FIRST AMENDMENT TO LOAN AGREEMENT


      THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "AMENDMENT"), dated for
reference purposes only as of July 20, 1998 by and between FirstCity Financial
Corporation, a Delaware corporation ("BORROWER"), with its principal place of
business at 6400 Imperial Drive, P.O. Box 8216, Waco, Texas 76714 and Bank of
Scotland, acting through its branch in New York, New York ("BANK")


                               RECITALS:

            Borrower and BOS have entered into that certain Loan Agreement dated
as of April 8, 1998 (the "EXISTING AGREEMENT") pursuant to which Bank agreed to
provide credit facilities to Borrower in the original maximum amount of
$50,000,000, which the maximum principal amount has been reduced pursuant to the
express terms of the Existing Agreement to $40,000,000.

            Borrower has requested that Bank increase the credit facility to
$50,000,000.

            Bank has agreed to increase the credit facility pursuant to the
terms and conditions of this Amendment.

            The parties deem it to be in their best interest to amend the
Existing Agreement to reflect the increase in the maximum loan amount.

NOW THEREFORE, in consideration of any loan, advance, extension of credit and/or
other financial accommodation at any time made by Bank to or for the benefit of
Borrower and Bank agree as follows:

1.    Recitals and Definitions.

      1.1. Borrower hereby represents and warrants to Bank that the foregoing
Recitals are (a) true and accurate, (b) an integral part of this Amendment; and
(c) hereby incorporated into this Amendment and made a part hereof.

      1.2. All terms capitalized but not expressly defined herein shall, for
purposes hereof, have the respective meanings set forth in the Existing
Agreement.

2.   Amendments to Loan Agreement. The Existing Agreement is hereby amended as
follows:

     2.1   All references to "Reduction Events" in the Existing Agreement are



                                  


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hereby deleted.

     2.2 Section 2.2(a) of the Loan Agreement is hereby deleted in its entirety
and the following is substituted therefor:

            (A) NOTWITHSTANDING ANYTHING AT ANY TIME TO THE CONTRARY CONTAINED
      HEREIN OR IN ANY OTHER LOAN DOCUMENT, BUT SUBJECT TO THE LIMITATIONS SET
      FORTH IN SECTION 2.2(D), THE PRINCIPAL PORTION OF BORROWER'S LIABILITIES
      OUTSTANDING AT ANY ONE TIME DURING THE TERM HEREOF SHALL NOT EXCEED AN
      AMOUNT EQUAL TO THE LESSER OF (A) $50,000,000 AND (B) THE BORROWING BASE
      WHICH AMOUNT IS REFERRED TO HEREIN AS THE "MAXIMUM PRINCIPAL AMOUNT."

     2.3 Section 2.2(e) of the Existing Agreement is hereby deleted in its
entirety and the following is substituted therefor:

            (E) IN THE EVENT THAT THE OUTSTANDING PRINCIPAL BALANCE OF THE LOAN
      EXCEEDS THE MAXIMUM PRINCIPAL AMOUNT AT ANY TIME, BORROWER SHALL PAY THE
      AMOUNT OF SUCH EXCESS TO BANK, WITHOUT NOTICE OR DEMAND, AND ANY AMOUNT
      NOT SO PAID SHALL BEAR INTEREST AT THE DEFAULT RATE UNTIL PAID. THIS IS AN
      ABSOLUTE OBLIGATION TO PAY TO BANK THE AMOUNT OF THE UNPAID PRINCIPAL
      BALANCE OF THE LOAN IN EXCESS OF SAID MAXIMUM PRINCIPAL AMOUNT, REGARDLESS
      OF THE CAUSE OF SUCH EXCESS.

     2.4 Sections 2.12(b) of the Existing Agreement is hereby deleted in its
entity and the following is substituted therefor:

            (B) UNUSED COMMITMENT. BORROWER SHALL PAY AN UNUSED COMMITMENT FEE
      IN AN AMOUNT EQUAL TO .125% (ON AN ANNUAL BASIS, BASED ON A 365-DAY YEAR)
      OF THE DIFFERENCE BETWEEN $50,000,000 AND THE DAILY OUTSTANDING PRINCIPAL
      BALANCE OF THE LOAN. SUCH FEE SHALL BE PAYABLE QUARTERLY IN ARREARS ON THE
      LAST BUSINESS DAY OF EACH CALENDAR QUARTER.

      2.5   Section 3.3(c) is hereby deleted.

3. Representations and Warranties of Borrower. This Amendment shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. To induce Bank to enter into this Amendment, Borrower
hereby represents and warrants to Bank that:

            (a) Borrower represents and warrants that the execution and delivery
of this Amendment, and the performance by Borrower of its obligations under this
Amendment and the other Loan Documents, as amended, are within Borrower's
corporate powers, have been duly authorized by all necessary corporate action,
have received all necessary



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governmental approvals (if any shall be required) and do not and will not
contravene or conflict with any provisions of law, or the Articles of
Incorporation or corporate By-Laws of Borrower or of any other agreement binding
upon Borrower;

            (b) Borrower represents and warrants that this Amendment, and each
other instrument executed by Borrower concurrently herewith, is the legal, valid
and binding obligation of Borrower, enforceable against Borrower in accordance
with their respective terms, except as enforcement thereof may be subject to the
effect of applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally, and to the general
principles of equity (regardless of whether such enforcement is sought in a
proceeding in equity or at law);

            (c) Borrower represents and warrants that all of the representations
and warranties of Borrower made in the Loan Documents are true and correct as of
the date hereof, except where such representation or warranty specifically
relates to an earlier date. Borrower hereby expressly remakes and reaffirms each
and every representation, warranty and covenant set forth in the Agreement and
the other Loan Documents to which Borrower is a party to and for the benefit of
Agent and Lenders, as if made on the date herein and fully set forth herein.

            (d) Borrower represents and warrants that no Event of Default or
Unmatured Default under the Loan Documents exists and Borrower is in full
compliance with all of the terms, conditions and all provisions of the Agreement
and the other Loan Documents.

            (e) Borrower represents and warrants that it is Borrower's belief,
based upon Borrower's best knowledge that Borrower shall, on or before September
30, 1998 publicly offer and sell securities, in the form of preferred stock of
Borrower, resulting in net proceeds of sale to Borrower in an amount of not less
than $45,000,000 and Borrower has no knowledge that would lead Borrower to
believe that such offering of securities shall not be effected or that net
proceeds in an amount of less than $45,000,000 would not be paid to Borrower
therefrom. Borrower represents and warrants that the sale of such securities
shall be effected in compliance with the provisions of Section 6.3(f) of the
Loan Agreement and that the net proceeds thereof shall be paid to Bank in
accordance with the provisions of Section 3.3(d) of the Loan Agreement.

            (f) Borrower, Bank and NationsBank, N.A. are in the process of
negotiating an amendment of the Loan Agreement, pursuant to which the Maximum
Principal Amount would be increased to $75,000,000 and a portion of the Loans
would be sold by Bank to NationsBank, N.A., a co-lender. Borrower represents and
warrants to Bank that Borrower has no knowledge that would lead Borrower to
believe that such amendment will



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not be effected on or before September 30, 1998.


4.    Miscellaneous.

      4.1. Fees. In addition to all fees payable by Borrower in connection with
the Existing Agreement, Borrower shall pay to Bank $25,000 in connection with
this Amendment.

      4.2. Reimbursement for Expenses. Upon demand by Bank therefor, Borrower
shall reimburse Bank for all reasonable costs, fees and expenses incurred by
Bank or for which Bank becomes obligated, in connection with the negotiation,
preparation and conclusion of this agreement, including without limitation,
reasonable attorney's fees, costs and expenses, search fees, title insurance
policy fees, costs and expenses, filing and recording fees and all taxes payable
in connection with this Amendment.

      4.3. Waiver of Claims. Borrower hereby acknowledges, agrees and affirms
that it possesses no claims, defenses, offsets, recoupment or counterclaims of
any kind or nature against or with respect to the enforcement of the Loan
Agreement, or any other Loan Document or any amendments thereto (collectively,
the "CLAIMS"), nor does Borrower now have knowledge of any facts that would or
might give rise to any Claims. If facts now exist which would or could give rise
to any Claim against or with respect to the enforcement of the Loan Agreement,
or any other Loan Document, as amended by the amendments thereto, Borrower
hereby unconditionally, irrevocably and unequivocally waives and fully releases
any and all such Claims as if such Claims were the subject of a lawsuit,
adjudicated to final judgment from which no appeal could be taken and therein
dismissed with prejudice.

      4.4. Representation by Counsel. Borrower hereby represents that it has
been represented by competent counsel of its choice in the negotiation and
execution of this Amendment and the other Loan Documents; that it has read and
fully understood the terms hereof; Borrower and its counsel have been afforded
an opportunity to review, negotiate and modify the terms of this Amendment, and
that it intends to be bound hereby. In accordance with the foregoing, the
general rule of construction to the effect that any ambiguities in a contract
are to be resolved against the party drafting the contract shall not be employed
in the construction and interpretation of this Amendment.

      4.5. Counterparts. This Amendment and the other Loan Documents may be
executed in any number of counterparts, and by the different parties hereto and
thereto on the same or separate counterparts, each of which when so executed and
delivered shall be deemed to be an original;



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all the counterparts for each such Loan Document shall together constitute one
and the same agreement.

      4.6. Fax Execution. For purposes of negotiating and finalizing this
Amendment (including any subsequent amendments thereto), any signed document
transmitted by facsimile machine ("FAX") shall be treated in all manner and
respects as an original document. The signature of any party by FAX shall be
considered for these purposes as an original signature. Any such FAX document
shall be considered to have the same binding legal effect as an original
document, provided that an original of the faxed document was mailed by first
class US Mail or personally delivered to the recipient, on the date of its
transmission with proof of the fax transmission. At the request of either party,
any FAX document subject to this Amendment shall be re-executed by both parties
in an original form. The undersigned parties hereby agree that neither shall
raise the use of the FAX or the fact that any signature or document was
transmitted or communicated through the use of a FAX as a defense to the
formation of this Amendment and execution of this Amendment and the other Loan
Documents; that it has read and fully understood the terms hereof; Borrower and
its counsel have been afforded an opportunity to review, negotiate and modify
the terms of this Amendment, and that it intends to be bound hereby. In
accordance with the foregoing, the general rule of construction to the effect
that any ambiguities in a contract are to be resolved against the party drafting
the contract shall not be employed in the construction and interpretation of
this Amendment.

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      IN WITNESS WHEREOF, this First Amendment to Loan Agreement has been duly
executed as of the day and year specified at the beginning hereof.


                                    BORROWER:
                                    ---------

                                    FIRSTCITY FINANCIAL CORPORATION
                                    a Delaware corporation

                                    By:
                                    Title:


                                    BANK:

                                    BANK OF SCOTLAND

                                    By:
                                    Title:



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