains an enforceable provision for the
                acceleration of the payment of the unpaid principal balance of
                the Mortgage Loan in the event that the Mortgaged Property is
                sold or transferred without the prior written consent of the
                mortgagee thereunder;

          (mm)  The Seller has no knowledge of any circumstances existing that
                could reasonably be expected to adversely affect the value or
                the marketability of any Mortgaged Property or Mortgage Loan or
                to cause the Mortgage Loans to prepay during any period
                materially faster or slower than the mortgage loans of similar
                characteristics originated by the Seller generally;

          (nn)  Each Mortgage Loan is covered by a valid and transferable tax
                service contract with First American, or such other vendor as
                may be reasonably acceptable to the Purchaser;

          (oo)  Each Mortgage Loan is an adjustable rate mortgage loan requiring
                monthly payments sufficient to amortize the original principal
                balance over the original term set forth in the Mortgage Loan
                Schedule. No Mortgage Loan has negatively amortized nor shall
                any Mortgage Loan have any negative amortization after the
                Closing Date. The Mortgage Interest Rate adjusts semi-annually
                in accordance with the related Mortgage Note, provided, however,
                with respect to Segment B, the Mortgage Interest Rate shall be
                fixed for an initial period of two (2) years. On each Interest
                Adjustment Date, the Mortgage Interest Rate shall be adjusted to
                equal the Index plus the Gross Margin (rounded up or down to the
                nearest 0.125%), subject to the Periodic Mortgage Interest Rate
                Cap and the Lifetime Mortgage Interest Rate Cap as set forth in
                the respective Mortgage Note and the Mortgage Loan Schedule.
                None of the Mortgage Loans contain a provision allowing the
                Mortgagor to convert the Mortgage Note from an adjustable rate
                mortgage loan to a fixed rate mortgage loan;

          (pp)  Each Mortgage Loan at the time of origination was underwritten
                in accordance with the credit underwriting guidelines of the
                Seller attached hereto as Exhibit D and, to the extent not
                                          --------- 
                inconsistent therewith, generally accepted sub-prime credit
                underwriting guidelines;

          (qq)  As of the Closing Date, the Seller shall have received neither
                actual nor constructive notice that either a Mortgage Loan will
                be paid in full (whether by virtue of a demand statement or
                otherwise) or that any Mortgagor has elected 

                                      14
<PAGE>
 
                to convert the related Mortgage Loan into a fixed-rate mortgage
                loan in accordance with the terms of the related Mortgage Note;

          (rr)  The Mortgage Note is not and has not been secured by any
                collateral except the lien of corresponding Mortgage on the
                Mortgaged Property;

          (ss)  No Mortgage Loan contains provisions pursuant to which Monthly
                Payments are (a) paid or partially paid with funds deposited in
                any separate account established by the Seller, the Mortgagor,
                or anyone on behalf of the Mortgagor or (b) paid by any source
                other than the Mortgagor or contains any other similar
                provisions which may constitute a "buydown" provision. The
                Mortgage Loan is not a graduated payment mortgage loan and the
                Mortgage Loan does not have a shared appreciation or other
                contingent interest feature;

          (tt)  No error, omission, misrepresentation, negligence, fraud or
                similar occurrence with respect to a Mortgage Loan has taken
                place on the part of the Seller, or, to the best of Seller's
                knowledge, on the part of any other person including without
                limitation the Mortgagor, any appraiser, any builder or
                developer, or any other party involved in the origination of the
                Mortgage Loan or in the application of any insurance in relation
                to such Mortgage Loan; and

          (uu)  Notwithstanding anything to the contrary contained in this
                Agreement, none of the Mortgage Loans have Escrow Accounts as of
                the Closing Date.

          SECTION 3.3  REMEDIES FOR BREACH OF REPRESENTATIONS AND WARRANTIES.
                       -----------------------------------------------------  
The representations and warranties set forth in Sections 3.1 and 3.2 shall
                                                --------------------      
survive the sale of the Mortgage Loans to the Purchaser and shall inure to the
benefit of the Purchaser, notwithstanding any restrictive or qualified
endorsement on any Mortgage Note or Assignment of Mortgage or the examination or
failure to examine any Mortgage File.  Furthermore, the absence of the Seller in
either the chain of title or endorsement shall in no way limit the Purchaser's
recourse against the Seller as provided in this Section 3.3 for a breach of one
                                                -----------                    
or more of the Seller's representations and warranties made herein.  Upon
discovery by either the Seller or the Purchaser of a breach of any of the
foregoing representations and warranties which materially and adversely affects
the value of one or more of the Mortgage Loans or the Purchaser's interest
therein, the party discovering such breach shall give prompt written notice to
the other.  Without in any way limiting the generality of the foregoing, if the
first payment due to the Purchaser under the Mortgage Note is not received by
the Purchaser, whether from the Mortgagor directly or forwarded by the Seller if
the Mortgagor has submitted the payment to the Seller, by the last day of the
month in which it is due, the Seller shall, at the Purchaser's option and not
later than five (5) Business Days after receipt of notice of such breach from
the Purchaser, repurchase such Mortgage Loan at the Repurchase Price.

          The Seller shall have a period of sixty (60) days from the earlier of
the discovery of a breach or the receipt by the Purchaser of notice of a breach
within which to correct or cure such breach.  If any such breach cannot be
corrected or cured within such sixty (60) day period, the Seller shall, at the
Purchaser's option and not later than sixty (60) days after its discovery or its
receipt of notice of such breach, repurchase such Mortgage Loan at the
Repurchase Price.  In the event that a breach shall involve any representation
or warranty set forth in Section 3.1 and such breach cannot be cured within
                         -----------                                       
sixty (60) days of the earlier of either discovery by or notice to the Seller of
such breach, all of the Mortgage Loans shall, at the Purchaser's option, be
repurchased by the Seller at the Repurchase Price.  Any repurchase of a Mortgage
Loan(s) pursuant to the foregoing provisions of this Section 3.3 shall be
                                                     -----------         
accomplished by wire transfer of immediately available funds on the repurchase
date to an account designated by the Purchaser.

                                      15
<PAGE>
 
          At the time of repurchase, the Purchaser and the Seller shall arrange
for the reassignment of the repurchased Mortgage Loan to the Seller and the
delivery to the Seller of any documents held by the Purchaser or its custodian
relating to such Mortgage Loan.  The Seller shall, simultaneously with such
reassignment, give written notice to the Purchaser that such repurchase has
taken place.

          Any cause of action against the Seller relating to or arising out of
the breach of any representations and warranties made in Sections 3.1 or 3.2
                                                         -------------------
shall accrue as to any Mortgage Loan upon (i) discovery of such breach by the
Purchaser or notice thereof by the Seller to the Purchaser, (ii) failure by the
Seller to cure such breach or repurchase such Mortgage Loan as specified above,
and (iii) demand upon the Seller by the Purchaser for compliance with the
relevant provisions of this Agreement.

          SECTION 3.4  INDEMNIFICATION OF THE PURCHASER.  In addition to the
                       --------------------------------                     
repurchase obligations set forth in Section 3.3, the Seller shall indemnify the
                                    -----------  
Purchaser and hold it harmless against any losses, damages, penalties, fines,
forfeitures, judgments and any related costs including, without limitation,
reasonable and necessary legal fees, resulting from any claim, demand, defense
or a material omission on the part of the Seller in receiving, processing,
funding or servicing any Mortgage Loan, or from any assertion based on, grounded
upon or resulting from a breach of any of the Seller's representations and
warranties contained in this Article Ill. In addition to the obligations of the
Seller set forth in this Article 111, the Purchaser may pursue any and all
remedies otherwise available at law or in equity, including, but not limited to,
the right to seek damages. Notwithstanding the foregoing, Seller shall not be
liable for any special, consequential or punitive damages.

          SECTION 3.5  PREPAYMENT AND CONVERSION PROTECTION.  In the event that
                       ------------------------------------                    
any of the Mortgage Loans are (i) paid in full by the related Mortgagor or (ii)
converted to a fixed-rate mortgage loan, in either case, on or prior to the
Servicing Transfer Date, or (iii) subject to a breach of the representation set
forth in Section 3.2(qq), the Seller shall, with respect to each such Mortgage
         ---------------                                                      
Loan, pay to the Purchaser, in addition to the unpaid principal balance plus
accrued interest at the time of such payoff or conversion, the product of (a)
the positive difference, if any, between the Purchase Price Percentage and 100%,
times (b) the unpaid principal balance of such Mortgage Loan at the time such
Mortgage Loan is paid in full or converted, as applicable.


                                  ARTICLE IV

                    INTERIM SERVICING OF THE MORTGAGE LOANS
                    ---------------------------------------


          SECTION 4.1  GENERAL.  The Mortgage Loans will be purchased by the
                       -------                                              
Purchaser and sold by the Seller on a servicing-released basis and the purchase
of the Mortgage Loans by the Purchaser shall, for all purposes, include all
Servicing Rights relating thereto.  From the Closing Date to the Servicing
Transfer Date, the Seller shall interim service the Mortgage Loans in strict
accordance with the terms of this Agreement and, to the extent not inconsistent
herewith, the servicing standards of the Agencies.  Without limiting the
generality of the foregoing, the Seller shall not take, or fail to take, any
action which would result in the Purchaser's interest in the Mortgage Loans
being adversely affected.  It is expressly understood by the Seller that, during
the Interim Servicing Period, the Purchaser intends to market the Mortgage Loans
for sale to a whole loan investor and, as such, the Seller agrees to comply with
all reasonable requests of the Purchaser made prior to the Servicing Transfer
Date in order to effectuate the foregoing including, without limitation, any
request for information or documentation in connection with any Mortgage Loan
which the Purchaser deems is necessary to carry out the foregoing.

                                      16
<PAGE>
 
          SECTION 4.2  REPORTING AND REMITTANCE.  Within five (5) Business Days
                       ------------------------                                
following the conclusion of each calendar month reporting and remittance cycle
occurring during the Interim Servicing Period (each, a "Reporting Cycle"), if
any, the Seller shall forward to the Purchaser with respect to the Mortgage
Loans a full set of tapes or other computer or like records and a trial balance
as of the end of each such Reporting Cycle, which tapes or computer records and
trial balance shall include information relating to all payment and other
activity on the Mortgage Loans.  With respect to any payments of principal or
interest (including all prepayments) received, or applied to any Mortgagor's
account, by the Seller during the Interim Servicing Period (or prior to the
Closing Date, if any such payments were not reflected in the calculation of the
Purchaser Proceeds), the Seller shall remit to the Purchaser all such payments
of principal and interest on the Mortgage Loans no later than the fifth (51/th/)
day of the month following the conclusion of each Reporting Cycle and, with
respect to the month in which the Servicing Transfer Date occurs, no later than
the fifth (5/th/) Business Day thereafter.  With respect to each Mortgage Loan
for which an Escrow Account has been established for the payment of taxes,
insurance and other similar payments, the Seller shall effect the termination of
such Escrow Account on or prior to the Servicing Transfer Date and refund any
positive balance therein to the related Mortgagor(s).


                                   ARTICLE V

                          TRANSFER OF SERVICING RIGHTS
                          ----------------------------

          SECTION 5.1  TRANSFER OF SERVICING.  The Seller agrees to act
                       ---------------------                           
reasonably, in good faith and in accordance with all applicable laws and
regulations and to do all things necessary to effect the transfer of the
Servicing Rights to the Purchaser on the Servicing Transfer Date including,
without limitation, complying with all reasonable instructions provided by the
Purchaser relating to the transfer of the Servicing Rights.

          SECTION 5.2  OBLIGATIONS OF THE SELLER PRIOR TO THE SERVICING TRANSFER
                       ---------------------------------------------------------
DATE. Without limiting the generality of Section 5.1, the Seller shall take, or
----                                     -----------                           
cause to be taken, the following actions with respect to the Mortgage Loans
prior to the Servicing Transfer Date (or within such time as may otherwise be
specified below) in order to effect the transfer of the Servicing Rights to the
Purchaser on the Servicing Transfer Date:

          (a) Preliminary Test Tape.  On or prior to the Closing Date, the
              ---------------------                                       
              Seller shall forward to the Purchaser a preliminary test tape or
              other computer or like records (including master file, escrow
              file, payee file, ARM master file, ARM history, all HMDA data
              required by the Agencies, etc.) containing all of the Mortgage
              Loans as of a date mutually agreed upon by the Seller and the
              Purchaser. The preliminary test tape or computer records shall
              include all field descriptions and record layouts;

          (b) Notice to Hazard Insurers.  The Seller shall inform by written
              -------------------------                                     
              notice all hazard insurance companies and/or their agents of the
              transfer and request a change in the loss payee mortgage
              endorsement clause to the Purchaser's name. The Seller shall
              provide the Purchaser with a form of the notification letter and
              an officer's certification that all hazard insurance companies
              have been notified by an identical letter;

          (c) Notice to Mortgage Insurance Companies.  The Seller shall inform
              --------------------------------------                          
              by written notice all mortgage insurance companies providing any
              Primary Mortgage Insurance Policy of the change in insured's name
              on each such policy to the 

                                      17
<PAGE>
 
              Purchaser's name. The Seller shall provide the Purchaser with a
              form of the notification letter and an officer's written
              certification that all such mortgage insurance companies have been
              notified by an identical letter;

          (d) Tax Service Contracts.  The Seller shall have obtained a life of
              ---------------------                                           
              loan, transferable real estate tax service contract with a tax
              service company reasonably acceptable to the Purchaser on all of
              the Mortgage Loans and shall assign all such contracts to the
              Purchaser or, in the alternative, the Seller shall notify the
                        --         
              Purchaser as to any Mortgage Loans for which it has not procured
              the requisite contract and shall pay to the Purchaser a fee of
              twenty-five dollars ($25.00) for each such Mortgage Loan;

          (e) Flood Certifications.  The Seller shall have obtained a life of
              --------------------                                           
              loan, transferable flood certification contract for each Mortgage
              Loan and shall assign all such contracts to the Purchaser or, in
                                                                        --
              the alternative, the Seller shall notify the Purchaser as to any
              Mortgage Loans for which it has not procured the flood
              certification referenced above and shall pay to the Purchaser a
              fee of fifteen dollars ($15.00) for each such Mortgage Loan;

          (f) Notice to Mortgagors.  The Seller shall, no later than fifteen
              --------------------                                          
              (15) days prior to the Servicing Transfer Date, inform in writing
              all Mortgagors of the change in servicer from the Seller to the
              Purchaser, all in accordance with applicable law. The Seller shall
              obtain the Purchaser's approval of the form of such notifications
              prior to their mailing. The Seller acknowledges that the
              Purchaser's review of this notice shall not be a review for
              statutory or regulatory compliance purposes, and that the Seller
              shall have the sole responsibility for such compliance. The Seller
              shall provide the Purchaser with a form of the notification letter
              and an officer's written certification that all Mortgagors have
              been notified by an identical letter;

          (g) Payment of Real Estate Taxes.  The Seller shall make or cause to
              ----------------------------                                    
              be made all payments of all real estate taxes on the Mortgage
              Loans which (i) will be delinquent on or prior to the Servicing
              Transfer Date, (ii) are required to be paid within thirty (30)
              days after the Closing Date to receive a discount, or (iii) will
              be delinquent within thirty (30) days after the Closing Date. If
              tax bills have not been received by the Seller by the Servicing
              Transfer Date on any Mortgage Loans subject to this subsection,
              the Seller shall obtain and pay all tax bills subsequent to the
              Servicing Transfer Date and the Purchaser will promptly reimburse
              the Seller upon receipt from the Seller of documentation
              evidencing such payment. On non-impounded accounts, the Seller
              shall ensure that all taxes which would otherwise be delinquent by
              the Servicing Transfer Date, if not paid by such date, have been
              paid. With respect to each of the Mortgage Loans which do not have
              an impound or escrow account maintained for the payment of taxes
              and insurance, the Seller shall hold harmless and indemnify the
              Purchaser against any and all costs, expenses, penalties, fines,
              damages and judgments of whatever kind arising from the Seller's
              failure to pay, or cause to be paid, any delinquent taxes or tax
              penalties outstanding as of the Servicing Transfer Date;

          (h) Payment of Insurance Premiums. The Seller shall pay all hazard and
              -----------------------------                                     
              flood insurance and Primary Mortgage Insurance Policy premiums
              required to be 

                                      18
<PAGE>
 
              paid prior to the Servicing Transfer Date or within thirty (30)
              days after the Closing Date on all impounded accounts relating to
              the Mortgage Loans and shall ensure that all premiums required to
              be paid prior to the Servicing Transfer Date by the Mortgagors on
              non-impounded accounts have been paid. With respect to each of the
              Mortgage Loans which do not have an impound or escrow account
              maintained for the payment of taxes and insurance, the Seller
              shall hold harmless and indemnify the Purchaser against any and
              all costs, expenses, penalties, fines, damages and judgments of
              whatever kind arising from the Seller's failure to ensure that the
              related Mortgagor is maintaining adequate insurance coverage on
              the Mortgaged Property at all times prior to the Servicing
              Transfer Date in accordance with the terms of the any document
              contained in the Mortgage File or any applicable law or regulation
              including, without limitation, adequate flood insurance coverage
              for all Mortgaged Properties located within an "A" or N" flood
              hazard area; and

          (i) ARM Adjustments.  With respect to each adjustable rate Mortgage
              ---------------                                                
              Loan whose index value for any Interest Adjustment Date is
              available on or prior to the Servicing Transfer Date, the Seller
              shall make all such adjustments and shall inform the related
              Mortgagors of such adjustments.

          SECTION 5.3  OBLIGATIONS OF THE SELLER AFTER THE SERVICING TRANSFER
                       ------------------------------------------------------
DATE. Without limiting the generality of Section 5.1, the Seller shall take, or
----                                     -----------                           
cause to be taken, the following actions with respect to the Mortgage Loans
within three 3) Business Days following the Servicing Transfer Date (or within
such time as may otherwise be specified below):

          (a) Tape.  The Seller shall furnish to the Purchaser all available
              ----                                                          
              computer or like records requested by the Purchaser reflecting the
              status of payments, balances and other pertinent information with
              respect to the Mortgage Loans as of the Servicing Transfer Date
              (including, without limitation, (i) master file, (ii) escrow file,
              (iii) payee file, which includes comprehensive tax and insurance
              information identifying payee, payee address, next payment due
              date, next amount payable and policy number/parcel number, and
              (iv) ARM master file). Such records shall include magnetic tapes
              reflecting all computer files maintained on the Mortgage Loans and
              shall include hard copy trial balance reports as specifically
              requested by the Purchaser;

          (b) Mortgage File.  If the Seller has not already done so, the Seller
              -------------                                                    
              shall have forwarded a complete Mortgage File with respect to each
              Mortgage Loan;

          (c) Accounting Reports.  The Seller shall furnish to the Purchaser
              ------------------                                            
              copies of all accounting reports relating to the Mortgage Loans as
              of the Servicing Transfer Date including, without limitation, a
              trial balance and reports of collections, delinquencies, prepaids,
              curtailments, escrow payments, escrow balances, partial payments,
              partial payment balances and other like information with respect
              to the Mortgage Loans;

          (d) Other Documentation.  The Seller shall provide the Purchaser any
              -------------------                                             
              and all further documents reasonably required by the Purchaser in
              order to fully transfer to the Purchaser possession of all
              tangible evidence of the Servicing Rights and escrow, impound and
              trust funds transferred hereunder;.

                                      19
<PAGE>
 
          (e) Transfer of Escrow Funds and Other Proceeds.  The Seller shall
              -------------------------------------------                   
              transfer to the Purchaser, by wire transfer to the account
              designated by the Purchaser, an amount equal to the sum of (i) the
              Net Escrow Payments, (ii) all undistributed insurance loss draft
              funds, (iii) all unapplied funds received by the Seller, (iv) all
              unapplied interest an escrow balances accrued through the
              Servicing Transfer Date, (v) all buydown funds held by the Seller
              as of the Servicing Transfer Date, and (vi) all other amounts held
              by the Seller with respect to the Mortgage Loans as of the
              Servicing Transfer Date for which the Seller is not entitled to
              retain (collectively, the 'Escrow Proceeds'). Within five (5)
              Business Days following the Purchaser's receipt of the Escrow
              Proceeds, the Seller and the Purchaser shall resolve any
              discrepancies between the Seller's accounting statement and the
              Purchaser's Reconciliation with respect thereto. No later than ten
              (10) Business Days following the Servicing Transfer Date, the
              Seller or the Purchaser, as the case may be, shall transfer to the
              other, by wire transfer to the designated account, any amounts to
              which the other party is entitled; and

          (f) Mortgage Payments Received After Servicing Transfer Date.  The
              --------------------------------------------------------      
              Seller shall promptly forward to the Purchaser any payment
              received by it after the Servicing Transfer Date with respect to
              any of the Mortgage Loans, whether such payment is in the form of
              principal, interest, taxes, insurance, loss drafts, insurance
              refunds, etc., in the original form received, unless such payment
              has been received in cash or by the Seller's lock box facility, in
              which case the Seller shall forward such payment in a form
              acceptable to the Purchaser. The Seller shall notify the Purchaser
              of the particulars of the payment, which notification shall set
              forth sufficient information to permit timely and appropriate
              processing of the payment by the Purchaser.


                                   ARTICLE VI

                                 MISCELLANEOUS
                                 -------------


          SECTION 6.1  NOTICES.  All demands, notices and communications
                       -------                                          
required to be provided hereunder shall be in writing and shall be deemed to
have been duly given if mailed by registered or certified mail, postage prepaid,
and return receipt requested, or, if by other means, when received by the other
party at the address as follows:

          (i)  if to the Seller:

               United PanAm Mortgage
               625 The City Drive
               Orange, CA 92868
               Attn: Mr. Blair Kenney

          (ii) if to the Purchaser:

               As provided by Purchaser in writing.

or such other address as may hereafter be furnished to the other party by like
notice.  Any such demand, notice or communication hereunder shall be deemed to
have been received on the date 

                                      20
<PAGE>
 
delivered to or received at the premises of the addressee (as evidenced, in the
case of registered or certified mail, by the date noted on the return receipt).

          SECTION 6.2    INTENTION OF THE PARTIES. Pursuant to this Agreement,
                         ------------------------                             
the Purchaser is purchasing, and the Seller is selling the Mortgage Loans and
not a debt instrument of the Seller or any other security.  Accordingly, the
Seller and the Purchaser shall each treat the transaction for federal income tax
purposes as a sale by the Seller, and a purchase by the Purchaser, of the
Mortgage Loans and the Servicing Rights.  The Purchaser shall have the right to
review the Mortgage Loans and the related Mortgage Loan Files to determine the
characteristics of the Mortgage Loans which shall affect the federal income tax
consequences of owning the Mortgage Loans and the Servicing Rights and the
Seller shall cooperate with all reasonable requests made by the Purchaser in the
course of such review.

          SECTION 6.3  EXHIBITS.  The exhibits to this Agreement are hereby
                       --------                                            
incorporated and made a part hereof and are an integral part of this Agreement.

          SECTION 6.4    GENERAL INTERPRETIVE PRINCIPLES. For purposes of this
                         -------------------------------                      
Agreement, except as otherwise expressly provided or unless the context
otherwise requires:

          (a) the terms defined in this Agreement have the meanings assigned to
              them in this Agreement and include the plural as well as the
              singular, and the use of any gender herein shall be deemed to
              include the other gender;

          (b) accounting terms not otherwise defined herein have the meanings
              assigned to them in accordance with generally accepted accounting
              principles;

          (c) references herein to "Sections," "Subsections," "Paragraphs," and
              other Subdivisions without reference to a document are to
              designated Sections, Subsections, Paragraphs and other
              subdivisions of this Agreement;

          (d) reference to a Subsection without further reference to a Section
              is a reference to such Subsection as contained in the same Section
              in which the reference appears, and this rule shall also apply to
              Paragraphs and other subdivisions;

          (e) the words "herein," "hereof," "hereunder" and other words of
              similar import refer to this Agreement as a whole and not to any
              particular provision; and

          (f) the term "include" or "including" shall mean without limitation by
              reason of enumeration.

          SECTION 6.5  REPRODUCTION OF DOCUMENTS.  This Agreement and all
                       -------------------------                         
documents relating thereto, including, without limitation, (a) consents, waivers
and modifications which may hereafter be executed, (b) documents received by any
party at the closing, and (c) financial statements, certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process.  The parties agree that any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and that any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.

          SECTION 6.6  FURTHER AGREEMENTS.  The Seller shall execute and deliver
                       ------------------                                       
to the Purchaser and the Purchaser shall execute and deliver to the Seller such
reasonable and appropriate 

                                      21
<PAGE>
 
additional documents, instruments or agreements as may be necessary or
appropriate to effectuate the purposes of this Agreement.

          SECTION 6.7  EXECUTION OF AGREEMENT.  This Agreement may be executed
                       ----------------------                                 
simultaneously in any number of counterparts.  Each counterpart shall be deemed
to be an original, and all such counterparts shall constitute one and the same
instrument.  This Agreement shall be deemed binding when executed by both the
Purchaser and the Seller.  Telecopy signatures shall be deemed valid and binding
to the same extent as the original.

          SECTION 6.8  SUCCESSORS AND ASSIGNS.  This Agreement shall bind and
                       ----------------------                                
inure to the benefit of and be enforceable by the Seller and the Purchaser and
the respective permitted successors and assigns of the Seller and the successors
and assigns of the Purchaser.  This Agreement shall not be assigned, pledged or
hypothecated by the Seller without the consent of the Purchaser.  This Agreement
may be assigned, pledged or hypothecated or otherwise transferred or encumbered
by the Purchaser, in whole or part, without the consent of the Seller.  If the
Purchaser assigns all of its rights as the Purchaser hereunder relating to some
or all of the Mortgage Loans, the assignee of the Purchaser, upon notification
to the Seller, will become the "Purchaser" hereunder with respect to such
Mortgage Loans assigned hereby.

          SECTION 6.9  SEVERABILITY CLAUSE.  Any part, provision, representation
                       -------------------                                      
or warranty of this Agreement which is prohibited or which is held to be void or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.  Any
part, provision, representation or warranty of this Agreement which is
prohibited or unenforceable or is held to be void or unenforceable in any
relevant jurisdiction shall be ineffective, as to such jurisdiction, to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction as to any Mortgage Loan shall not invalidate or render
unenforceable such provision in any other jurisdiction.  To the extent permitted
by applicable law, the parties hereto waive any provision of law which prohibits
or renders void or unenforceable any provision hereof.

          SECTION 6.10  COSTS.  The Purchaser shall pay any commissions due its
                        -----                                                  
salesmen and the legal fees and expenses of its attorneys and expenses of its
custodian.  All other costs and expenses incurred in connection with the
transfer and delivery of the Mortgage Loans, including recording fees, fees for
title policy endorsements and continuations and the Seller's attorney's fees,
shall be paid by the Seller.

          SECTION 6.11  ATTORNEYS' FEES.  If any claim, legal action or any
                        ---------------                                    
arbitration or other proceeding is brought for the enforcement of this Agreement
or because of a dispute, breach, default or misrepresentation in connection with
any of the provisions of this Agreement, the successful or prevailing party
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that claim, action or proceeding, in addition to any other relief to which
such party may be entitled.

          SECTION 6.12  GOVERNING LAW.  This Agreement shall be governed by and
                        -------------                                          
interpreted in accordance with the laws of the State of California applicable to
agreements entered into and wholly performed within said jurisdiction.

          SECTION 6.13  SURVIVAL.  All covenants, agreements, representations
                        --------         
and warranties made herein shall survive the execution and delivery of this
Agreement.

          SECTION 6.14  ENTIRE AGREEMENT.  This Agreement the entire
                        ----------------                            
understanding between the parties hereto and supersedes any and all prior or
contemporaneous oral or written communications with respect to the subject
matter hereof, all of which communications are merged 

                                      22
<PAGE>
 
herein. It is expressly understood and agreed that no employee, agent or other
representative of the Seller or the Purchaser has any authority to bind such
party with regard to any statement, representation, warranty or other expression
unless said statement, representation, warranty or other expression is
specifically included within the express terms of this Agreement. This Agreement
shall not be modified, amended or in any way altered except by an instrument in
writing signed by both the parties hereto.

          SECTION 6.15  CONFIDENTIALITY.  The Seller and the Purchaser hereby
                        ---------------                                      
acknowledge and agree that this Agreement shall be kept confidential and its
contents will not be divulged to any party without the other party's consent
except to the extent that it is appropriate for the Seller or the Purchaser to
do so in working with legal counsel, auditors, taxing authorities or other
governmental agencies.

          SECTION 6.16  NO SOLICITATION.  From and after the Closing Date, the
                        ---------------                                       
Seller agrees that for a period of five (5) years, it will not take any action
or cause any action to be taken by any of its employees, agents or affiliates,
or by any independent contractors acting on the Seller's behalf, to solicit in
any manner whatsoever any Mortgagor to prepay, or refinance a Mortgage Loan.  It
is understood and agreed by the Seller and the Purchaser that all rights and
benefits relating to the solicitation of any Mortgagors to refinance any
Mortgage Loans shall be transferred to the Purchaser pursuant hereto on the
Closing Date and the Seller shall take no action to undermine these rights and
benefits.  The Seller shall use its best efforts to prevent the sale of the name
of any Mortgagor to any person or entity.  It is understood that promotions
undertaken by the Seller or Seller's affiliate(s) which are directed to the
general public at large (i.e., newspaper advertisements, radio or T.V. ads,
etc.) and not specifically directed to any Mortgagor or any borrower identified
in any Mortgage Loan shall not constitute a breach of the obligations set forth
in this Section 6.16.

          SECTION 6.17  NON-CIRCUMVENTION.  The Seller and the Purchaser
                        -----------------                               
understand and agree that the Purchaser may introduce prospective buyers of the
Mortgage Loans to the Seller, that, such buyers are customers of the Purchaser
and that relationships of the Purchaser to such buyers are confidential.  The
Seller agrees with respect to a particular buyer of the Mortgage Loans, the
Seller will not, for the purpose of buying and selling other mortgage loans
communicate with or sell such other mortgage loans to such buyer unless such
buyer is or has been independently introduced to the Seller or the Seller has
had previous dealings (other than any transactions involving the Purchaser) with
such buyer.


                            [SIGNATURE PAGE FOLLOWS]

                                      23
<PAGE>
 
          IN WITNESS WHEREOF, the Seller and the Purchaser have caused their
names to be signed hereto by their respective officers thereunto duly authorized
as first above written.

                                    COUNTRYWIDE HOME LOANS, INC.,
                                    the Seller


                                         /s/  Michael W. Schloessmann
                                    By _________________________________
                                       Michael W. Schloessmann
                                       Vice President


                                    PAN AMERICAN BANK, FSB
                                    as Seller

                                         /s/  Blair F. Kenney
                                    By ________________________________
                                       Name: Blair F. Kenney
                                       Title:   Senior Vice President

                                      24
<PAGE>
 
                                   EXHIBIT A

                             MORTGAGE LOAN SCHEDULE

                                   (attached)



                                      25