Document:

<PAGE>

                      FIRST HORIZON ASSET SECURITIES INC.

                                   Depositor

                      FIRST HORIZON HOME LOAN CORPORATION

                          Seller and Master Servicer

                   FIRST TENNESSEE BANK NATIONAL ASSOCIATION

                                   Purchaser

                                      and

                             THE BANK OF NEW YORK

                                    Trustee

             _____________________________________________________

                        POOLING AND SERVICING AGREEMENT

                           Dated as of July 1, 2001

             _____________________________________________________

               FIRST HORIZON MORTGAGE PASS-THROUGH TRUST 2001-5

               MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2001-5
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                           Page
                                                                                                           ----
<S>                                                                                                        <C>
ARTICLE I -   DEFINITIONS..................................................................................  5

ARTICLE II -  CONVEYANCE OF MORTGAGE LOANS; REPRESENTATIONS AND WARRANTIES................................. 33
SECTION 2.2   Acceptance by Trustee of the Mortgage Loans.................................................. 37
SECTION 2.3   Representations, Warranties and Covenants of the Seller and Master Servicer.................. 38
SECTION 2.4   Representations and Warranties of the Depositor as to the Mortgage Loans..................... 40
SECTION 2.5   Delivery of Opinion of Counsel in Connection with Substitutions.............................. 41
SECTION 2.6   Execution and Delivery of Certificates....................................................... 41
SECTION 2.7   REMIC Matters................................................................................ 41
SECTION 2.8   Covenants of the Master Servicer............................................................. 42

ARTICLE III - ADMINISTRATION AND SERVICING OF MORTGAGE LOANS............................................... 42
SECTION 3.1   Master Servicer to Service Mortgage Loans.................................................... 42
SECTION 3.2   Subservicing; Enforcement of the Obligations of Servicers.................................... 43
SECTION 3.3   Rights of the Depositor and the Trustee in Respect of the Master Servicer.................... 43
SECTION 3.4   Trustee to Act as Master Servicer............................................................ 44
SECTION 3.5   Collection of Mortgage Loan Payments; Certificate Account; Distribution Account.............. 44
SECTION 3.6   Collection of Taxes, Assessments and Similar Items; Escrow Accounts.......................... 47
SECTION 3.7   Access to Certain Documentation and Information Regarding the Mortgage Loans................. 47
SECTION 3.8   Permitted Withdrawals from the Certificate Account and Distribution Account.................. 48
SECTION 3.9   Maintenance of Hazard Insurance; Maintenance of Primary Insurance Policies................... 49
SECTION 3.10  Enforcement of Due-on-Sale Clauses; Assumption Agreements.................................... 51
SECTION 3.11  Realization Upon Defaulted Mortgage Loans; Repurchase of Certain Mortgage Loans.............. 52
SECTION 3.12  Trustee to Cooperate; Release of Mortgage Files.............................................. 54
SECTION 3.13  Documents Records and Funds in Possession of Master Servicer to be Held for the Trustee...... 55
SECTION 3.14  Master Servicing Compensation................................................................ 55
SECTION 3.15  Access to Certain Documentation.............................................................. 56
SECTION 3.16  Annual Statement as to Compliance............................................................ 56
SECTION 3.17  Annual Independent Public Accountants' Servicing Statement; Financial Statements............. 56
SECTION 3.18  Errors and Omissions Insurance; Fidelity Bonds............................................... 57

ARTICLE IV -  DISTRIBUTIONS AND ADVANCES BY THE MASTER SERVICER............................................ 57
SECTION 4.1   Advances..................................................................................... 57
SECTION 4.2   Priorities of Distribution................................................................... 58
SECTION 4.3   Method of Distribution....................................................................... 61
SECTION 4.4   Allocation of Losses......................................................................... 62
SECTION 4.5   [Reserved.................................................................................... 63
SECTION 4.6   Monthly Statements to Certificateholders..................................................... 63
</TABLE>

                                       i
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<TABLE>
<S>                                                                                                          <C>
ARTICLE V   -  THE CERTIFICATES............................................................................  65
SECTION 5.1    The Certificates............................................................................  65
SECTION 5.2    Certificate Register; Registration of Transfer and Exchange of Certificates.................  66
SECTION 5.3    Mutilated, Destroyed, Lost or Stolen Certificates...........................................  70
SECTION 5.4    Persons Deemed Owners.......................................................................  70
SECTION 5.5    Access to List of Certificateholders' Names and Addresses...................................  71
SECTION 5.6    Maintenance of Office or Agency.............................................................  71

ARTICLE VI  -  THE DEPOSITOR AND THE MASTER SERVICER.......................................................  71
SECTION 6.1    Respective Liabilities of the Depositor and the Master Servicer.............................  71
SECTION 6.2    Merger or Consolidation of the Depositor or the Master Servicer.............................  71
SECTION 6.3    Limitation on Liability of the Purchaser, the Depositor, the Seller, the
               Master Servicer and Others..................................................................  72
SECTION 6.4    Limitation on Resignation of Master Servicer................................................  72

ARTICLE VII -  DEFAULT.....................................................................................  73
SECTION 7.1    Events of Default...........................................................................  73
SECTION 7.2    Trustee to Act; Appointment of Successor....................................................  74
SECTION 7.3    Notification to Certificateholders..........................................................  75

ARTICLE VIII - CONCERNING THE TRUSTEE......................................................................  75
SECTION 8.1    Duties of Trustee...........................................................................  75
SECTION 8.2    Certain Matters Affecting the Trustee.......................................................  77
SECTION 8.3    Trustee Not Liable for Certificates or Mortgage Loans.......................................  78
SECTION 8.4    Trustee May Own Certificates................................................................  79
SECTION 8.5    Trustee's Fees and Expenses.................................................................  79
SECTION 8.6    Eligibility Requirements for Trustee........................................................  79
SECTION 8.7    Resignation and Removal of Trustee..........................................................  80
SECTION 8.8    Successor Trustee...........................................................................  80
SECTION 8.9    Merger or Consolidation of Trustee..........................................................  81
SECTION 8.10   Appointment of Co-Trustee or Separate Trustee...............................................  81
SECTION 8.11   Tax Matters.................................................................................  82
SECTION 8.12   Periodic Filings............................................................................  84

ARTICLE IX  -  TERMINATION.................................................................................  84
SECTION 9.1    Termination upon Liquidation or Purchase of all Mortgage Loans..............................  84
SECTION 9.2    Final Distribution on the Certificates......................................................  85
SECTION 9.3    Additional Termination Requirements.........................................................  86

ARTICLE X   -  [RESERVED]..................................................................................  87

ARTICLE XI  -  MISCELLANEOUS PROVISIONS....................................................................  87
SECTION 11.1   Amendment...................................................................................  87
SECTION 11.2   Recordation of Agreement; Counterparts......................................................  88
SECTION 11.3   Governing Law...............................................................................  88
SECTION 11.4   Intention of Parties........................................................................  89
</TABLE>

                                      ii
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<TABLE>
<S>                                                                                              <C>
SECTION 11.5     Notices......................................................................        90
SECTION 11.6     Severability of Provisions...................................................        90
SECTION 11.7     Assignment...................................................................        91
SECTION 11.8     Limitation on Rights of Certificateholders...................................        91
SECTION 11.9     Inspection and Audit Rights..................................................        91
SECTION 11.10    Certificates Nonassessable and Fully Paid....................................        92

                                   SCHEDULES

 Schedule I:   Mortgage Loan Schedule.........................................................     S-I-1
 Schedule II:  Representations and Warranties of the Seller/Master Servicer...................    S-II-1
 Schedule III: Representations and Warranties as to the Mortgage Loans........................   S-III-1
 Schedule IV:  Form of Monthly Master Servicer Report.........................................     S-V-1

                                   EXHIBITS

 Exhibit A:    Form of Senior Certificate.....................................................       A-1
 Exhibit B:    Form of Subordinated Certificate...............................................       B-1
 Exhibit C:    Form of Residual Certificate...................................................       C-1
 Exhibit D:    Form of Reverse of Certificates................................................       D-1
 Exhibit E:    Form of Initial Certification..................................................       E-1
 Exhibit F:    Form of Delay Delivery Certification...........................................       F-1
 Exhibit G:    Form of Final Certification of Custodian.......................................       G-1
 Exhibit H:    Transfer Affidavit.............................................................       H-1
 Exhibit I:    Form of Transferor Certificate.................................................       I-1
 Exhibit J:    Form of Investment Letter [Non-Rule 144A]......................................       J-1
 Exhibit K:    Form of Rule 144A Letter.......................................................       K-1
 Exhibit L:    Request for Release (for Trustee)..............................................       L-1
 Exhibit M:    Request for Release (Mortgage Loan)............................................       M-1
</TABLE>

                                      iii
<PAGE>

     THIS POOLING AND SERVICING AGREEMENT, dated as of July 1, 2001 among FIRST
HORIZON ASSET SECURITIES INC., a Delaware corporation, as depositor (the
"Depositor"), FIRST HORIZON HOME LOAN CORPORATION, a Kansas corporation, as
seller (in such capacity, the "Seller") and as master servicer (in such
capacity, the "Master Servicer"), FIRST TENNESSEE BANK NATIONAL ASSOCIATION (the
"Purchaser") and THE BANK OF NEW YORK, a banking corporation organized under the
laws of the State of New York, as trustee (the "Trustee").

                                WITNESSETH THAT

     In consideration of the mutual agreements herein contained, the parties
hereto agree as follows:

                             PRELIMINARY STATEMENT

     The Depositor is the owner of the Trust Fund that is hereby conveyed to the
 Trustee in return for the Certificates. The Trust Fund for federal income tax
 purposes will consist of a single REMIC. The Certificates will represent the
 entire beneficial ownership interest in the Trust Fund. The Regular
 Certificates will represent "regular interests" in the REMIC and the Residual
 Certificates will represent the sole class of residual interests in the REMIC.
 The "latest possible maturity date" for federal income tax purposes of all
 interests created hereby will be the Latest Possible Maturity Date.

     The following table sets forth characteristics of the Certificates,
 together with the minimum denominations and integral multiples in excess
 thereof in which such Classes shall be issuable (except that one Certificate of
 each Class of Certificates may be issued in a different amount and, in
 addition, one Residual Certificate representing the Tax Matters Person
 Certificate may be issued in a different amount):

                 [Remainder of Page Intentionally Left Blank]
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
      Class              Initial Class       Pass-Through         Minimum       Integral Multiples in
   Designation        Certificate Balance        Rate           Denomination      in Excess Minimum
<S>                   <C>                    <C>                <C>             <C>
-------------------------------------------------------------------------------------------------------
    Class A - 1          $  222,100,000          6.75%           $    25,000         $     1,000
-------------------------------------------------------------------------------------------------------
    Class A - 2          $   18,442,550          6.75%           $    25,000         $     1,000
-------------------------------------------------------------------------------------------------------
    Class A - 3          $   28,950,000          6.75%           $    25,000         $     1,000
-------------------------------------------------------------------------------------------------------
    Class A - 4          $   10,000,000          7.00%           $    25,000         $     1,000
-------------------------------------------------------------------------------------------------------
    Class A - 5          $   10,000,000          6.50%           $    25,000         $     1,000
-------------------------------------------------------------------------------------------------------
    Class A - R          $          100          6.75%           $       100                 N/A
-------------------------------------------------------------------------------------------------------
    Class B - 1          $    3,450,000          6.75%           $   100,000         $     1,000
-------------------------------------------------------------------------------------------------------
    Class B - 2          $    3,000,000          6.75%           $   100,000         $     1,000
-------------------------------------------------------------------------------------------------------
    Class B - 3          $    1,650,000          6.75%           $   100,000         $     1,000
-------------------------------------------------------------------------------------------------------
    Class B - 4          $      750,000          6.75%           $   100,000         $     1,000
-------------------------------------------------------------------------------------------------------
    Class B - 5          $      600,000          6.75%           $   100,000         $     1,000
-------------------------------------------------------------------------------------------------------
    Class B - 6          $    1,049,733          6.75%           $   100,000         $     1,000
-------------------------------------------------------------------------------------------------------
</TABLE>

________________________
Accretion Directed
Certificates:              The Class A-1, Class A-4 and Class A-5 Certificates.

Accrual Certificates:      The Class A-2 Certificates.

Accrual Components:        None.

Book-Entry Certificates:   All Classes of Certificates other than the Physical
                           Certificates.

Component Certificates:    None.

Components:                For purposes of calculating distributions, the
                           Component Certificates will be comprised of multiple
                           payment components having the designations, Initial
                           Component Balances and Pass-Through Rates set forth
                           below:

                                              Initial
                                             Component
                           Designation        Balance          Pass-Through Rate
                           -----------      -----------        -----------------
                               N/A              N/A                    N/A

Delay Certificates:        All interest-bearing Classes of Certificates other
                           than the Non-Delay Certificates, if any.

                                      -2-
<PAGE>

ERISA-Restricted
Certificates:                  The Residual Certificates and the Private
                               Certificates.

Floating Rate Certificates:    None.

Interest Only Certificates:    None.

Inverse Floating Rate
Certificates:                  None.

COFI Certificates:             None.

LIBOR Certificates:            None.

Non-Delay Certificates:        None.

Notional Amount
Certificates:                  None.

Offered Certificates:          All Classes of Certificates other than the
                               Private Certificates.

Physical Certificates:         The Private Certificates and the Residual
                               Certificates.

Planned Principal Classes:     None.

Primary Planned Principal
Classes:                       None.

Principal Only
Certificates:                  None.

Private Certificates:          Class B-4, Class B-5 and Class B-6 Certificates.

Rating Agencies:               S&P and Moody's.

Regular Certificates:          All Classes of Certificates, other than the
                               Residual Certificates.

Residual Certificates:         The Class A-R Certificates.

Scheduled Principal
Classes:                       None.

Secondary Planned Principal
Class:                         None.

Senior Certificates:           The Class A-1, Class A-2, Class A-3, Class A-4,
                               Class A-5 and Class A-R Certificates.

                                      -3-
<PAGE>

Subordinated Certificates:     The Class B-1, Class B-2, Class B-3, Class B-4,
                               Class B-5 and Class B-6 Certificates.

Support Classes:               None.

Targeted Principal
Classes:                       None.

         With respect to any of the foregoing designations as to which the
corresponding reference is "None," all defined terms and provisions herein
relating solely to such designations shall be of no force or effect, and any
calculations herein incorporating references to such designations shall be
interpreted without reference to such designations and amounts. Defined terms
and provisions herein relating to statistical rating agencies not designated
above as Rating Agencies shall be of no force or effect.

                                      -4-
<PAGE>

                                   ARTICLE I
                                  DEFINITIONS

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

         Accretion Directed Certificates: As described in the Preliminary
Statement.

         Accrual Certificates: As described in the Preliminary Statement.

         Accretion Termination Date: For the Accrual Certificates, the earlier
of (a) the Cross-Over Date, and (b) the Distribution Date on which the Class
Certificate Balances of each of the Class A-1, Class A-4 and Class A-5
Certificates have been reduced to zero.

         Accrual Amount: For each Distribution Date through the Accretion
Termination Date, an amount equal to the sum of (a) the Accrued Certificate
Interest distributable in respect of the Accrual Certificates in accordance with
Section 4.2(a)(i), and (b) any available amounts allocable to the Accrual
Certificates in accordance with Section 4.2(a)(ii).

         Accrued Certificate Interest: For any Class of Certificates for any
Distribution Date, the interest accrued during the related Interest Accrual
Period at the applicable Pass-Through Rate on the Certificate Principal Balance
of such Class of Certificates immediately prior to such Distribution Date, less
such Class' share of any Net Interest Shortfall.

         Adjusted Mortgage Rate: As to each Mortgage Loan, and at any time, the
per annum rate equal to the Mortgage Rate less the Master Servicing Fee Rate.

         Adjusted Net Mortgage Rate: As to each Mortgage Loan, and at any time,
the per annum rate equal to the Mortgage Rate less the related Expense Rate.

         Advance: The payment required to be made by the Master Servicer with
respect to any Distribution Date pursuant to Section 4.1, the amount of any such
payment being equal to the aggregate of payments of principal and interest (net
of the Master Servicing Fee and net of any net income in the case of any REO
Property) on the Mortgage Loans that were due on the related Due Date and not
received as of the close of business on the related Determination Date, less the
aggregate amount of any such delinquent payments that the Master Servicer has
determined would constitute a Nonrecoverable Advance if advanced.

         Agreement: This Pooling and Servicing Agreement and all amendments or
supplements hereto.

         Allocable Share: With respect to any Class of Subordinated Certificates
on any Distribution Date, such Class's pro rata share (based on the Class
Certificate Balance of each Class entitled thereto) of each of the components of
the Subordinated Optimal Principal Amount described below; provided, that,
except as provided in this Agreement, no Class B Certificates (other than the
Class of Subordinated Certificates with the highest priority of distribution)
shall be entitled on any

                                      -5-
<PAGE>

Distribution Date to receive distributions pursuant to clauses (2), (3) and (5)
of the definition of Subordinated Optimal Principal Amount unless the Class
Prepayment Distribution Trigger for the related Class is satisfied for such
Distribution Date.

         Amount Held for Future Distribution: As to any Distribution Date, the
aggregate amount held in the Certificate Account at the close of business on the
related Determination Date on account of (i) Principal Prepayments received
after the related Prepayment Period and Liquidation Proceeds received in the
month of such Distribution Date and (ii) all Scheduled Payments due after the
related Due Date.

         Appraised Value: With respect to any Mortgage Loan, the Appraised Value
of the related Mortgaged Property shall be: (i) with respect to a Mortgage Loan
other than a Refinancing Mortgage Loan, the lesser of (a) the value of the
Mortgaged Property based upon the appraisal made at the time of the origination
of such Mortgage Loan and (b) the sales price of the Mortgaged Property at the
time of the origination of such Mortgage Loan; (ii) with respect to a
Refinancing Mortgage Loan other than a Streamlined Documentation Mortgage Loan,
the value of the Mortgaged Property based upon the appraisal made at the time of
the origination of such Refinancing Mortgage Loan; and (iii) with respect to a
Streamlined Documentation Mortgage Loan, (a) if the loan-to-value ratio with
respect to the Original Mortgage Loan at the time of the origination thereof was
90% or less, the value of the Mortgaged Property based upon the appraisal made
at the time of the origination of the Original Mortgage Loan and (b) if the
loan-to-value ratio with respect to the Original Mortgage Loan at the time of
the origination thereof was greater than 90%, the value of the Mortgaged
Property based upon the appraisal (which may be a drive-by appraisal) made at
the time of the origination of such Streamlined Documentation Mortgage Loan.

         Available Funds: With respect to any Distribution Date, an amount equal
         to the sum of:

         .  all scheduled installments of interest, net of the Master Servicing
            Fee, the Trustee Fee and any amounts due to First Horizon in respect
            of the Retained Yield on such Distribution Date, and all scheduled
            installments of principal due on the Due Date in the month in which
            the Distribution Date occurs and received before the related
            Determination Date, together with any Advances in respect thereof;

         .  all Insurance Proceeds and all Liquidation Proceeds received during
            the calendar month before the Distribution Date, which in each case
            is net of unreimbursed expenses incurred in connection with a
            liquidation or foreclosure and unreimbursed Advances, if any;

         .  all Principal Prepayments received during the related Prepayment
            Period, plus interest received thereon, net of any Prepayment
            Interest Excess;

         .  any Compensating Interest in respect of Principal Prepayments in
            Full received during the related Prepayment Period; and

         .  any Substitution Adjustment Amount or the Purchase Price for any
            Deleted Mortgage Loan or a Mortgage Loan repurchased by the Seller
            or the Master Servicer as of such Distribution Date, reduced by
            amounts in reimbursement for Advances previously

                                      -6-
<PAGE>

            made and other amounts that the Master Servicer is entitled to be
            reimbursed for out of the Certificate Account pursuant to this
            Agreement.

         Bankruptcy Code: The United States Bankruptcy Reform Act of 1978, as
amended.

         Bankruptcy Coverage Termination Date: The date on which the Bankruptcy
Loss Coverage Amount is reduced
to zero.

         Bankruptcy Loss: With respect to any Mortgage Loan, a Deficient
Valuation or Debt Service Reduction; provided, however, that a Bankruptcy Loss
shall not be deemed a Bankruptcy Loss hereunder so long as the Master Servicer
has notified the Trustee in writing that the Master Servicer is diligently
pursuing any remedies that may exist in connection with the related Mortgage
Loan and either (A) the related Mortgage Loan is not in default with regard to
payments due thereunder or (B) delinquent payments of principal and interest
under the related Mortgage Loan and any related escrow payments in respect of
such Mortgage Loan are being advanced on a current basis by the Master Servicer,
in either case without giving effect to any Debt Service Reduction or Deficient
Valuation.

         Bankruptcy Loss Coverage Amount: As of any Determination Date, the
Bankruptcy Loss Coverage Amount shall equal the Initial Bankruptcy Coverage
Amount as reduced by (i) the aggregate amount of Bankruptcy Losses allocated to
the Certificates since the Cut-off Date and (ii) any permissible reductions in
the Bankruptcy Loss Coverage Amount as evidenced by a letter of each Rating
Agency to the Trustee to the effect that any such reduction will not result in a
downgrading of the then current ratings assigned to the Classes of Certificates
rated by it.

         Blanket Mortgage: The mortgage or mortgages encumbering the Cooperative
Property.

         Book-Entry Certificates: As specified in the Preliminary Statement.

         Business Day: Any day other than (i) a Saturday or a Sunday, or (ii) a
day on which banking institutions in the City of Dallas, or the State of Texas
or the city in which the Corporate Trust Office of the Trustee is located are
authorized or obligated by law or executive order to be closed.

         Certificate: Any one of the Certificates executed by the Trustee in
substantially the forms attached hereto as exhibits.

         Certificate Account: The separate Eligible Account or Accounts created
and maintained by the Master Servicer pursuant to Section 3.5 with a depository
institution in the name of the Master Servicer for the benefit of the Trustee on
behalf of Certificateholders and designated "First Horizon Home Loan Corporation
in trust for the registered holders of First Horizon Asset Securities Inc.
Mortgage Pass-Through Certificates, Series 2001-5."

         Certificate Principal Balance: With respect to any Certificate and as
of any Distribution Date, the Certificate Principal Balance on the date of the
initial issuance of such Certificate,

         (1)  as reduced by:

                                      -7-
<PAGE>

             (a)  all amounts distributed on previous Distribution Dates on such
                  Certificate on account of principal;

             (b)  the principal portion of all Realized Losses previously
                  allocated to such Certificate;

             (c)  in the case of a Subordinated Certificate, such Certificate's
                  pro rata share, if any, of the Subordinated Certificate
                  Writedown Amount for previous Distribution Dates; and

     (2)     in the case of the Accrual Certificates, as increased by the
             Accrual Amount added to the Certificate Principal Balance thereof
             on previous Distribution Dates.

     Certificate Owner: With respect to a Book-Entry Certificate, the Person who
is the beneficial owner of such Book-Entry Certificate.

     Certificate Register: The register maintained pursuant to Section 5.2
hereof.

     Certificateholder or Holder: The person in whose name a Certificate is
registered in the Certificate Register, except that, solely for the purpose of
giving any consent pursuant to this Agreement, any Certificate registered in the
name of the Depositor or any affiliate of the Depositor shall be deemed not to
be Outstanding and the Percentage Interest evidenced thereby shall not be taken
into account in determining whether the requisite amount of Percentage Interests
necessary to effect such consent has been obtained; provided, however, that if
any such Person (including the Depositor) owns 100% of the Percentage Interests
evidenced by a Class of Certificates, such Certificates shall be deemed to be
Outstanding for purposes of any provision hereof that requires the consent of
the Holders of Certificates of a particular Class as a condition to the taking
of any action hereunder. The Trustee is entitled to rely conclusively on a
certification of the Depositor or any affiliate of the Depositor in determining
which Certificates are registered in the name of an affiliate of the Depositor.

     Class: All Certificates bearing the same class designation as set forth
in the Preliminary Statement.

     Class A-3 Distribution Percentage: As to any Distribution Date, 0% through
the Distribution Date in July 2006; thereafter, 30% of the applicable Class A-3
Percentage through the Distribution Date in July 2007; thereafter, 40% of the
applicable Class A-3 Percentage through the Distribution Date in July 2008;
thereafter, 60% of the applicable Class A-3 Percentage through the Distribution
Date in July 2009; thereafter, 80% of the applicable Class A-3 Percentage
through the Distribution Date in July 2010; and thereafter, 100% of the
applicable Class A-3 Percentage.

     Class A-3 Percentage: For any Distribution Date, the lesser of (x) 100% and
(y) the percentage (carried to six places rounded up) obtained by dividing (1)
the aggregate Class Certificate Balance of the Class A-3 Certificates
immediately preceding such Distribution Date by (2) the aggregate Class
Certificate Balance of all Certificates immediately preceding such Distribution
Date.

     Class A-3 Principal Distribution Amount: For any Distribution Date, the
sum of:

                                      -8-
<PAGE>

               (a)  the total of the amounts described in clauses (1) and (4) of
         the definition of Senior Optimal Principal Amount (determined without
         application of the Senior Percentage or the Senior Prepayment
         Percentage) for such date multiplied by the Class A-3 Scheduled
         Distribution Percentage for such date; and

               (b)  the total of the amounts described in clauses (2), (3) and
         (5) of the definition of Senior Optimal Principal Amount (determined
         without application of the Senior Prepayment Percentage) for such date
         multiplied by the Class A-3 Distribution Percentage for such date.

         Class A-3 Scheduled Distribution Percentage: As to any Distribution
Date, 0% through the Distribution Date in July 2006 and thereafter, the Class
A-3 Percentage for such date.

         Class B Certificates: The Class B-1, Class B-2, Class B-3, Class B-4,
Class B-5 and Class B-6 Certificates, collectively.

Class Certificate Balance: With respect to any Class of Certificates and as of
any Distribution Date, the aggregate of the Certificate Principal Balances of
all Certificates of such Class as of such date.

         Class Prepayment Distribution Trigger: For a Class of Class B
Certificates (other than the Class of Subordinated Certificates with the highest
priority of distribution), a trigger that is satisfied on any Distribution Date
on which a fraction (expressed as a percentage), the numerator of which is the
aggregate Class Certificate Balance of such Class and each Class subordinate
thereto, if any, and the denominator of which is the Pool Principal Balance with
respect to such Distribution Date, equals or exceeds such percentage calculated
as of the Closing Date.

         Closing Date: July 30, 2001

         Code: The Internal Revenue Code of 1986, including any successor or
amendatory provisions.

         COFI: Not applicable.

         COFI Certificates: Not applicable.

         Compensating Interest: As to any Distribution Date and any Principal
Prepayment in respect of a Mortgage Loan that is received during the period from
the sixteenth day of the month prior to the month of such Distribution Date
through the last day of such month, an additional payment made by the Master
Servicer, to the extent funds are available from the Master Servicing Fee, equal
to the amount of interest at the Adjusted Net Mortgage Rate for that Mortgage
Loan from the date of the prepayment to the related Due Date; provided that the
aggregate of all such payments shall not exceed 0.0083% of the Pool Principal
Balance as of the related Determination Date, and provided further that if a
partial Principal Prepayment is applied as of the first of the month following
the month of receipt, no additional payment is required for such Principal
Prepayment.

         Component: Not applicable.

                                      -9-
<PAGE>

         Component Balance: Not applicable.

         Component Certificates: Not applicable.

         Cooperative Corporation: The entity that holds title (fee or an
acceptable leasehold estate) to the real property and improvements constituting
the Cooperative Property and which governs the Cooperative Property, which
Cooperative Corporation must qualify as a Cooperative Housing Corporation under
Section 216 of the Code.

         Coop Shares: Shares issued by a Cooperative Corporation.

         Cooperative Loan: Any Mortgage Loan secured by Coop Shares and a
Proprietary Lease.

         Cooperative Property: The real property and improvements owned by the
Cooperative Corporation, including the allocation of individual dwelling units
to the holders of the Coop Shares of the Cooperative Corporation.

         Cooperative Unit: A single family dwelling located in a Cooperative
Property.

         Corporate Trust Office: The designated office of the Trustee in the
State of New York at which at any particular time its corporate trust business
with respect to this Agreement shall be administered, which office at the date
of the execution of this Agreement is located at The Bank of New York, 101
Barclay Street, 12E New York, New York 10286 (Attn: Corporate Trust Mortgage-
Backed Securities Group, First Horizon Asset Securities Inc. Series 2001-5),
facsimile no. (212) 815-4135, and which is the address to which notices to and
correspondence with the Trustee should be directed.

         Corresponding Classes of Certificates: Not applicable.

         Cross-Over Date: The Distribution Date on which the respective Class
Certificate Balances of the Subordinated Certificates have been reduced to zero.

         Custodial Agreement: The Custodial Agreement dated as of July 30, 2001
by and among the Trustee, the Master Servicer and the Custodian.

         Custodian: LaSalle Bank National Association, a national banking
association, and its successors and assigns, as custodian under the Custodial
Agreement.

         Cut-off Date: July 1, 2001.

         Cut-off Date Pool Principal Balance: $299,992,383.93.

         Cut-off Date Principal Balance: As to any Mortgage Loan, the Stated
Principal Balance thereof as of the close of business on the Cut-off Date.

         Debt Service Reduction: With respect to any Mortgage Loan, a reduction
by a court of competent jurisdiction in a proceeding under the Bankruptcy Code
in the Scheduled Payment for

                                      -10-
<PAGE>

such Mortgage Loan which became final and non-appealable, except such a
reduction resulting from a Deficient Valuation or any reduction that results in
a permanent forgiveness of principal.

         Deceased Holder: Not applicable.

         Defective Mortgage Loan: Any Mortgage Loan which is required to be
repurchased pursuant to Section 2.2 or 2.3.

         Deficient Valuation: With respect to any Mortgage Loan, a valuation by
a court of competent jurisdiction of the Mortgaged Property in an amount less
than the then-outstanding indebtedness under the Mortgage Loan, or any reduction
in the amount of principal to be paid in connection with any Scheduled Payment
that results in a permanent forgiveness of principal, which valuation or
reduction results from an order of such court which is final and non-appealable
in a proceeding under the Bankruptcy Code.

     Definitive Certificates: Any Certificate evidenced by a Physical
Certificate and any Certificate issued in lieu of a Book-Entry Certificate
pursuant to Section 5.2(e).

         Delay Certificates: As specified in the Preliminary Statement.

         Delay Delivery Mortgage Loans: The Mortgage Loans for which all or a
portion of a related Mortgage File is not delivered to Trustee on the Closing
Date. The number of Delay Delivery Mortgage Loans shall not exceed 25% of the
aggregate number of Mortgage Loans as of the Closing Date.

         Deleted Mortgage Loan: As defined in Section 2.3(c) hereof.

         Denomination: With respect to each Certificate, the amount set forth on
the face thereof as the "Initial Certificate Balance of this Certificate" or the
Percentage Interest appearing on the face thereof.

     Depositor: First Horizon Asset Securities Inc., a Delaware corporation, or
its successor in interest.

         Depository: The initial Depository shall be The Depository Trust
Company, the nominee of which is CEDE & Co., as the registered Holder of the
Book-Entry Certificates. The Depository shall at all times be a "clearing
corporation" as defined in Section 8-102(a)(5) of the Uniform Commercial Code of
the State of New York.

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

         Determination Date: As to any Distribution Date, the earlier of (i) the
third Business Day after the 15th day of each month, and (ii) the second
Business Day prior to the related Distribution Date.

                                      -11-
<PAGE>

     Discount Mortgage Loan: Any Mortgage Loan with a Mortgage Rate less than
the Required Coupon.

     Distribution Account: The separate Eligible Account created and maintained
by the Trustee pursuant to Section 3.5 in the name of the Trustee for the
benefit of the Certificateholders and designated "The Bank of New York, in trust
for registered Holders of First Horizon Asset Securities Inc. Mortgage Pass-
Through Certificates, Series 2001-5." Funds in the Distribution Account shall be
held in trust for the Certificateholders for the uses and purposes set forth in
this Agreement.

     Distribution Account Deposit Date: As to any Distribution Date, 1:30 p.m.
Central time on the Business Day immediately preceding such Distribution Date.

     Distribution Date: The 25th day of each calendar month after the initial
issuance of the Certificates, or if such 25th day is not a Business Day, the
next succeeding Business Day, commencing in August 2001.

     Due Date: With respect to any Distribution Date, the first day of the month
in which the related Distribution Date occurs.

     Eligible Account: Any of (i) an account or accounts maintained with a
federal or state chartered depository institution or trust company the short-
term unsecured debt obligations of which (or, in the case of a depository
institution or trust company that is the principal subsidiary of a holding
company, the debt obligations of such holding company) have the highest short-
term ratings of each Rating Agency at the time any amounts are held on deposit
therein, or (ii) an account or accounts in a depository institution or trust
company in which such accounts are insured by the FDIC or the SAIF (to the
limits established by the FDIC or the SAIF, as applicable) and the uninsured
deposits in which accounts are otherwise secured such that, as evidenced by an
Opinion of Counsel delivered to the Trustee and to each Rating Agency, the
Certificateholders have a claim with respect to the funds in such account or a
perfected first priority security interest against any collateral (which shall
be limited to Permitted Investments) securing such funds that is superior to
claims of any other depositors or creditors of the depository institution or
trust company in which such account is maintained, or (iii) a trust account or
accounts maintained with (a) the trust department of a federal or state
chartered depository institution or (b) a trust company, acting in its fiduciary
capacity or (iv) any other account acceptable to each Rating Agency. Eligible
Accounts may bear interest, and may include, if otherwise qualified under this
definition, accounts maintained with the Trustee.

     ERISA: The Employee Retirement Income Security Act of 1974, as amended.

     ERISA-Restricted Certificate: As specified in the Preliminary Statement.

     Escrow Account: The Eligible Account or Accounts established and maintained
pursuant to Section 3.6(a) hereof.

     Event of Default: As defined in Section 7.1 hereof.

                                      -12-
<PAGE>

     Excess Loss: The amount of any (i) Fraud Loss realized after the Fraud Loss
Coverage Termination Date, (ii) Special Hazard Loss realized after the Special
Hazard Coverage Termination Date or (iii) Deficient Valuation realized after the
Bankruptcy Coverage Termination Date.

     Excess Proceeds: With respect to any Liquidated Mortgage Loan, the amount,
if any, by which the sum of any Liquidation Proceeds of such Mortgage Loan
received in the calendar month in which such Mortgage Loan became a Liquidated
Mortgage Loan, net of any amounts previously reimbursed to the Master Servicer
as Nonrecoverable Advance(s) with respect to such Mortgage Loan pursuant to
Section 3.8(a)(iii), exceeds (i) the unpaid principal balance of such Liquidated
Mortgage Loan as of the Due Date in the month in which such Mortgage Loan became
a Liquidated Mortgage Loan plus (ii) accrued interest at the Mortgage Rate from
the Due Date as to which interest was last paid or advanced (and not reimbursed)
to Certificateholders up to the Due Date applicable to the Distribution Date
immediately following the calendar month during which such liquidation occurred.

     Expense Rate: As to each Mortgage Loan, the sum of the related Master
Servicing Fee Rate and the Trustee Fee Rate.

     FDIC: The Federal Deposit Insurance Corporation, or any successor thereto.

     FHLMC: The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created and existing under Title III of the
Emergency Home Finance Act of 1970, as amended, or any successor thereto.

     FIRREA: The Financial Institutions Reform, Recovery, and Enforcement Act of
1989.

     First Horizon: First Horizon Home Loan Corporation, a Kansas corporation
and an indirect wholly owned subsidiary of First Tennessee National Corporation,
a Tennessee corporation.

     Fitch: Fitch, Inc., or any successor thereto. If Fitch is designated as a
Rating Agency in the Preliminary Statement, for purposes of Section 10.05(b) the
address for notices to Fitch shall be Fitch, Inc., One State Street Plaza, New
York, New York 10004, Attention: Residential Mortgage Surveillance Group, or
such other address as Fitch may hereafter furnish to the Depositor and the
Master Servicer.

     FNMA: The Federal National Mortgage Association, a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act, or any successor thereto.

     Fraud Loan: A Liquidated Mortgage Loan as to which a Fraud Loss has
occurred.

     Fraud Losses: Realized Losses on Mortgage Loans as to which a loss is
 sustained by reason of a default arising from fraud, dishonesty or
 misrepresentation in connection with the related Mortgage Loan, including a
 loss by reason of the denial of coverage under any related Primary Insurance
 Policy because of such fraud, dishonesty or misrepresentation.

                                      -13-
<PAGE>

     Fraud Loss Coverage Amount: As of the Closing Date, $5,999,848. As of
any Distribution Date prior to the second anniversary of the Cut-off Date, the
Fraud Loss Coverage Amount will equal $5,999,848 minus the aggregate amount of
Fraud Losses that would have been allocated to the Subordinated Certificates in
the absence of the Loss Allocation Limitation since the Cut-off Date. As of any
Distribution Date from the second to the fifth anniversaries of the Cut-off
Date, the Fraud Loss Coverage Amount will equal (1) the lesser of (a) the Fraud
Loss Coverage Amount as of the most recent anniversary of the Cut-off Date and
(b) 1.0% of the aggregate outstanding principal balance of all of the mortgage
loans as of the most recent anniversary of the Cut-off Date minus (2) the Fraud
Losses that would have been allocated to the Subordinated Certificates in the
absence of the Loss Allocation Limitation since the most recent anniversary of
the Cut-off Date. As of any Distribution Date on or after the earlier of the
Cross-Over Date or the fifth anniversary of the Cut-off Date, the Fraud Loss
Coverage Amount shall be zero.

     Fraud Loss Coverage Termination Date: The point in time at which the Fraud
Loss Coverage Amount is reduced to zero.

     Index: Not applicable.

     Indirect Participant: A broker, dealer, bank or other financial institution
or other Person that clears through or maintains a custodial relationship with a
Depository Participant.

     Initial Bankruptcy Coverage Amount: $106,927.

     Initial Component Balance: Not applicable.

     Insurance Policy: With respect to any Mortgage Loan included in the Trust
Fund, any insurance policy, including all riders and endorsements thereto in
effect, including any replacement policy or policies for any Insurance Policies.

     Insurance Proceeds: Proceeds paid by an insurer pursuant to any Insurance
Policy, in each case other than any amount included in such Insurance Proceeds
in respect of Insured Expenses.

     Insured Expenses: Expenses covered by an Insurance Policy or any other
insurance policy with respect to the Mortgage Loans.

     Interest Accrual Period: With respect to each Class of Delay Certificates
and any Distribution Date, the calendar month prior to the month of such
Distribution Date. With respect to any Non-Delay Certificates and any
Distribution Date, the one month period commencing on the 25th day of the month
preceding the month in which such Distribution Date occurs and ending on the
24th day of the month in which such Distribution Date occurs.

     Interest Determination Date: Not applicable.

     Last Scheduled Distribution Date: For each Class of Offered Certificates is
the Distribution Date occurring in August 2031.

                                      -14-
<PAGE>

     Latest Possible Maturity Date: The Distribution Date following the third
anniversary of the scheduled maturity date of the Mortgage Loan having the
latest scheduled maturity date as of the Cut-off Date.

     Lender PMI Mortgage Loan: Not applicable.

     LIBOR: Not applicable.

     LIBOR Certificates: As specified in the Preliminary Statement.

     Liquidated Mortgage Loan: With respect to any Distribution Date, a
defaulted Mortgage Loan (including any REO Property) which was liquidated in the
calendar month preceding the month of such Distribution Date and as to which the
Master Servicer has determined (in accordance with this Agreement) that it has
received all amounts it expects to receive in connection with the liquidation of
such Mortgage Loan, including the final disposition of an REO Property.

     Liquidation Proceeds: Amounts, including Insurance Proceeds, received in
connection with the partial or complete liquidation of defaulted Mortgage Loans,
whether through trustee's sale, foreclosure sale or otherwise or amounts
received in connection with any condemnation or partial release of a Mortgaged
Property and any other proceeds received in connection with an REO Property,
less the sum of related unreimbursed Master Servicing Fees, Servicing Advances
and Advances.

     Living Holder: Not applicable.

     Loan-to-Value Ratio: With respect to any Mortgage Loan and as to any date
of determination, the fraction (expressed as a percentage) the numerator of
which is the principal balance of the related Mortgage Loan at such date of
determination and the denominator of which is the Appraised Value of the related
Mortgaged Property.

     Loss Allocation Limitation: As defined in Section 4.4(g).

     Lost Mortgage Note: Any Mortgage Note the original of which was permanently
lost or destroyed and has not been replaced.

     Lower REMIC: Not applicable.

     Lower REMIC Interests: Not applicable.

     Maintenance: With respect to any Cooperative Unit, the rent paid by the
Mortgagor to the Cooperative Corporation pursuant to the Proprietary Lease.

     Majority in Interest: As to any Class of Regular Certificates, the Holders
of Certificates of such Class evidencing, in the aggregate, at least 51% of the
Percentage Interests evidenced by all Certificates of such Class.

                                      -15-
<PAGE>

     Master Servicer: First Horizon Home Loan Corporation, a Kansas corporation,
and its successors and assigns, in its capacity as master servicer hereunder.

     Master Servicer Advance Date: As to any Distribution Date, 1:30 p.m.
Central time on the Business Day immediately preceding such Distribution Date.

     Master Servicing Fee: As to each Mortgage Loan and any Distribution Date,
an amount payable out of each full payment of interest received on such Mortgage
Loan and equal to one-twelfth of the Master Servicing Fee Rate multiplied by the
Stated Principal Balance of such Mortgage Loan as of the Due Date in the month
of such Distribution Date (prior to giving effect to any Scheduled Payments due
on such Mortgage Loan on such Due Date), subject to reduction as provided in
Section 3.14.

     Master Servicing Fee Rate: For each Mortgage Loan, other than Discount
Mortgage Loans, a per annum rate equal to 0.244%. For each Discount Mortgage
Loan, a per annum rate equal to the excess, if any, of the Mortgage Rate thereof
over 6.756%.

     Monthly Statement: The statement delivered to the Certificateholders
pursuant to Section 4.6.

     Moody's: Moody's Investors Service, Inc., or any successor thereto. If
Moody's is designated as a Rating Agency in the Preliminary Statement, for
purposes of Section 10.05(b) the address for notices to Moody's shall be Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007, Attention:
Residential Pass-Through Monitoring, or such other address as Moody's may
hereafter furnish to the Depositor or the Master Servicer.

     Mortgage: The mortgage, deed of trust or other instrument creating a first
lien on an estate in fee simple or leasehold interest in real property securing
a Mortgage Note.

     Mortgage File: The mortgage documents listed in Section 2.1 hereof
pertaining to a particular Mortgage Loan and any additional documents delivered
to the Trustee to be added to the Mortgage File pursuant to this Agreement.

     Mortgage Loans: Such of the mortgage loans transferred and assigned to the
Trustee pursuant to the provisions hereof as from time to time are held as a
part of the Trust Fund (including any REO Property), the mortgage loans so held
being identified in the Mortgage Loan Schedule, notwithstanding foreclosure or
other acquisition of title of the related Mortgaged Property.

     Mortgage Loan Schedule: The list of Mortgage Loans (as from time to time
amended by the Master Servicer to reflect the addition of Substitute Mortgage
Loans and the deletion of Deleted Mortgage Loans pursuant to the provisions of
this Agreement) transferred to the Trustee as part of the Trust Fund and from
time to time subject to this Agreement, attached hereto as Schedule I, setting
forth the following information with respect to each Mortgage Loan:

          (i)      the loan number;

          (ii)     the Mortgagor's name and the street address of the Mortgaged
     Property, including the zip code;

                                      -16-
<PAGE>

          (iii)    the maturity date;

          (iv)     the original principal balance;

          (v)      the Cut-off Date Principal Balance;

          (vi)     the first payment date of the Mortgage Loan;

          (vii)    the Scheduled Payment in effect as of the Cut-off Date;

          (viii)   the Loan-to-Value Ratio at origination;

          (ix)     a code indicating whether the residential dwelling at the
     time of origination was represented to be owner-occupied;

          (x)      a code indicating whether the residential dwelling is either
     (a) a detached single family dwelling (b) a dwelling in a de minimis PUD,
     (c) a condominium unit or PUD (other than a de minimis PUD), (d) a two- to
     four-unit residential property or (e) a Cooperative Unit;

          (xi)     the Mortgage Rate;

          (xii)    the purpose for the Mortgage Loan;

          (xiii)   the type of documentation program pursuant to which the
     Mortgage Loan was originated; and

          (xiv)    the Master Servicing Fee for the Mortgage Loan.

     Such schedule shall also set forth the total of the amounts described under
(iv) and (v) above for all of the Mortgage Loans.

     Mortgage Note: The original executed note or other evidence of indebtedness
evidencing the indebtedness of a Mortgagor under a Mortgage Loan.

     Mortgage Rate: The annual rate of interest borne by a Mortgage Note from
time to time, net of any insurance premium charged by the mortgagee to obtain or
maintain any Primary Insurance Policy.

     Mortgaged Property: The underlying property securing a Mortgage Loan,
which, with respect to a Cooperative Loan, is the related Coop Shares and
Proprietary Lease.

     Mortgagor: The obligor(s) on a Mortgage Note.

     National Cost of Funds Index: The National Monthly Median Cost of Funds
Ratio to SAIF-Insured Institutions published by the Office of Thrift
Supervision.

                                      -17-
<PAGE>

     Net Interest Shortfall: For any Distribution Date, the sum of (a) the
amount of interest which would otherwise have been received for any Mortgage
Loan that was the subject of (x) a Relief Act Reduction or (y) a Special Hazard
Loss, Fraud Loss, or Deficient Valuation, after the exhaustion of the respective
amounts of coverage provided by the Subordinated Certificates for those types of
losses; and (b) any Net Prepayment Interest Shortfalls. Net Interest Shortfalls
on any Distribution Date will be allocated pro rata among all Classes of
Certificates entitled to receive distributions of interest on that Distribution
Date, based on the amount of interest each of those Classes of Certificates
would otherwise be entitled to receive on that Distribution Date before taking
into account any reduction amounts resulting from Net Interest Shortfalls.

     Net Prepayment Interest Shortfalls: As to any Distribution Date, the amount
by which the aggregate of Prepayment Interest Shortfalls during the related
Prepayment Period exceeds an amount equal to the Compensating Interest, if any,
for such Distribution Date.

     Non-Delay Certificates: As specified in the Preliminary Statement.

     Non-Excess Loss: Any Realized Loss other than an Excess Loss.

     Nonrecoverable Advance: Any portion of an Advance previously made or
proposed to be made by the Master Servicer that, in the good faith judgment of
the Master Servicer, will not be ultimately recoverable by the Master Servicer
from the related Mortgagor, related Liquidation Proceeds or otherwise.

     Notice of Final Distribution: The notice to be provided pursuant to Section
9.2 to the effect that final distribution on any of the Certificates shall be
made only upon presentation and surrender thereof.

     Notional Amount: Not applicable.

     Notional Amount Certificates: Not applicable.

     Offered Certificates: As specified in the Preliminary Statement.

     Officer's Certificate: A Certificate (i) signed by the Chairman of the
Board, the Vice Chairman of the Board, the President, a Managing Director, a
Vice President (however denominated), an Assistant Vice President, the
Treasurer, the Secretary, or one of the Assistant Treasurers or Assistant
Secretaries of the Depositor or the Master Servicer, or (ii), if provided for in
this Agreement, signed by a Servicing Officer, as the case may be, and delivered
to the Depositor and the Trustee, as the case may be, as required by this
Agreement.

     Opinion of Counsel: A written opinion of counsel, who may be counsel for
the Depositor or the Master Servicer, including, in-house counsel, reasonably
acceptable to the Trustee; provided, however, that with respect to the
interpretation or application of the REMIC Provisions, such counsel must (i) in
fact be independent of the Depositor and the Master Servicer, (ii) not have any
direct financial interest in the Depositor or the Master Servicer or in any
affiliate of either, and (iii) not be connected with the Depositor or the Master
Servicer as an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions.

                                      -18-
<PAGE>

     Optional Termination: The termination of the trust created hereunder in
connection with the purchase of the Mortgage Loans pursuant to Section 9.1
hereof.

     Original Mortgage Loan: The Mortgage Loan refinanced in connection with the
origination of a Refinancing Mortgage Loan.

     Original Subordinated Principal Balance: The aggregate of the Class
Certificate Balances of the Subordinated Certificates as of the Closing Date.

     OTS: The Office of Thrift Supervision.

     Outside Reference Date: Not applicable.

     Outstanding: With respect to the Certificates as of any date of
determination, all Certificates theretofore executed and authenticated under
this Agreement except:

          (i)      Certificates theretofore canceled by the Trustee or delivered
     to the Trustee for cancellation; and

          (ii)     Certificates in exchange for which or in lieu of which other
     Certificates have been executed and delivered by the Trustee pursuant to
     this Agreement.

     Outstanding Mortgage Loan: As of any Due Date, a Mortgage Loan with a
Stated Principal Balance greater than zero which was not the subject of a
Principal Prepayment in Full prior to such Due Date and which did not become a
Liquidated Mortgage Loan prior to such Due Date.

     Ownership Interest: As to any Residual Certificate, any ownership interest
in such Certificate including any interest in such Certificate as the Holder
thereof and any other interest therein, whether direct or indirect, legal or
beneficial.

     Pass-Through Rate: For any interest bearing Class of Certificates or
Component, the per annum rate set forth or calculated in the manner described in
the Preliminary Statement.

     Percentage Interest: As to any Certificate, the percentage interest
evidenced thereby in distributions required to be made on the related Class,
such percentage interest being set forth on the face thereof or equal to the
percentage obtained by dividing the Denomination of such Certificate by the
aggregate of the Denominations of all Certificates of the same Class.

     Permitted Investments: At any time, any one or more of the following
obligations and securities:

          (i)      obligations of the United States or any agency thereof,
provided such obligations are backed by the full faith and credit of the United
States;

          (ii)     general obligations of or obligations guaranteed by any state
 of the United States or the District of Columbia receiving the highest long-
 term debt rating of each Rating

                                      -19-
<PAGE>

Agency, or such lower rating as will not result in the downgrading or withdrawal
of the ratings then assigned to the Certificates by each Rating Agency;

         (iii)    commercial or finance company paper which is then receiving
the highest commercial or finance company paper rating of each Rating Agency, or
such lower rating as will not result in the downgrading or withdrawal of the
ratings then assigned to the Certificates by each Rating Agency;

         (iv)     certificates of deposit, demand or time deposits, or bankers'
acceptances issued by any depository institution or trust company incorporated
under the laws of the United States or of any state thereof and subject to
supervision and examination by federal and/or state banking authorities,
provided that the commercial paper and/or long term unsecured debt obligations
of such depository institution or trust company (or in the case of the principal
depository institution in a holding company system, the commercial paper or
long-term unsecured debt obligations of such holding company, but only if
Moody's is not a Rating Agency) are then rated one of the two highest long-term
and the highest short-term ratings of each Rating Agency for such securities, or
such lower ratings as will not result in the downgrading or withdrawal of the
rating then assigned to the Certificates by either Rating Agency;

         (v)      demand or time deposits or certificates of deposit issued by
any bank or trust company or savings institution to the extent that such
deposits are fully insured by the FDIC;

         (vi)     guaranteed reinvestment agreements issued by any bank,
insurance company or other corporation containing, at the time of the issuance
of such agreements, such terms and conditions as will not result in the
downgrading or withdrawal of the rating then assigned to the Certificates by
either Rating Agency;

         (vii)    repurchase obligations with respect to any security described
in clauses (i) and (ii) above, in either case entered into with a depository
institution or trust company (acting as principal) described in clause (iv)
above;

         (viii)   securities (other than stripped bonds, stripped coupons or
instruments sold at a purchase price in excess of 115% of the face amount
thereof) bearing interest or sold at a discount issued by any corporation
under the laws of the United States or any state thereof which, at
the time of such investment, have one of the two highest ratings of each Rating
Agency (except if the Rating Agency is Moody's, such rating shall be the
highest commercial paper rating of Moody's for any such securities), or such
lower rating as will not result in the downgrading or withdrawal of the rating
then assigned to the Certificates by either Rating Agency as evidenced by a
signed writing delivered by each Rating Agency;

         (ix)     units of a taxable money-market portfolio having the highest
rating assigned by each Rating Agency (except if Fitch is a Rating Agency and
has not rated the portfolio, the highest rating assigned by Moody's) and
restricted to obligations issued or guaranteed by the United States of America
or entities whose obligations are backed by the full faith and credit of the
United States of America and repurchase agreements collateralized by such
obligations; and

                                      -20-
<PAGE>

          (x)      such other investments bearing interest or sold at a discount
     acceptable to each Rating Agency as will not result in the downgrading or
     withdrawal of the rating then assigned to the Certificates by either Rating
     Agency, as evidenced by a signed writing delivered by each Rating Agency;

     provided that no such instrument shall be a Permitted Investment if such
     instrument evidences the right to receive interest only payments with
     respect to the obligations underlying such instrument.

     Permitted Transferee: Any person other than (i) the United States, any
State or political subdivision thereof, or any agency or instrumentality of any
of the foregoing, (ii) a foreign government, International Organization or any
agency or instrumentality of either of the foregoing, (iii) an organization
(except certain farmers' cooperatives described in section 521 of the Code)
which is exempt from tax imposed by Chapter 1 of the Code (including the tax
imposed by section 511 of the Code on unrelated business taxable income) on any
excess inclusions (as defined in section 860E(c)(l) of the Code) with respect to
any Residual Certificate, (iv) rural electric and telephone cooperatives
described in section 1381(a)(2)(C) of the Code, (v) an "electing large
partnership" as defined in section 775 of the Code, (vi) a Person that is not
(a) a citizen or resident of the United States, (b) a corporation, partnership,
or other entity created or organized in or under the laws of the United States,
any state thereof or the District of Columbia, (c) an estate whose income from
sources without the United States is includible in gross income for United
States federal income tax purposes regardless of its connection with the conduct
of a trade or business within the United States or (d) a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust, unless such Person
has furnished the transferor and the Trustee with a duly completed Internal
Revenue Service Form W-8ECI or any applicable successor form, and (vii) any
other Person so designated by the Depositor based upon an Opinion of Counsel
that the Transfer of an Ownership Interest in a Residual Certificate to such
Person may cause the REMIC created hereunder to fail to qualify as a REMIC at
any time that the Certificates are outstanding; provided, however, that if a
                                                --------
person is classified as a partnership under the Code, such person shall only be
a Permitted Transferee if all of its beneficial owners are described in
subclauses (a), (b), (c) or (d) of clause (vi) and the governing documents of
such person prohibits a transfer of any interest in such person to any person
described in clause (vi). The terms "United States," "State" and "International
Organization" shall have the meanings set forth in section 7701 of the Code or
successor provisions. A corporation will not be treated as an instrumentality of
the United States or of any State or political subdivision thereof for these
purposes if all of its activities are subject to tax and, with the exception of
the Federal Home Loan Mortgage Corporation, a majority of its board of directors
is not selected by such government unit.

     Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government, or any agency or political subdivision thereof.

     Physical Certificate: As specified in the Preliminary Statement.

     Planned Balance: Not applicable.

                                      -21-
<PAGE>

     Planned Principal Classes: As specified in the Preliminary Statement.

     Pool Principal Balance: As to any Distribution Date, the aggregate of
the Stated Principal Balances of the Mortgage Loans which were Outstanding
Mortgage Loans on the Due Date in the month preceding the month of such
Distribution Date.

     Prepayment Interest Excess: As to any Principal Prepayment received by the
Master Servicer from the first day through the fifteenth day of any calendar
month (other than the calendar month in which the Cut-off Date occurs), all
amounts paid by the related Mortgagor in respect of interest on such Principal
Prepayment. All Prepayment Interest Excess shall be paid to the Master Servicer
as additional master servicing compensation.

     Prepayment Interest Shortfall: As to any Distribution Date, Mortgage Loan
and Principal Prepayment received (a) during the period from the sixteenth day
of the month preceding the month of such Distribution Date through the last day
of such month, in the case of a Principal Prepayment in full, or (b) during the
month preceding the month of such Distribution Date, in the case of a partial
Principal Prepayment, the amount, if any, by which one month's interest at the
related Adjusted Mortgage Rate on such Principal Prepayment exceeds the amount
of interest actually paid by the Mortgagor in connection with such Principal
Prepayment.

     Prepayment Period: (a) With respect to any Principal Prepayments in Full
and any Distribution Date, the period from the sixteenth day of the month
preceding the month of such Distribution Date (or, in the case of the first
Distribution Date, from the Cut-off Date) through the fifteenth day of the month
of such Distribution Date, and (b) with respect to any other Principal
Prepayments and any Distribution Date, the month preceding the month of such
Distribution Date.

     Primary Insurance Policy: Each policy of primary mortgage guaranty
insurance or any replacement policy therefor with respect to any Mortgage Loan.

     Primary Planned Principal Classes: As specified in the Preliminary
Statement.

     Principal Balance Schedules: Not applicable.

     Principal Prepayment: Any payment of principal by a Mortgagor on a Mortgage
Loan that is received in advance of its scheduled Due Date and is not
accompanied by an amount representing scheduled interest due on any date or
dates in any month or months subsequent to the month of prepayment. Partial
Principal Prepayments shall be applied by the Master Servicer in accordance with
the terms of the related Mortgage Note.

     Principal Prepayment in Full: Any Principal Prepayment made by a Mortgagor
of the entire principal balance of a Mortgage Loan.

     Private Certificate: As specified in the Preliminary Statement.

     Proprietary Lease: With respect to any Cooperative Unit, a lease or
occupancy agreement between a Cooperative Corporation and a holder of related
Coop Shares.

                                      -22-
<PAGE>

         PUD: Planned Unit Development.

         Purchaser: First Tennessee Bank National Association.

         Purchase Price: With respect to any Mortgage Loan required to be
purchased by the Seller pursuant to Section 2.2 or 2.3 hereof or purchased at
the option of the Master Servicer pursuant to Section 3.11, an amount equal to
the sum of (i) 100% of the unpaid principal balance of the Mortgage Loan on the
date of such purchase, and (ii) accrued interest thereon at the applicable
Mortgage Rate (or at the applicable Adjusted Mortgage Rate if (x) the purchaser
is the Master Servicer or (y) if the purchaser is the Seller and the Seller is
the Master Servicer) from the date through which interest was last paid by the
Mortgagor to the Due Date in the month in which the Purchase Price is to be
distributed to Certificateholders.

         Qualified Insurer: A mortgage guaranty insurance company duly qualified
as such under the laws of the state of its principal place of business and each
state having jurisdiction over such insurer in connection with the insurance
policy issued by such insurer, duly authorized and licensed in such states to
transact a mortgage guaranty insurance business in such states and to write the
insurance provided by the insurance policy issued by it, approved as a FNMA-
approved mortgage insurer and having a claims paying ability rating of at least
"AA" or equivalent rating by a nationally recognized statistical rating
organization. Any replacement insurer with respect to a Mortgage Loan must have
at least as high a claims paying ability rating as the insurer it replaces had
on the Closing Date.

         Random Lot: Not applicable.

         Rating Agency: Each of the Rating Agencies specified in the Preliminary
Statement. If any such organization or a successor is no longer in existence,
"Rating Agency" shall be such nationally recognized statistical rating
organization, or other comparable Person, as is designated by the Depositor,
notice of which designation shall be given to the Trustee. References herein to
a given rating category of a Rating Agency shall mean such rating category
without giving effect to any modifiers.

         Realized Loss: With respect to each Liquidated Mortgage Loan, an amount
(not less than zero or more than the Stated Principal Balance of the Mortgage
Loan) as of the date of such liquidation, equal to (i) the Stated Principal
Balance of the Liquidated Mortgage Loan as of the date of such liquidation, plus
(ii) interest at the Adjusted Net Mortgage Rate from the Due Date as to which
interest was last paid or advanced (and not reimbursed) to Certificateholders up
to the Due Date in the month in which Liquidation Proceeds are required to be
distributed on the Stated Principal Balance of such Liquidated Mortgage Loan
from time to time, minus (iii) the Liquidation Proceeds, if any, received during
the month in which such liquidation occurred, to the extent applied as
recoveries of interest at the Adjusted Net Mortgage Rate and to principal of the
Liquidated Mortgage Loan. With respect to each Mortgage Loan which has become
the subject of a Deficient Valuation, if the principal amount due under the
related Mortgage Note has been reduced, the difference between the principal
balance of the Mortgage Loan outstanding immediately prior to such Deficient
Valuation and the principal balance of the Mortgage Loan as reduced by the
Deficient Valuation.

                                      -23-
<PAGE>

         Recognition Agreement: With respect to any Cooperative Loan, an
agreement between the Cooperative Corporation and the originator of such
Mortgage Loan which establishes the rights of such originator in the Cooperative
Property.

         Record Date: With respect to any Distribution Date, the close of
business on the last Business Day of the month preceding the month in which such
Distribution Date occurs.

         Reference Bank: Not applicable.

         Refinancing Mortgage Loan: Any Mortgage Loan originated in connection
with the refinancing of an existing mortgage loan.

         Regular Certificates: As specified in the Preliminary Statement.

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

         Relief Act Reductions: With respect to any Distribution Date and any
Mortgage Loan as to which there has been a reduction in the amount of interest
collectible thereon for the most recently ended calendar month as a result of
the application of the Relief Act, the amount, if any, by which interest
collectible on such Mortgage Loan for the most recently ended calendar month is
less than interest accrued thereon for such month pursuant to the Mortgage Note.

         REMIC: A "real estate mortgage investment conduit" within the meaning
of section 860D of the Code.

         REMIC Change of Law: Any proposed, temporary or final regulation,
revenue ruling, revenue procedure or other official announcement or
interpretation relating to REMICs and the REMIC Provisions issued after the
Closing Date.

         REMIC Provisions: Provisions of the federal income tax law relating to
real estate mortgage investment conduits, which appear at sections 860A through
860G of Subchapter M of Chapter 1 of the Code, and related provisions, and
regulations promulgated thereunder, as the foregoing may be in effect from time
to time as well as provisions of applicable state laws.

         REO Property: A Mortgaged Property acquired by the Trust Fund through
foreclosure or deed-in-lieu of foreclosure in connection with a defaulted
Mortgage Loan.

         Request for Release: The Request for Release submitted by the Master
Servicer to the Trustee, substantially in the form of Exhibits L and M, as
appropriate.

         Required Coupon: 7.00% per annum.

         Required Insurance Policy: With respect to any Mortgage Loan, any
insurance policy that is required to be maintained from time to time under this
Agreement.

         Required Recordation States: The states of Florida, Maryland,
Mississippi, South Carolina and Tennessee.

                                      -24-
<PAGE>

         Residual Certificates: As specified in the Preliminary Statement.

         Responsible Officer: When used with respect to the Trustee, any Vice
President, any Assistant Vice President, the Secretary, any Assistant Secretary,
any Trust Officer or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
having direct responsibility for the administration of this Agreement and also
to whom, with respect to a particular matter, such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.

         Retail Certificates: As specified in the Preliminary Statement.

         Retained Yield: As to each Mortgage Loan and any Distribution Date, an
amount payable to First Horizon Home Loan Corporation out of each full payment
of interest received on such Mortgage Loan and equal to one-twelfth of the
Retained Yield Rate multiplied by the Stated Principal Balance of such Mortgage
Loan as of the Due Date in the month of such Distribution Date (prior to giving
effect to any Scheduled Payments due on such Mortgage Loan on such Due Date).

         Retained Yield Rate: For any Mortgage Loan, other than the Discount
Mortgage Loans, a per annum rate equal to the excess of (a) the applicable
Adjusted Net Mortgage Rate over (b) the Required Coupon. For any Discount
Mortgage Loan, 0%.

         Rounding Account: Not applicable.

         Scheduled Balances: Not applicable.

         Scheduled Classes: Not applicable.

         Scheduled Payment: The scheduled monthly payment on a Mortgage Loan due
 on any Due Date allocable to principal and/or interest on such Mortgage Loan
 which, unless otherwise specified herein, shall give effect to any related Debt
 Service Reduction and any Deficient Valuation that affects the amount of the
 monthly payment due on such Mortgage Loan.

         Secondary Planned Principal Classes: As specified in the Preliminary
Statement.

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

         Seller: First Horizon Home Loan Corporation, a Kansas corporation, and
its successors and assigns, in its capacity as seller of the Mortgage Loans to
the Depositor.

         Senior Certificates: As specified in the Preliminary Statement.

         Senior Final Distribution Date: For any Class of Senior Certificates,
 the Distribution Date on which the Class Certificate Balance of such Class of
 Senior Certificates has been reduced to zero.

         Senior Optimal Principal Amount: With respect to each Distribution
Date, an amount equal to the sum of:

                                      -25-
<PAGE>

         (1)    the Senior Percentage of all Scheduled Payments of principal due
on each Mortgage Loan on the first day of the month in which the Distribution
Date occurs, as specified in the amortization schedule at the time applicable
thereto after adjustment for previous principal prepayments and the principal
portion of Debt Service Reductions after the Bankruptcy Loss Coverage Amount has
been reduced to zero, but before any adjustment to such amortization schedule by
reason of any other bankruptcy or similar proceeding or any moratorium or
similar waiver or grace period;

         (2)    the Senior Prepayment Percentage of the Stated Principal Balance
of each Mortgage Loan which was the subject of a prepayment in full received by
the Master Servicer during the applicable Prepayment Period;

         (3)    the Senior Prepayment Percentage of all partial prepayments of
principal received during the applicable Prepayment Period;

         (4)    the lesser of:

                (a)   the Senior Prepayment Percentage of the sum of (x) the net
         Liquidation Proceeds allocable to principal on each Mortgage Loan which
         became a Liquidated Mortgage Loan during the related Prepayment Period,
         other than Mortgage Loans described in clause (y), and (y) the
         principal balance of each Mortgage Loan that was purchased by a private
         mortgage insurer during the related Prepayment Period as an alternative
         to paying a claim under the related Insurance Policy; and

                (b)   (i) the Senior Percentage of the sum of (x) the Stated
         Principal Balance of each Mortgage Loan which became a Liquidated
         Mortgage Loan during the related Prepayment Period, other than Mortgage
         Loans described in clause (y), and (y) the Stated Principal Balance of
         each Mortgage Loan that was purchased by a private mortgage insurer
         during the related Prepayment Period as an alternative to paying a
         claim under the related Insurance Policy minus (ii) the Senior
         Percentage of the principal portion of Excess Losses (other than Debt
         Service Reductions) during the related Prepayment Period; and

         (5) the Senior Prepayment Percentage of the sum of (a) the Stated
     Principal Balance of each Mortgage Loan which was repurchased by the seller
     in connection with such Distribution Date and (b) the difference, if any,
     between the Stated Principal Balance of a Mortgage Loan that has been
     replaced by the seller with a Substitute Mortgage Loan pursuant to the
     agreement in connection with such Distribution Date and the Stated
     Principal Balance of such Substitute Mortgage Loan.

     Senior Percentage: On any Distribution Date, the lesser of 100% and the
percentage (carried to six places rounded up) obtained by dividing the aggregate
Class Certificate Balances of all Classes of Senior Certificates immediately
preceding such Distribution Date by the aggregate Class Certificate Balances of
all Classes of the Certificates immediately preceding such Distribution Date.

                                      -26-
<PAGE>

     Senior Prepayment Percentage: On any Distribution Date occurring during the
periods set forth below, the Senior Prepayment Percentages described below:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
     Period (Dates Inclusive)                         Senior Prepayment Percentage
-----------------------------------------------------------------------------------------------------
<S>                                     <C>
August 2001 - July 2006                 100%
-----------------------------------------------------------------------------------------------------
August 2006 - July 2007                 Senior Percentage plus 70% of the Subordinated Percentage
-----------------------------------------------------------------------------------------------------
August 2007 - July 2008                 Senior Percentage plus 60% of the Subordinated Percentage
-----------------------------------------------------------------------------------------------------
August 2008 - July 2009                 Senior Percentage plus 40% of the Subordinated Percentage
-----------------------------------------------------------------------------------------------------
August 2009 - July 2010                 Senior Percentage plus 20% of the Subordinated Percentage
-----------------------------------------------------------------------------------------------------
August 2010 and thereafter              Senior Percentage
-----------------------------------------------------------------------------------------------------
</TABLE>

         Notwithstanding the foregoing, if the Senior Percentage on any
Distribution Date exceeds the initial Senior Percentage, the Senior Prepayment
Percentage for such Distribution Date will equal 100%.

         In addition, no reduction of the Senior Prepayment Percentage below the
level in effect for the most recent prior period specified in the table above
shall be effective on any Distribution Date unless, as of the last day of the
month preceding such Distribution Date, either:

                  (A)   (1) the aggregate Stated Principal Balance of Mortgage
         Loans delinquent 60 days or more (including for this purpose any
         Mortgage Loans in foreclosure and Mortgage Loans with respect to which
         the related Mortgaged Property has been acquired by the Trust Fund)
         does not exceed 50% of the aggregate Class Certificate Balance of the
         Subordinated Certificates as of such date; and

                        (2)    cumulative Realized Losses do not exceed:

                               (a) 30% of the Original Subordinated Principal
                        Balance if such Distribution Date occurs between and
                        including August 2006 and July 2007;

                               (b) 35% of the Original Subordinated Principal
                        Balance if such Distribution Date occurs between and
                        including August 2007 and July 2008;

                               (c) 40% of the Original Subordinated Principal
                        Balance if such Distribution Date occurs between and
                        including August 2008 and July 2009;

                               (d) 45% of the Original Subordinated Principal
                        Balance if such Distribution Date occurs between and
                        including August 2009 and July 2010; and

                               (e) 50% of the Original Subordinated Principal
                       Balance if such Distribution Date occurs during or after
                       August 2010; or

                                      -27-
<PAGE>

                  (B)    (1) the aggregate Stated Principal Balance of Mortgage
                  Loans delinquent 60 days or more (including for this purpose
                  any Mortgage Loans in foreclosure and Mortgage Loans with
                  respect to which the related Mortgaged Property has been
                  acquired by the Trust Fund), averaged over the last three
                  months, as a percentage of the aggregate Stated Principal
                  Balance of all Mortgage Loans averaged over the last three
                  months, does not exceed 4%; and

                         (2)    cumulative Realized Losses do not exceed:

                                 (a) 10% of the Original Subordinated Principal
                         Balance if such Distribution Date occurs between and
                         including August 2006 and July 2007;

                                 (b) 15% of the Original Subordinated Principal
                         Balance if such Distribution Date occurs between and
                         including August 2007 and July 2008;

                                 (c) 20% of the Original Subordinated Principal
                         Balance if such Distribution Date occurs between and
                         including August 2008 and July 2009;

                                 (d) 25% of the Original Subordinated Principal
                         Balance if such Distribution Date occurs between and
                         including August 2009 and July 2010; and

                                 (e) 30% of the Original Subordinated Principal
                         Balance if such Distribution Date occurs during or
                         after August 2010.

         Servicing Advances: All customary, reasonable and necessary "out of
pocket" costs and expenses incurred in the performance by the Master Servicer of
its servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of a Mortgaged Property, (ii) any
expenses reimbursable to the Master Servicer pursuant to Section 3.11 and any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of any REO Property and (iv) compliance with the
obligations under Section 3.9.

         Servicing Officer: Any officer of the Master Servicer involved in, or
responsible for, the administration and servicing of the Mortgage Loans whose
name and facsimile signature appear on a list of servicing officers furnished to
the Trustee by the Master Servicer on the Closing Date pursuant to this
Agreement, as such list may from time to time be amended.

         Special Hazard Coverage Termination Date: The point in time at which
the Special Hazard Loss Coverage Amount is reduced to zero.

         Special Hazard Loss: Any Realized Loss suffered by a Mortgaged Property
on account of direct physical loss but not including (i) any loss of a type
covered by a hazard insurance policy or a flood insurance policy required to be
maintained with respect to such Mortgaged Property pursuant to Section 3.9 to
the extent of the amount of such loss covered thereby, or (ii) any loss caused
by or resulting from:

                  (a)    normal wear and tear;

                                      -28-
<PAGE>

                  (b)    fraud, conversion or other dishonest act on the part of
         the Trustee, the Master Servicer or any of their agents or employees
         (without regard to any portion of the loss not covered by any errors
         and omissions policy);

                  (c)    errors in design, faulty workmanship or faulty
         materials, unless the collapse of the property or a part thereof ensues
         and then only for the ensuing loss;

                  (d)    nuclear or chemical reaction or nuclear radiation or
         radioactive or chemical contamination, all whether controlled or
         uncontrolled, and whether such loss be direct or indirect, proximate or
         remote or be in whole or in part caused by, contributed to or
         aggravated by a peril covered by the definition of the term "Special
         Hazard Loss";

                  (e)    hostile or warlike action in time of peace and war,
         including action in hindering, combating or defending against an
         actual, impending or expected attack:

                         1.   by any government or sovereign power, de jure or
                  de facto, or by any authority maintaining or using military,
                  naval or air forces; or

                         2.   by military, naval or air forces; or

                         3.   by an agent of any such government, power,
                  authority or forces;

                  (f)    any weapon of war employing nuclear fission, fusion
         or other radioactive force, whether in time of peace or war; or

                  (g)    insurrection, rebellion, revolution, civil war, usurped
         power or action taken by governmental authority in hindering, combating
         or defending against such an occurrence, seizure or destruction under
         quarantine or customs regulations, confiscation by order of any
         government or public authority or risks of contraband or illegal
         transportation or trade.

     Special Hazard Loss Coverage Amount: Upon the initial issuance of the
Certificates, $3,095,777. As of any Distribution Date, the Special Hazard Loss
Coverage Amount will equal the greater of

     .   1.0% (or if greater than 1.0%, the highest percentage of Mortgage Loans
         by principal balance secured by Mortgaged Properties in any single
         California zip code) of the outstanding principal balance of all the
         Mortgage Loans as of the related Determination Date; and

     .   twice the outstanding principal balance of the Mortgage Loan which has
         the largest outstanding principal balance as of the related
         Determination Date,

less, in each case, the aggregate amount of Special Hazard Losses that would
have been previously allocated to the subordinated certificates in the absence
of the Loss Allocation Limitation. As of any Distribution Date on or after the
Cross-Over Date, the Special Hazard Loss Coverage Amount will be zero.

                                      -29-
<PAGE>

         Special Hazard Mortgage Loan: A Liquidated Mortgage Loan as to which a
Special Hazard Loss has occurred.

         S&P: Standard & Poor's Corporation, a division of The McGraw-Hill
Companies, Inc. If S&P is designated as a Rating Agency in the Preliminary
Statement, for purposes of Section 10.05(b) the address for notices to S&P shall
be Standard & Poor's, 26 Broadway, 15th Floor, New York, New York 10004,
Attention: Mortgage Surveillance Monitoring, or such other address as S&P may
hereafter furnish to the Depositor and the Master Servicer.

         Startup Day: The Closing Date.

         Stated Principal Balance: As to any Mortgage Loan and Due Date, the
unpaid principal balance of such Mortgage Loan as of such Due Date as specified
in the amortization schedule at the time relating thereto (before any adjustment
to such amortization schedule by reason of any moratorium or similar waiver or
grace period) after giving effect to any previous partial Principal Prepayments
and Liquidation Proceeds allocable to principal (other than with respect to any
Liquidated Mortgage Loan) and to the payment of principal due on such Due Date
and irrespective of any delinquency in payment by the related Mortgagor.

         Streamlined Documentation Mortgage Loan: Any Mortgage Loan originated
pursuant to the Seller's Streamlined Loan Documentation Program then in effect.

         Subordinated Certificates: As specified in the Preliminary Statement.

         Subordinated Certificate Writedown Amount: As of any Distribution Date,
the amount by which (a) the sum of the Class Certificate Balances of all of the
Certificates, after giving effect to the distribution of principal and the
allocation of Realized Losses in reduction of the Class Certificate Balances of
all of the Certificates on such Distribution Date, exceeds (b) the Pool
Principal Balance on the first day of the month of such Distribution Date less
any Deficient Valuations occurring before the Bankruptcy Loss Coverage Amount
has been reduced to zero.

         Subordinated Optimal Principal Amount: With respect to each
Distribution Date, an amount equal to the sum of the following (but in no event
greater than the aggregate Class Certificate Balances of the Subordinated
Certificates immediately prior to such Distribution Date):

                  (1)    the Subordinated Percentage of all Scheduled Payments
         of principal due on each outstanding Mortgage Loan on the first day of
         the month in which the Distribution Date occurs, as specified in the
         amortization schedule at the time applicable thereto, after adjustment
         for previous principal prepayments and the principal portion of Debt
         Service Reductions after the Bankruptcy Loss Coverage Amount has been
         reduced to zero, but before any adjustment to such amortization
         schedule by reason of any other bankruptcy or similar proceeding or any
         moratorium or similar waiver or grace period;

                  (2)    the Subordinated Prepayment Percentage of the Stated
         Principal Balance of each Mortgage Loan which was the subject of a
         prepayment in full received by the Master Servicer during the related
         Prepayment Period;

                                      -30-
<PAGE>

                  (3)    the Subordinated Prepayment Percentage of all partial
         prepayments of principal received during the related Prepayment Period,
         plus, on the Senior Final Distribution Date, 100% of any Senior Optimal
         Principal Amount remaining undistributed on such date;

                  (4)    the amount, if any, by which the sum of (a) the net
         Liquidation Proceeds allocable to principal received during the related
         Prepayment Period in respect of each Liquidated Mortgage Loan, other
         than Mortgage Loans described in clause (b) and (b) the principal
         balance of each Mortgage Loan that was purchased by a private mortgage
         insurer during the related Prepayment Period as an alternative to
         paying a claim under the related Insurance Policy exceeds (c) the sum
         of the amounts distributable to the Senior Certificateholders under
         clause (4) of the definition of Senior Optimal Principal Amount on such
         Distribution Date; and

                  (5)    the Subordinated Prepayment Percentage of the sum of
         (a) the Stated Principal Balance of each Mortgage Loan which was
         repurchased by the seller in connection with such Distribution Date and
         (b) the difference, if any, between the Stated Principal Balance of a
         Mortgage Loan that has been replaced by the seller with a Substitute
         Mortgage Loan pursuant to the Agreement in connection with such
         Distribution Date and the Stated Principal Balance of such Substitute
         Mortgage Loan.

         Subordinated Percentage: For any Distribution Date, 100% minus the
Senior Percentage.

         Subordinated Prepayment Percentage: For any Distribution Date, 100%
minus the Senior Prepayment Percentage, except that on any Senior Final
Distribution Date, the Subordinated Prepayment Percentage will equal 100%.

         Subservicer: Any person to whom the Master Servicer has contracted for
the servicing of all or a portion of the Mortgage Loans pursuant to Section 3.2
hereof.

         Substitute Mortgage Loan: A Mortgage Loan substituted by the Seller for
a Deleted Mortgage Loan which must, on the date of such substitution, as
confirmed in a Request for Release, substantially in the form of Exhibit L, (i)
have a Stated Principal Balance, after deduction of the principal portion of the
Scheduled Payment due in the month of substitution, not in excess of, and not
more than 10% less than the Stated Principal Balance of the Deleted Mortgage
Loan; (ii) have an Adjusted Net Mortgage Rate not lower than 6.75%, provided
that the Master Servicing Fee for the Substitute Mortgage Loan shall be equal to
or greater than that of the Deleted Mortgage Loan; (iii) be accruing interest at
a rate no lower than and not more than 1% per annum higher than, that of the
Deleted Mortgage Loan; (iv) have a Loan-to-Value Ratio no higher than that of
the Deleted Mortgage Loan; (v) have a remaining term to maturity no greater than
(and not more than one year less than that of) the Deleted Mortgage Loan; (vi)
not be a Cooperative Loan unless the Deleted Mortgage Loan was a Cooperative
Loan; and (vii) comply with each representation and warranty set forth in
Section 2.3 hereof.

         Substitution Adjustment Amount: The meaning ascribed to such term
pursuant to Section 2.3.

                                      -31-
<PAGE>

     Support Classes: Not applicable.

     Targeted Balances: Not applicable.

     Targeted Principal Classes: Not applicable.

     Tax Matters Person: The person designated as "tax matters person" in the
manner provided under Treasury regulation (S) 1.860F-4(d) and Treasury
regulation (S) 301.6231(a)(7)-1. Initially, the Tax Matters Person shall be the
Trustee.

     Tax Matters Person Certificate: The Class A-R Certificate with a
Denomination of $0.01.

     Transfer: Any direct or indirect transfer or sale of any Ownership Interest
in a Residual Certificate.

     Trustee: The Bank of New York and its successors and, if a successor
trustee is appointed hereunder, such successor.

     Trustee Fee: As to any Distribution Date, an amount equal to one-twelfth of
the Trustee Fee Rate multiplied by the Pool Principal Balance with respect to
such Distribution Date.

     Trustee Fee Rate: With respect to each Mortgage Loan, the per annum rate
agreed upon in writing on or prior to the Closing Date by the Trustee and the
Depositor; provided that, solely for purposes of this calculation, the Pool
Principal Balance shall be deemed to exclude the principal balance of any
Mortgage Loan with a Mortgage Rate of less than 6.756% per annum.

     Trust Fund: The corpus of the trust created hereunder consisting of (i)
the Mortgage Loans and all interest and principal received on or with respect
thereto after the Cut-off Date to the extent not applied in computing the Cut-
off Date Principal Balance thereof; (ii) the Certificate Account and the
Distribution Account and all amounts deposited therein pursuant to the
applicable provisions of this Agreement; (iii) property that secured a Mortgage
Loan and has been acquired by foreclosure, deed-in-lieu of foreclosure or
otherwise; and (iv) all proceeds of the conversion, voluntary or involuntary, of
any of the foregoing; provided that solely for designating the assets included
in the REMIC created hereunder for federal income tax purposes, the Trust Fund
shall exclude the Retained Yield.

     Unanticipated Recovery: As defined in Section 4.2(f).

     Voting Rights: The portion of the voting rights of all of the Certificates
which is allocated to any Certificate. As of any date of determination, Voting
Rights will be allocated among all Holders of the Certificates in proportion to
their then outstanding Class Certificate Balances.

                                  ARTICLE II
                        CONVEYANCE OF MORTGAGE LOANS;
                        REPRESENTATIONS AND WARRANTIES

                                      -32-
<PAGE>

         SECTION 2.1 Conveyance of Mortgage Loans.

         (a)    The Seller, concurrently with the execution and delivery hereof,
hereby sells, transfers, assigns, sets over and otherwise conveys to the
Purchaser, without recourse, all the right, title and interest of the Seller in
and to the Mortgage Loans, including all interest and principal received or
receivable by the Seller on or with respect to the Mortgage Loans after the
Cut-off Date and all interest and principal payments on the Mortgage Loans
received on or prior to the Cut-off Date in respect of installments of interest
and principal due thereafter, but not including payments of principal and
interest due and payable on the Mortgage Loans on or before the Cut-off Date or
amounts attributable to Retained Yield. On or prior to the Closing Date, the
Seller shall deliver to the Purchaser or its designee, the Mortgage File for
each Mortgage Loan listed in the Mortgage Loan Schedule (except that, in the
case of the Delay Delivery Mortgage Loans, such delivery may take place within
thirty (30) days following the Closing Date). Such delivery of the Mortgage
Files shall be made against payment by the Purchaser of the purchase price,
previously agreed to by the Seller and Purchaser, for the Mortgage Loans. With
respect to any Mortgage Loan that does not have a first payment date on or
before the Due Date in the month of the first Distribution Date, the Seller
shall deposit into the Distribution Account on or before the Distribution
Account Deposit Date relating to the first Distribution Date, an amount equal to
one month's interest at the related Adjusted Mortgage Rate on the Cut-off Date
Principal Balance of such Mortgage Loan.

         (b)    The Purchaser, concurrently with the execution and delivery
hereof, hereby sells, transfers, assigns, sets over and otherwise conveys to the
Depositor, without recourse, all the right, title and interest of the Purchaser
in and to the Mortgage Loans, including all interest and principal received or
receivable by the Purchaser on or with respect to the Mortgage Loans after the
Cut-off Date and all interest and principal payments on the Mortgage Loans
received on or prior to the Cutoff Date in respect of installments of interest
and principal due thereafter, but not including payments of principal and
interest due and payable on the Mortgage Loans on or before the Cut-off Date or
amounts attributable to Retained Yield. On or prior to the Closing Date, the
Purchaser shall deliver or cause to be delivered to the Depositor or, at the
Depositor's direction, to the Trustee or the Custodian, the Mortgage File for
each Mortgage Loan listed in the Mortgage Loan Schedule (except that, in the
case of the Delay Delivery Mortgage Loans, such delivery may take place within
thirty (30) days following the Closing Date). Such delivery of the Mortgage
Files shall be made against payment by the Depositor of the purchase price,
previously agreed to by the Purchaser and Depositor, for the Mortgage Loans.

         (c)    The Depositor, concurrently with the execution and delivery
hereof, hereby sells, transfers, assigns, sets over and otherwise conveys to the
Trustee for the benefit of the Certificateholders, without recourse, all the
right, title and interest of the Depositor in and to the Trust Fund together
with the Depositor's right to require the Seller to cure any breach of a
representation or warranty made herein by the Seller or to repurchase or
substitute for any affected Mortgage Loan in accordance herewith.

         (d)    In connection with the transfer and assignment set forth in
clause (c) above, the Depositor has delivered or caused to be delivered to the
Trustee or the Custodian on its behalf (or, in the case of the Delay Delivery
Mortgage Loans, will deliver or cause to be delivered to the Trustee

                                      -33-
<PAGE>

or the Custodian on its behalf within thirty (30) days following the Closing
Date) for the benefit of the Certificateholders the following documents or
instruments with respect to each Mortgage Loan so assigned:

                  (i)    (A) the original Mortgage Note endorsed by manual or
         facsimile signature in blank in the following form: "Pay to the order
         of ________________, without recourse," with all intervening
         endorsements showing a complete chain of endorsement from the
         originator to the Person endorsing the Mortgage Note (each such
         endorsement being sufficient to transfer all right, title and interest
         of the party so endorsing, as noteholder or assignee thereof, in and to
         that Mortgage Note); or

                         (B) with respect to any Lost Mortgage Note, a lost note
         affidavit from the Seller stating that the original Mortgage Note was
         lost or destroyed, together with a copy of such Mortgage Note;

                  (ii)   except as provided below, the original recorded
         Mortgage or a copy of such Mortgage certified by the Seller as being a
         true and complete copy of the Mortgage;

                  (iii)  a duly executed assignment of the Mortgage in blank
         (which may be included in a blanket assignment or assignments),
         together with, except as provided below, all interim recorded
         assignments of such mortgage (each such assignment, when duly and
         validly completed, to be in recordable form and sufficient to effect
         the assignment of and transfer to the assignee thereof, under the
         Mortgage to which the assignment relates); provided that, if the
         related Mortgage has not been returned from the applicable public
         recording office, such assignment of the Mortgage may exclude the
         information to be provided by the recording office;

                  (iv)   the original or copies of each assumption,
          modification, written assurance or substitution agreement, if any;

                  (v)    either the original or duplicate original title policy
         (including all riders thereto) with respect to the related mortgaged
         property, if available, provided that the title policy (including all
         riders thereto) will be delivered as soon as it becomes available, and
         if the title policy is not available, and to the extent required
         pursuant to the second paragraph below or otherwise in connection with
         the rating of the Certificates, a written commitment or interim binder
         or preliminary report of the title issued by the title insurance or
         escrow company with respect to the mortgaged property, and

                  (vi)    in the case of a Cooperative Loan, the originals of
         the following documents or instruments:

                  (a)     The Coop Shares, together with a stock power in blank;
                  (b)     The executed Security Agreement;
                  (c)     The executed Proprietary Lease;
                  (d)     The executed Recognition Agreement;

                                      -34-
<PAGE>

                  (e)    The executed UCC-1 financing statement with evidence of
                         recording thereon which have been filed in all places
                         required to perfect the Seller's interest in the Coop
                         Shares and the Proprietary Lease; and

                  (f)    Executed UCC-3 financing statements or other
                         appropriate UCC financing statements required by state
                         law, evidencing a complete and unbroken line from the
                         mortgagee to the Trustee with evidence of recording
                         thereon (or in a form suitable for recordation).

         In the event that in connection with any Mortgage Loan the Depositor
cannot deliver (a) the original recorded Mortgage or (b) all interim recorded
assignments satisfying the requirements of clause (ii) or (iii) above,
respectively, concurrently with the execution and delivery hereof because such
document or documents have not been returned from the applicable public
recording office, the Depositor shall promptly deliver to the Trustee or the
Custodian on its behalf such original Mortgage or such interim assignment, as
the case may be, with evidence of recording indicated thereon upon receipt
thereof from the public recording office, or a copy thereof, certified, if
appropriate, by the relevant recording office, but in no event shall any such
delivery of the original Mortgage and each such interim assignment or a copy
thereof, certified, if appropriate, by the relevant recording office, be made
later than one year following the Closing Date; provided, however, in the event
the Depositor is unable to deliver by such date each Mortgage and each such
interim assignment by reason of the fact that any such documents have not been
returned by the appropriate recording office, or, in the case of each such
interim assignment, because the related Mortgage has not been returned by the
appropriate recording office, the Depositor shall deliver such documents to the
Trustee or the Custodian on its behalf as promptly as possible upon receipt
thereof and, in any event, within 720 days following the Closing Date. The
Depositor shall forward or cause to be forwarded to the Trustee or the Custodian
on its behalf (a) from time to time additional original documents evidencing an
assumption or modification of a Mortgage Loan and (b) any other documents
required to be delivered by the Depositor or the Master Servicer to the Trustee.
In the event that the original Mortgage is not delivered and in connection with
the payment in full of the related Mortgage Loan and the public recording office
requires the presentation of a "lost instruments affidavit and indemnity" or any
equivalent document, because only a copy of the Mortgage can be delivered with
the instrument of satisfaction or reconveyance, the Master Servicer shall
execute and deliver or cause to be executed and delivered such a document to the
public recording office. In the case where a public recording office retains the
original recorded Mortgage or in the case where a Mortgage is lost after
recordation in a public recording office, the Seller shall deliver to the
Trustee a copy of such Mortgage certified by such public recording office to be
a true and complete copy of the original recorded Mortgage.

         In addition, in the event that in connection with any Mortgage Loan the
Depositor cannot deliver the original or duplicate original lender's title
policy (together with all riders thereto), satisfying the requirements of clause
(v) above, concurrently with the execution and delivery hereof because the
related Mortgage has not been returned from the applicable public recording
office, the Depositor shall promptly deliver to the Trustee or the Custodian on
its behalf such original or duplicate original lender's title policy (together
with all riders thereto) upon receipt thereof from the applicable title insurer,
but in no event shall any such delivery of the original or duplicate original
lender's title policy be made later than one year following the Closing Date;
provided, however, in the event the Depositor is unable to deliver by such date
the original or duplicate original lender's title policy (together with all
riders thereto) because the related Mortgage has not been returned by

                                      -35-
<PAGE>

the appropriate recording office, the Depositor shall deliver such documents
to the Trustee or the Custodian on its behalf as promptly as possible upon
receipt thereof and, in any event, within 720 days following the Closing Date.
Notwithstanding the preceding, in connection with any Mortgage Loan for which
either the original or duplicate original title policy has not been delivered to
the Trust, if at any time during the term of this Agreement the parent company
of the Seller does not have a long term senior debt rating of A- or higher from
S&P and A- or higher from Fitch (if rated by Fitch), then the Depositor shall
within 30 days deliver to the Trustee or the Custodian on its behalf (if it has
not previously done so) a written commitment or interim binder or preliminary
report of the title issued by the title insurance or escrow company with respect
to the mortgaged property.

         Subject to the immediately following sentence, as promptly as
practicable subsequent to such transfer and assignment, and in any event, within
thirty (30) days thereafter, the Master Servicer shall (i) complete each
assignment of Mortgage, as follows: "First Horizon Mortgage Pass-Through
Certificates, Series 2001-5, The Bank of New York, as trustee for the holders of
the Certificates", (ii) cause such assignment to be in proper form for recording
in the appropriate public office for real property records and (iii) cause to be
delivered for recording in the appropriate public office for real property
records the assignments of the Mortgages to the Trustee, except that, with
respect to any assignments of Mortgage as to which the Master Servicer has not
received the information required to prepare such assignment in recordable form,
the Master Servicer's obligation to do so and to deliver the same for such
recording shall be as soon as practicable after receipt of such information and
in any event within thirty (30) days after receipt thereof. Notwithstanding the
foregoing, the Master Servicer need not cause to be recorded any assignment
which relates to a Mortgage Loan in any state other than the Required
Recordation States.

         In the case of Mortgage Loans that have been prepaid in full as of the
Closing Date, the Depositor, in lieu of delivering the above documents to the
Trustee or the Custodian on its behalf, will deposit in the Certificate Account
the portion of such payment that is required to be deposited in the Certificate
Account pursuant to Section 3.8 hereof.

         Notwithstanding anything to the contrary in this Agreement, within
thirty days after the Closing Date, the Seller shall either (i) deliver to the
Trustee or the Custodian on its behalf the Mortgage File as required pursuant to
this Section 2.1 for each Delay Delivery Mortgage Loan or (ii) (A) substitute a
Substitute Mortgage Loan for the Delay Delivery Mortgage Loan or (B) repurchase
the Delay Delivery Mortgage Loan, which substitution or repurchase shall be
accomplished in the manner and subject to the conditions set forth in Section
2.3 (treating each Delay Delivery Mortgage Loan as a Deleted Mortgage Loan for
purposes of such Section 2.3), provided, however, that if the Seller fails to
deliver a Mortgage File for any Delay Delivery Mortgage Loan within the thirty-
day period provided in the prior sentence, the Seller shall use its best
reasonable efforts to effect a substitution, rather than a repurchase of, such
Deleted Mortgage Loan and provided further that the cure period provided for in
Section 2.2 or in Section 2.3 shall not apply to the initial delivery of the
Mortgage File for such Delay Delivery Mortgage Loan, but rather the Seller shall
have five (5) Business Days to cure such failure to deliver. At the end of such
thirty-day period, the Trustee or the Custodian, on behalf of the Trustee shall
send a Delay Delivery Certification for the Delay Delivery Mortgage Loans
delivered during such thirty-day period in accordance with the provisions of
Section 2.2. Notwithstanding anything to the contrary contained in this
Agreement, none of the Mortgage Loans in the Trust Fund is or will be Delay
Delivery Mortgage Loans.

                                      -36-
<PAGE>

     SECTION 2.2 Acceptance by Trustee of the Mortgage Loans.

     The Trustee or the Custodian, on behalf of the Trustee acknowledges receipt
of the documents identified in the Initial Certification in the form annexed
hereto as Exhibit E and declares that it or the Custodian holds and will hold
such documents and the other documents delivered to it constituting the Mortgage
Files, and that it or the Custodian holds or will hold such other assets as are
included in the Trust Fund, in trust for the exclusive use and benefit of all
present and future Certificateholders. The Trustee acknowledges that the
Custodian will maintain possession of the Mortgage Notes in the State of
Illinois, unless otherwise permitted by the Rating Agencies.

     The Trustee agrees to execute and deliver or to cause the Custodian to
execute and deliver on the Closing Date to the Depositor, the Master Servicer
and the Seller an Initial Certification in the form annexed hereto as Exhibit E.
Based on its or the Custodian's review and examination, and only as to the
documents identified in such Initial Certification, the Custodian, on behalf of
the Trustee acknowledges that such documents appear regular on their face and
relate to such Mortgage Loan. Neither the Trustee nor the Custodian shall be
under any duty or obligation to inspect, review or examine said documents,
instruments, certificates or other papers to determine that the same are
genuine, enforceable or appropriate for the represented purpose or that they
have actually been recorded in the real estate records or that they are other
than what they purport to be on their face.

     On or about the thirtieth (30th) day after the Closing Date, the Trustee
shall deliver or shall cause the Custodian to deliver to the Depositor, the
Master Servicer and the Seller a Delay Delivery Certification in the form
annexed hereto as Exhibit F, with any applicable exceptions noted thereon.
Notwithstanding anything to the contrary contained in this Agreement, none of
the Mortgage Loans in the Trust Fund is or will be Delay Delivery Mortgage
Loans.

     Not later than 90 days after the Closing Date, the Trustee shall deliver or
shall cause the Custodian to deliver to the Purchaser, the Depositor, the Master
Servicer and the Seller a Final Certification in the form annexed hereto as
Exhibit G, with any applicable exceptions noted thereon.

     If, in the course of such review, the Trustee or the Custodian, on behalf
of the Trustee finds any document constituting a part of a Mortgage File which
does not meet the requirements of Section 2.1, the Trustee shall list or shall
cause the Custodian to list such as an exception in the Final Certification;
provided, however that neither the Trustee nor the Custodian shall make any
determination as to whether (i) any endorsement is sufficient to transfer all
right, title and interest of the party so endorsing, as noteholder or assignee
thereof, in and to that Mortgage Note or (ii) any assignment is in recordable
form or is sufficient to effect the assignment of and transfer to the assignee
thereof under the mortgage to which the assignment relates. The Seller shall
promptly correct or cure such defect within 90 days from the date it was so
notified of such defect and, if the Seller does not correct or cure such defect
within such period, the Seller shall either (a) substitute for the related
Mortgage Loan a Substitute Mortgage Loan, which substitution shall be
accomplished in the manner and subject to the conditions set forth in Section
2.3, or (b) purchase such Mortgage Loan from the Trustee within 90 days from the
date the Seller was notified of such defect in writing at the Purchase Price of
such Mortgage Loan; provided, however, that in no event shall such substitution
or purchase occur more than 540 days from the Closing Date, except that if the
substitution or purchase of a Mortgage Loan pursuant to this provision is
required by reason of a delay in delivery of any documents by the appropriate
recording office, and there is a dispute

                                     -37-
<PAGE>

between either the Master Servicer or the Seller and the Trustee over the
location or status of the recorded document, then such substitution or purchase
shall occur within 720 days from the Closing Date. The Trustee shall deliver
written notice to each Rating Agency within 270 days from the Closing Date
indicating each Mortgage Loan (a) which has not been returned by the appropriate
recording office or (b) as to which there is a dispute as to location or status
of such Mortgage Loan. Such notice shall be delivered every 90 days thereafter
until the related Mortgage Loan is returned to the Trustee or the Custodian on
its behalf. Any such substitution pursuant to (a) above or purchase pursuant to
(b) above shall not be effected prior to the delivery to the Trustee of the
Opinion of Counsel required by Section 2.5 hereof, if any, and any substitution
pursuant to (a) above shall not be effected prior to the additional delivery to
the Trustee of a Request for Release substantially in the form of Exhibit L. No
substitution is permitted to be made in any calendar month after the
Determination Date for such month. The Purchase Price for any such Mortgage Loan
shall be deposited by the Seller in the Certificate Account on or prior to the
Distribution Account Deposit Date for the Distribution Date in the month
following the month of repurchase and, upon receipt of such deposit and
certification with respect thereto in the form of Exhibit M hereto, the Trustee
shall cause the Custodian to release the related Mortgage File to the Seller and
shall execute and deliver at the Seller's request such instruments of transfer
or assignment prepared by the Seller, in each case without recourse, as shall be
necessary to vest in the Seller, or a designee, the Trustee's interest in any
Mortgage Loan released pursuant hereto.

     The Trustee shall retain or shall cause the Custodian to retain possession
and custody of each Mortgage File in accordance with and subject to the terms
and conditions set forth herein. The Master Servicer shall promptly deliver to
the Trustee or the Custodian on its behalf, upon the execution or receipt
thereof, the originals of such other documents or instruments constituting the
Mortgage File as come into the possession of the Master Servicer from time to
time.

     It is understood and agreed that the obligation of the Seller to substitute
for or to purchase any Mortgage Loan which does not meet the requirements of
Section 2.1 above shall constitute the sole remedy respecting such defect
available to the Trustee, the Depositor and any Certificateholder against the
Seller.

     SECTION 2.3 Representations, Warranties and Covenants of the Seller and
Master Servicer.

     (a)  First Horizon Home Loan Corporation, in its capacities as Seller and
Master Servicer, and the Purchaser, in its capacity as Purchaser, hereby makes
the representations and warranties set forth in Schedule II-A and II-B hereto,
respectively, and by this reference incorporated herein, to the Depositor and
the Trustee, as of the Closing Date, or if so specified therein, as of the Cut-
off Date.

     (b)  The Seller, in its capacity as Seller, hereby makes the
representations and warranties set forth in Schedule III hereto, and by this
reference incorporated herein, to the Purchaser, the Depositor and the Trustee,
as of the Closing Date, or if so specified therein, as of the Cut-off Date.

     (c)  Upon discovery by any of the parties hereto of a breach of a
representation or warranty made pursuant to Section 2.3(b) that materially and
adversely affects the interests of the Certificateholders in any Mortgage Loan,
the party discovering such breach shall give prompt notice thereof to the other
parties. The Seller hereby covenants that within 90 days of the earlier of its
discovery or its receipt of written notice from any party of a breach of any
representation or warranty

                                     -38-
<PAGE>

made pursuant to Section 2.3(b) which materially and adversely affects the
interests of the Certificateholders in any Mortgage Loan, it shall cure such
breach in all material respects, and if such breach is not so cured, shall, (i)
if such 90-day period expires prior to the second anniversary of the Closing
Date, remove such Mortgage Loan (a "Deleted Mortgage Loan") from the Trust Fund
and substitute in its place a Substitute Mortgage Loan, in the manner and
subject to the conditions set forth in this Section; or (ii) repurchase the
affected Mortgage Loan or Mortgage Loans from the Trustee at the Purchase Price
in the manner set forth below; provided, however, that any such substitution
pursuant to (i) above shall not be effected prior to the delivery to the Trustee
of the Opinion of Counsel required by Section 2.5 hereof, if any, and any such
substitution pursuant to (i) above shall not be effected prior to the additional
delivery to the Trustee or the Custodian on its behalf of a Request for Release
substantially in the form of Exhibit M and the Mortgage File for any such
Substitute Mortgage Loan. The Seller shall promptly reimburse the Master
Servicer and the Trustee for any expenses reasonably incurred by the Master
Servicer or the Trustee in respect of enforcing the remedies for such breach.
With respect to the representations and warranties described in this Section
which are made to the best of the Seller's knowledge, if it is discovered by
either the Purchaser, the Depositor, the Seller or the Trustee that the
substance of such representation and warranty is inaccurate and such inaccuracy
materially and adversely affects the value of the related Mortgage Loan or the
interests of the Certificateholders therein, notwithstanding the Seller's lack
of knowledge with respect to the substance of such representation or warranty,
such inaccuracy shall be deemed a breach of the applicable representation or
warranty.

     With respect to any Substitute Mortgage Loan or Loans, the Seller shall
deliver to the Trustee or the Custodian on its behalf for the benefit of the
Certificateholders the Mortgage Note, the Mortgage, the related assignment of
the Mortgage, and such other documents and agreements as are required by Section
2.1, with the Mortgage Note endorsed and the Mortgage assigned as required by
Section 2.1. No substitution is permitted to be made in any calendar month after
the Determination Date for such month. Scheduled Payments due with respect to
Substitute Mortgage Loans in the month of substitution shall not be part of the
Trust Fund and will be retained by the Seller on the next succeeding
Distribution Date. For the month of substitution, distributions to
Certificateholders will include the monthly payment due on any Deleted Mortgage
Loan for such month and thereafter the Seller shall be entitled to retain all
amounts received in respect of such Deleted Mortgage Loan. The Master Servicer
shall amend the Mortgage Loan Schedule for the benefit of the Certificateholders
to reflect the removal of such Deleted Mortgage Loan and the substitution of the
Substitute Mortgage Loan or Loans and the Master Servicer shall deliver the
amended Mortgage Loan Schedule to the Trustee. Upon such substitution, the
Substitute Mortgage Loan or Loans shall be subject to the terms of this
Agreement in all respects, and the Seller shall be deemed to have made with
respect to such Substitute Mortgage Loan or Loans, as of the date of
substitution, the representations and warranties made pursuant to Section 2.3(b)
with respect to such Mortgage Loan. Upon any such substitution and the deposit
to the Certificate Account of the amount required to be deposited therein in
connection with such substitution as described in the following paragraph, the
Trustee shall release or shall cause the Custodian to release the Mortgage File
held for the benefit of the Certificateholders relating to such Deleted Mortgage
Loan to the Seller and shall execute and deliver at the Seller's direction such
instruments of transfer or assignment prepared by the Seller, in each case
without recourse, as shall be necessary to vest title in the Seller, or its
designee, the Trustee's interest in any Deleted Mortgage Loan substituted for
pursuant to this Section 2.3.

                                     -39-
<PAGE>

     For any month in which the Seller substitutes one or more Substitute
Mortgage Loans for one or more Deleted Mortgage Loans, the Master Servicer will
determine the amount (if any) by which the aggregate principal balance of all
such Substitute Mortgage Loans as of the date of substitution is less than the
aggregate Stated Principal Balance of all such Deleted Mortgage Loans (after
application of the scheduled principal portion of the monthly payments due in
the month of substitution). The amount of such shortage (the "Substitution
Adjustment Amount") plus an amount equal to the aggregate of any unreimbursed
Advances with respect to such Deleted Mortgage Loans shall be deposited in the
Certificate Account by the Seller on or before the Distribution Account Deposit
Date for the Distribution Date in the month succeeding the calendar month during
which the related Mortgage Loan became required to be purchased or replaced
hereunder.

     In the event that the Seller shall have repurchased a Mortgage Loan, the
Purchase Price therefor shall be deposited in the Certificate Account pursuant
to Section 3.5 on or before the Distribution Account Deposit Date for the
Distribution Date in the month following the month during which the Seller
became obligated hereunder to repurchase or replace such Mortgage Loan and upon
such deposit of the Purchase Price, the delivery of the Opinion of Counsel
required by Section 2.5 and receipt of a Request for Release in the form of
Exhibit M hereto, the Trustee shall release or shall cause the Custodian to
release the related Mortgage File held for the benefit of the Certificateholders
to such Person, and the Trustee shall execute and deliver or shall cause the
Custodian to execute and deliver at such Person's direction such instruments of
transfer or assignment prepared by such Person, in each case without recourse,
as shall be necessary to transfer title from the Trustee. It is understood and
agreed that the obligation under this Agreement of the Seller to cure,
repurchase or replace any Mortgage Loan as to which a breach has occurred and is
continuing shall constitute the sole remedy against the Seller respecting such
breach available to Certificateholders, the Depositor, the Purchaser or the
Trustee on their behalf. It is further understood and agreed that the Purchaser
shall have no obligation to cure, repurchase or replace any Mortgage Loan as to
which a breach has occurred or is continuing.

     The representations and warranties made pursuant to this Section 2.3 shall
survive delivery of the respective Mortgage Files to the Trustee or the
Custodian for the benefit of the Certificateholders.

     SECTION 2.4 Representations and Warranties of the Depositor as to the
Mortgage Loans.

     The Depositor hereby represents and warrants to the Trustee with respect to
each Mortgage Loan as of the date hereof or such other date set forth herein
that as of the Closing Date, and following the transfer of the Mortgage Loans to
it by the Purchaser, the Depositor had good title to the Mortgage Loans and the
Mortgage Notes were subject to no offsets, defenses or counterclaims.

     The Depositor hereby assigns, transfers and conveys to the Trustee all of
its rights with respect to the Mortgage Loans including, without limitation, the
representations and warranties of the Seller made pursuant to Section 2.3(b)
hereof, together with all rights of the Depositor to require the Seller to cure
any breach thereof or to repurchase or substitute for any affected Mortgage Loan
in accordance with this Agreement.

     It is understood and agreed that the representations and warranties set
forth in this Section 2.4 shall survive delivery of the Mortgage Files to the
Trustee. Upon discovery by the Depositor or

                                     -40-
<PAGE>

the Trustee of a breach of any of the foregoing representations and warranties
set forth in this Section 2.4 (referred to herein as a "breach"), which breach
materially and adversely affects the interest of the Certificateholders, the
party discovering such breach shall give prompt written notice to the others and
to each Rating Agency.

     SECTION 2.5 Delivery of Opinion of Counsel in Connection with
Substitutions.

     (a)  Notwithstanding any contrary provision of this Agreement, no
substitution pursuant to Section 2.2 or Section 2.3 shall be made more than 90
days after the Closing Date unless the Seller delivers to the Trustee an Opinion
of Counsel, which Opinion of Counsel shall not be at the expense of either the
Trustee or the Trust Fund, addressed to the Trustee, to the effect that such
substitution will not (i) result in the imposition of the tax on "prohibited
transactions" on the Trust Fund or contributions after the Startup Date, as
defined in Sections 860F(a)(2) and 860G(d) of the Code, respectively, or (ii)
cause the REMIC created hereunder to fail to qualify as a REMIC at any time that
any Certificates are outstanding.

     (b)  Upon discovery by the Purchaser, the Depositor, the Seller, the Master
Servicer or the Trustee that any Mortgage Loan does not constitute a "qualified
mortgage" within the meaning of Section 860G(a)(3) of the Code, the party
discovering such fact shall promptly (and in any event within five (5) Business
Days of discovery) give written notice thereof to the other parties. In
connection therewith, the Trustee shall require the Seller, at the Seller's
option, to either (i) substitute, if the conditions in Section 2.3(c) with
respect to substitutions are satisfied, a Substitute Mortgage Loan for the
affected Mortgage Loan, or (ii) repurchase the affected Mortgage Loan within 90
days of such discovery in the same manner as it would a Mortgage Loan for a
breach of representation or warranty made pursuant to Section 2.3. The Trustee
shall reconvey or shall cause the Custodian to reconvey to the Seller the
Mortgage Loan to be released pursuant hereto in the same manner, and on the same
terms and conditions, as it would a Mortgage Loan repurchased for breach of a
representation or warranty contained in Section 2.3.

     SECTION 2.6 Execution and Delivery of Certificates.

     The Trustee acknowledges the transfer and assignment to it of the Trust
Fund and, concurrently with such transfer and assignment, has executed and
delivered to or upon the order of the Depositor, the Certificates in authorized
denominations evidencing directly or indirectly the entire ownership of the
Trust Fund. The Trustee agrees to hold the Trust Fund and exercise the rights
referred to above for the benefit of all present and future Holders of the
Certificates and to perform the duties set forth in this Agreement to the best
of its ability, to the end that the interests of the Holders of the Certificates
may be adequately and effectively protected.

     SECTION 2.7 REMIC Matters.

     The Preliminary Statement sets forth the designations and "latest possible
maturity date" for federal income tax purposes of all interests created hereby.
The "Startup Day" for purposes of the REMIC Provisions shall be the Closing
Date. The "tax matters person" with respect to each REMIC hereunder shall be the
Trustee and the Trustee shall hold the Tax Matters Person Certificate. The
REMIC's fiscal year shall be the calendar year and its accounts shall be
maintained using the accrual method.

                                     -41-
<PAGE>

     SECTION 2.8 Covenants of the Master Servicer.

     The Master Servicer hereby covenants to the Depositor and the Trustee as
follows:

     (a)  the Master Servicer shall comply in the performance of its obligations
under this Agreement with all reasonable rules and requirements of the insurer
under each Required Insurance Policy; and

     (b)  no written information, certificate of an officer, statement furnished
in writing or written report delivered to the Depositor, any affiliate of the
Depositor or the Trustee and prepared by the Master Servicer pursuant to this
Agreement will contain any untrue statement of a material fact or omit to state
a material fact necessary to make such information, certificate, statement or
report not misleading.

                                  ARTICLE III
                         ADMINISTRATION AND SERVICING
                               OF MORTGAGE LOANS

     SECTION 3.1 Master Servicer to Service Mortgage Loans.

     For and on behalf of the Certificateholders, the Master Servicer shall
service and administer the Mortgage Loans in accordance with the terms of this
Agreement and customary and usual standards of practice of prudent mortgage loan
servicers. In connection with such servicing and administration, the Master
Servicer shall have full power and authority, acting alone and/or through
Subservicers as provided in Section 3.2 hereof, to do or cause to be done any
and all things that it may deem necessary or desirable in connection with such
servicing and administration, including but not limited to, the power and
authority, subject to the terms hereof (i) to execute and deliver, on behalf of
the Certificateholders and the Trustee, customary consents or waivers and other
instruments and documents, (ii) to consent to transfers of any Mortgaged
Property and assumptions of the Mortgage Notes and related Mortgages (but only
in the manner provided in this Agreement), (iii) to collect any Insurance
Proceeds and other Liquidation Proceeds, and (iv) to effectuate foreclosure or
other conversion of the ownership of the Mortgaged Property securing any
Mortgage Loan; provided that the Master Servicer shall not take any action that
is inconsistent with or prejudices the interests of the Trust Fund or the
Certificateholders in any Mortgage Loan or the rights and interests of the
Depositor, the Trustee and the Certificateholders under this Agreement. The
Master Servicer shall represent and protect the interests of the Trust Fund in
the same manner as it protects its own interests in mortgage loans in its own
portfolio in any claim, proceeding or litigation regarding a Mortgage Loan, and
shall not make or permit any modification, waiver or amendment of any Mortgage
Loan which would cause the REMIC created hereunder to fail to qualify as a REMIC
or result in the imposition of any tax under Section 860F(a) or Section 860G(d)
of the Code. Without limiting the generality of the foregoing, the Master
Servicer, in its own name or in the name of the Depositor and the Trustee, is
hereby authorized and empowered by the Depositor and the Trustee, when the
Master Servicer believes it appropriate in its reasonable judgment, to execute
and deliver, on behalf of the Trustee, the Depositor, the Certificateholders or
any of them, any and all instruments of satisfaction or cancellation, or of
partial or full release or discharge and all other comparable instruments, with
respect to the Mortgage Loans, and with respect to the Mortgaged Properties held
for the benefit of the Certificateholders. The Master Servicer shall prepare and
deliver to the

                                     -42-
<PAGE>

Depositor and/or the Trustee such documents requiring execution and delivery by
either or both of them as are necessary or appropriate to enable the Master
Servicer to service and administer the Mortgage Loans to the extent that the
Master Servicer is not permitted to execute and deliver such documents pursuant
to the preceding sentence. Upon receipt of such documents, the Depositor and/or
the Trustee shall execute such documents and deliver them to the Master
Servicer.

     In accordance with the standards of the preceding paragraph, the Master
Servicer shall advance or cause to be advanced funds as necessary for the
purpose of effecting the payment of taxes and assessments on the Mortgaged
Properties, which advances shall be reimbursable in the first instance from
related collections from the Mortgagors pursuant to Section 3.6, and further as
provided in Section 3.8. The costs incurred by the Master Servicer, if any, in
effecting the timely payments of taxes and assessments on the Mortgaged
Properties and related insurance premiums shall not, for the purpose of
calculating monthly distributions to the Certificateholders, be added to the
Stated Principal Balances of the related Mortgage Loans, notwithstanding that
the terms of such Mortgage Loans so permit.

     SECTION 3.2 Subservicing; Enforcement of the Obligations of Servicers.

     (a)  The Master Servicer may arrange for the subservicing of any Mortgage
Loan by a Subservicer pursuant to a subservicing agreement; provided, however,
that such subservicing arrangement and the terms of the related subservicing
agreement must provide for the servicing of such Mortgage Loans in a manner
consistent with the servicing arrangements contemplated hereunder. Unless the
context otherwise requires, references in this Agreement to actions taken or to
be taken by the Master Servicer in servicing the Mortgage Loans include actions
taken or to be taken by a Subservicer on behalf of the Master Servicer.
Notwithstanding the provisions of any subservicing agreement, any of the
provisions of this Agreement relating to agreements or arrangements between the
Master Servicer and a Subservicer or reference to actions taken through a
Subservicer or otherwise, the Master Servicer shall remain obligated and liable
to the Depositor, the Trustee and the Certificateholders for the servicing and
administration of the Mortgage Loans in accordance with the provisions of this
Agreement without diminution of such obligation or liability by virtue of such
subservicing agreements or arrangements or by virtue of indemnification from the
Subservicer and to the same extent and under the same terms and conditions as if
the Master Servicer alone were servicing and administering the Mortgage Loans.
All actions of each Subservicer performed pursuant to the related subservicing
agreement shall be performed as an agent of the Master Servicer with the same
force and effect as if performed directly by the Master Servicer.

     (b)  For purposes of this Agreement, the Master Servicer shall be deemed to
have received any collections, recoveries or payments with respect to the
Mortgage Loans that are received by a Subservicer regardless of whether such
payments are remitted by the Subservicer to the Master Servicer.

     SECTION 3.3 Rights of the Depositor and the Trustee in Respect of the
Master Servicer.

     The Depositor may, but is not obligated to, enforce the obligations of the
Master Servicer hereunder and may, but is not obligated to, perform, or cause a
designee to perform, any defaulted obligation of the Master Servicer hereunder
and in connection with any such defaulted obligation to exercise the related
rights of the Master Servicer hereunder; provided that the Master Servicer

                                     -43-
<PAGE>

shall not be relieved of any of its obligations hereunder by virtue of such
performance by the Depositor or its designee. Neither the Trustee nor the
Depositor shall have any responsibility or liability for any action or failure
to act by the Master Servicer nor shall the Trustee or the Depositor be
obligated to supervise the performance of the Master Servicer hereunder or
otherwise.

     SECTION 3.4 Trustee to Act as Master Servicer.

     In the event that the Master Servicer shall for any reason no longer be the
Master Servicer hereunder (including by reason of an Event of Default), the
Trustee or its successor shall thereupon assume all of the rights and
obligations of the Master Servicer hereunder arising thereafter (except that the
Trustee shall not be (i) liable for losses of the Master Servicer pursuant to
Section 3.9 hereof or any acts or omissions of the predecessor Master Servicer
hereunder), (ii) obligated to make Advances if it is prohibited from doing so by
applicable law, (iii) obligated to effectuate repurchases or substitutions of
Mortgage Loans hereunder including, but not limited to, repurchases or
substitutions of Mortgage Loans pursuant to Section 2.2 or 2.3 hereof, (iv)
responsible for expenses of the Master Servicer pursuant to Section 2.3 or (v)
deemed to have made any representations and warranties of the Master Servicer
hereunder). Any such assumption shall be subject to Section 7.2 hereof. If the
Master Servicer shall for any reason no longer be the Master Servicer (including
by reason of any Event of Default), the Trustee or its successor shall succeed
to any rights and obligations of the Master Servicer under each subservicing
agreement.

     The Master Servicer shall, upon request of the Trustee, but at the expense
of the Master Servicer, deliver to the assuming party all documents and records
relating to each subservicing agreement or substitute subservicing agreement and
the Mortgage Loans then being serviced thereunder and an accounting of amounts
collected or held by it and otherwise use its best efforts to effect the orderly
and efficient transfer of the substitute subservicing agreement to the assuming
party.

     SECTION 3.5 Collection of Mortgage Loan Payments; Certificate Account;
Distribution Account.

     (a)  The Master Servicer shall make reasonable efforts in accordance with
the customary and usual standards of practice of prudent mortgage servicers to
collect all payments called for under the terms and provisions of the Mortgage
Loans to the extent such procedures shall be consistent with this Agreement and
the terms and provisions of any related Required Insurance Policy. Consistent
with the foregoing, the Master Servicer may in its discretion (i) waive any late
payment charge or any prepayment charge or penalty interest in connection with
the prepayment of a Mortgage Loan and (ii) extend the due dates for payments due
on a Mortgage Note for a period not greater than 180 days; provided, however,
that the Master Servicer cannot extend the maturity of any such Mortgage Loan
past the date on which the final payment is due on the latest maturing Mortgage
Loan as of the Cut-off Date. In the event of any such arrangement, the Master
Servicer shall make Advances on the related Mortgage Loan in accordance with the
provisions of Section 4.1 during the scheduled period in accordance with the
amortization schedule of such Mortgage Loan without modification thereof by
reason of such arrangements. The Master Servicer shall not be required to
institute or join in litigation with respect to collection of any payment
(whether under a Mortgage, Mortgage Note or otherwise or against any public or
governmental authority with respect to a taking

                                     -44-
<PAGE>

or condemnation) if it reasonably believes that enforcing the provision of the
Mortgage or other instrument pursuant to which such payment is required is
prohibited by applicable law.

     (b)  The Master Servicer shall establish and maintain a Certificate Account
into which the Master Servicer shall deposit or cause to be deposited no later
than two Business Days after receipt, except as otherwise specifically provided
herein, the following payments and collections remitted by Subservicers or
received by it in respect of Mortgage Loans subsequent to the Cut-off Date
(other than in respect of principal and interest due on the Mortgage Loans on or
before the Cut-off Date) and the following amounts required to be deposited
hereunder:

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

          (ii)   all payments on account of interest on the Mortgage Loans, net
     of the related Master Servicing Fee, any Prepayment Interest Excess and,
     for so long as First Horizon is the Master Servicer, any Retained Yield;

          (iii)  all Insurance Proceeds and Liquidation Proceeds, other than
     proceeds to be applied to the restoration or repair of the Mortgaged
     Property or released to the Mortgagor in accordance with the Master
     Servicer's normal servicing procedures;

          (iv)   any amount required to be deposited by the Master Servicer
     pursuant to Section 3.5(c) in connection with any losses on Permitted
     Investments;

          (v)    any amounts required to be deposited by the Master Servicer
     pursuant to Section 3.9(b), 3.9(d), and in respect of net monthly rental
     income from REO Property pursuant to Section 3.11 hereof;

          (vi)   all Substitution Adjustment Amounts;

          (vii)  all Advances made by the Master Servicer pursuant to Section
     4.1; and

          (viii) any other amounts required to be deposited hereunder.

     In addition, with respect to any Mortgage Loan that is subject to a buydown
agreement, on each Due Date for such Mortgage Loan, in addition to the monthly
payment remitted by the Mortgagor, the Master Servicer shall cause funds to be
deposited into the Certificate Account in an amount required to cause an amount
of interest to be paid with respect to such Mortgage Loan equal to the amount of
interest that has accrued on such Mortgage Loan from the preceding Due Date at
the related Adjusted Mortgage Rate on such date.

     The foregoing requirements for remittance by the Master Servicer shall be
exclusive, it being understood and agreed that, without limiting the generality
of the foregoing, payments in the nature of prepayment penalties, late payment
charges, assumption fees or amounts attributable to reimbursements of Advances,
if collected, need not be remitted by the Master Servicer. In the event that the
Master Servicer shall remit any amount not required to be remitted, it may at
any time withdraw or direct the institution maintaining the Certificate Account
to withdraw such amount from

                                     -45-
<PAGE>

the Certificate Account, any provision herein to the contrary notwithstanding.
Such withdrawal or direction may be accomplished by delivering written notice
thereof to the Trustee or such other institution maintaining the Certificate
Account which describes the amounts deposited in error in the Certificate
Account. The Master Servicer shall maintain adequate records with respect to all
withdrawals made pursuant to this Section. All funds deposited in the
Certificate Account shall be held in trust for the Certificateholders until
withdrawn in accordance with Section 3.8.

     (c)  The Trustee shall establish and maintain, on behalf of the
Certificateholders, the Distribution Account. The Trustee shall, promptly upon
receipt, deposit in the Distribution Account and retain therein the following:

          (i)    the aggregate amount remitted by the Master Servicer to the
     Trustee pursuant to Section 3.8(a)(ix);

          (ii)   any amount deposited by the Master Servicer pursuant to this
     Section 3.5(c) in connection with any losses on Permitted Investments; and

          (iii)  any other amounts deposited hereunder which are required to be
     deposited in the Distribution Account.

     In the event that the Master Servicer shall remit any amount not required
to be remitted, it may at any time direct the Trustee to withdraw such amount
from the Distribution Account, any provision herein to the contrary
notwithstanding. Such direction may be accomplished by delivering an Officer's
Certificate to the Trustee which describes the amounts deposited in error in the
Distribution Account. All funds deposited in the Distribution Account shall be
held by the Trustee in trust for the Certificateholders until disbursed in
accordance with this Agreement or withdrawn in accordance with Section 3.8. In
no event shall the Trustee incur liability for withdrawals from the Distribution
Account at the direction of the Master Servicer.

          (iv)   The institutions at which the Certificate Account and the
     Distribution Account are maintained shall invest funds as directed by the
     Master Servicer in Permitted Investments which in both cases shall mature
     not later than (i) in the case of the Certificate Account, the second
     Business Day next preceding the related Distribution Account Deposit Date
     (except that if such Permitted Investment is an obligation of the
     institution that maintains such account, then such Permitted Investment
     shall mature not later than the Business Day next preceding such
     Distribution Account Deposit Date) and (ii) in the case of the Distribution
     Account, the Business Day next preceding the Distribution Date (except that
     if such Permitted Investment is an obligation of the institution that
     maintains such fund or account, then such Permitted Investment shall mature
     not later than such Distribution Date) and, in each case, shall not be sold
     or disposed of prior to its maturity. All such Permitted Investments shall
     be made in the name of the Trustee, for the benefit of the
     Certificateholders. All income and gain net of any losses realized from any
     such investment of funds on deposit in the Certificate Account shall be for
     the benefit of the Master Servicer as servicing compensation and all income
     and gain net of any losses realized from any such investment of funds on
     deposit in the Distribution Account shall be for the benefit of the
     Trustee. The amount of any Realized Losses in the Certificate Account in
     respect of any such investments shall promptly be deposited by the Master
     Servicer in the Certificate Account

                                     -46-
<PAGE>

     and the amount of any Realized Losses in the Distribution Account in
     respect of any such investments shall promptly be deposited by the Trustee
     into the Distribution Account. All reinvestment income earned on amounts on
     deposit in the Distribution Account shall be for the benefit of the
     Trustee. The Trustee in its fiduciary capacity shall not be liable for the
     amount of any loss incurred in respect of any investment or lack of
     investment of funds held in the Certificate Account and made in accordance
     with this Section 3.5.

          (v)  The Master Servicer shall give notice to the Trustee, the Seller,
     each Rating Agency, the Purchaser and the Depositor of any proposed change
     of the location of the Certificate Account prior to any change thereof. The
     Trustee shall give notice to the Master Servicer, the Seller, each Rating
     Agency, the Purchaser and the Depositor of any proposed change of the
     location of the Distribution Account prior to any change thereof.

     SECTION 3.6 Collection of Taxes, Assessments and Similar Items; Escrow
Accounts.

     (a)  To the extent required by the related Mortgage Note and not violative
of current law, the Master Servicer shall establish and maintain one or more
accounts (each, an "Escrow Account") and deposit and retain therein all
collections from the Mortgagors (or advances by the Master Servicer) for the
payment of taxes, assessments, hazard insurance premiums or comparable items for
the account of the Mortgagors. Nothing herein shall require the Master Servicer
to compel a Mortgagor to establish an Escrow Account in violation of applicable
law.

     (b)  Withdrawals of amounts so collected from the Escrow Accounts may be
made only to effect timely payment of taxes, assessments, hazard insurance
premiums, condominium or PUD association dues, or comparable items, to reimburse
the Master Servicer out of related collections for any payments made pursuant to
Sections 3.1 hereof (with respect to taxes and assessments and insurance
premiums) and 3.9 hereof (with respect to hazard insurance), to refund to any
Mortgagors any sums determined to be overages, to pay interest, if required by
law or the terms of the related Mortgage or Mortgage Note, to Mortgagors on
balances in the Escrow Account or to clear and terminate the Escrow Account at
the termination of this Agreement in accordance with Section 9.1 hereof. The
Escrow Accounts shall not be a part of the Trust Fund.

     (c)  The Master Servicer shall advance any payments referred to in Section
3.6(a) that are not timely paid by the Mortgagors on the date when the tax,
premium or other cost for which such payment is intended is due, but the Master
Servicer shall be required so to advance only to the extent that such advances,
in the good faith judgment of the Master Servicer, will be recoverable by the
Master Servicer out of Insurance Proceeds, Liquidation Proceeds or otherwise.

     SECTION 3.7 Access to Certain Documentation and Information Regarding the
Mortgage Loans.

     The Master Servicer shall afford the Depositor and the Trustee reasonable
access to all records and documentation regarding the Mortgage Loans and all
accounts, insurance information and other matters relating to this Agreement,
such access being afforded without charge, but only upon reasonable request and
during normal business hours at the office designated by the Master Servicer.

                                     -47-
<PAGE>

     Upon reasonable advance notice in writing, the Master Servicer will provide
to each Certificateholder which is a savings and loan association, bank or
insurance company certain reports and reasonable access to information and
documentation regarding the Mortgage Loans sufficient to permit such
Certificateholder to comply with applicable regulations of the OTS or other
regulatory authorities with respect to investment in the Certificates; provided
that the Master Servicer shall be entitled to be reimbursed by each such
Certificateholder for actual expenses incurred by the Master Servicer in
providing such reports and access.

     SECTION 3.8 Permitted Withdrawals from the Certificate Account and
Distribution Account.

     (a)  The Master Servicer may from time to time make withdrawals from the
Certificate Account for the following purposes:

          (i)    to the extent not previously retained by the Master Servicer,
     to pay to First Horizon the Retained Yield and to pay to the Master
     Servicer the master servicing compensation to which it is entitled pursuant
     to Section 3.14, and earnings on or investment income with respect to funds
     in or credited to the Certificate Account as additional servicing
     compensation;

          (ii)   to the extent not previously retained by the Master Servicer,
     to reimburse the Master Servicer for unreimbursed Advances made by it, such
     right of reimbursement pursuant to this subclause (ii) being limited to
     amounts received on the Mortgage Loan(s) in respect of which any such
     Advance was made;

          (iii)  to reimburse the Master Servicer for any Nonrecoverable Advance
     previously made;

          (iv)   to reimburse the Master Servicer for Insured Expenses from the
     related Insurance Proceeds;

          (v)    to reimburse the Master Servicer for (a) unreimbursed Servicing
     Advances, the Master Servicer's right to reimbursement pursuant to this
     clause (a) with respect to any Mortgage Loan being limited to amounts
     received on such Mortgage Loan(s) which represent late recoveries of the
     payments for which such advances were made pursuant to Section 3.1 or
     Section 3.6 and (b) for unpaid Master Servicing Fees as provided in Section
     3.11 hereof;

          (vi)   to pay to the purchaser, with respect to each Mortgage Loan or
     property acquired in respect thereof that has been purchased pursuant to
     Section 2.2, 2.3 or 3.11, all amounts received thereon after the date of
     such purchase;

          (vii)  to reimburse the Seller, the Master Servicer or the Depositor
     for expenses incurred by any of them and reimbursable pursuant to Section
     6.3 hereof;

          (viii) to withdraw any amount deposited in the Certificate Account and
     not required to be deposited therein;

                                     -48-
<PAGE>

          (ix)   on or prior to the Distribution Account Deposit Date, to
     withdraw an amount equal to the related Available Funds and the Trustee Fee
     for such Distribution Date and remit such amount to the Trustee for deposit
     in the Distribution Account; and

          (x)    to clear and terminate the Certificate Account upon termination
     of this Agreement pursuant to Section 9.1 hereof.

     The Master Servicer shall keep and maintain separate accounting, on a
Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Certificate Account pursuant to such subclauses (i), (ii),
(iv), (v) and (vi). Prior to making any withdrawal from the Certificate Account
pursuant to subclause (iii), the Master Servicer shall deliver to the Trustee an
Officer's Certificate of a Servicing Officer indicating the amount of any
previous Advance determined by the Master Servicer to be a Nonrecoverable
Advance and identifying the related Mortgage Loans(s), and their respective
portions of such Nonrecoverable Advance.

     The Master Servicer shall distribute the Retained Yield, if any, to First
Horizon on each Distribution Account Deposit Date during the term of this
Agreement.

     (b)  The Trustee shall withdraw funds from the Distribution Account for
distributions to Certificateholders in the manner specified in this Agreement
(and to withhold from the amounts so withdrawn, the amount of any taxes that it
is authorized to withhold pursuant to the last paragraph of Section 8.11). In
addition, the Trustee may prior to making the distribution pursuant to Section
4.2 from time to time make withdrawals from the Distribution Account for the
following purposes:

          (i)    to pay to itself the Trustee Fee for the related Distribution
     Date;

          (ii)   to pay to itself earnings on or investment income with respect
     to funds in the Distribution Account;

          (iii)  to withdraw and return to the Master Servicer any amount
     deposited in the Distribution Account and not required to be deposited
     therein; and

          (iv)   to clear and terminate the Distribution Account upon
     termination of the Agreement pursuant to Section 9.1 hereof.

     SECTION 3.9  Maintenance of Hazard Insurance; Maintenance of Primary
Insurance Policies.

     (a)  The Master Servicer shall cause to be maintained, for each Mortgage
Loan, hazard insurance with extended coverage in an amount that is at least
equal to the lesser of (i) the maximum insurable value of the improvements
securing such Mortgage Loan or (ii) the greater of (y) the outstanding principal
balance of the Mortgage Loan and (z) an amount such that the proceeds of such
policy shall be sufficient to prevent the Mortgagor and/or the mortgagee from
becoming a co-insurer. Each such policy of standard hazard insurance shall
contain, or have an accompanying endorsement that contains, a standard mortgagee
clause. Any amounts collected by the Master Servicer under any such policies
(other than the amounts to be applied to the restoration or repair of the
related Mortgaged Property or amounts released to the Mortgagor in accordance
with the Master Servicer's

                                     -49-
<PAGE>

normal servicing procedures) shall be deposited in the Certificate Account. Any
cost incurred by the Master Servicer in maintaining any such insurance shall
not, for the purpose of calculating monthly distributions to the
Certificateholders or remittances to the Trustee for their benefit, be added to
the principal balance of the Mortgage Loan, notwithstanding that the terms of
the Mortgage Loan so permit. Such costs shall be recoverable by the Master
Servicer out of late payments by the related Mortgagor or out of Liquidation
Proceeds to the extent permitted by Section 3.8 hereof. It is understood and
agreed that no earthquake or other additional insurance is to be required of any
Mortgagor or maintained on property acquired in respect of a Mortgage other than
pursuant to such applicable laws and regulations as shall at any time be in
force and as shall require such additional insurance. If the Mortgaged Property
is located at the time of origination of the Mortgage Loan in a federally
designated special flood hazard area and such area is participating in the
national flood insurance program, the Master Servicer shall cause flood
insurance to be maintained with respect to such Mortgage Loan. Such flood
insurance shall be in an amount equal to the least of (i) the original principal
balance of the related Mortgage Loan, (ii) the replacement value of the
improvements which are part of such Mortgaged Property, and (iii) the maximum
amount of such insurance available for the related Mortgaged Property under the
national flood insurance program.

     (b)  In the event that the Master Servicer shall obtain and maintain a
blanket policy insuring against hazard losses on all of the Mortgage Loans, it
shall conclusively be deemed to have satisfied its obligations as set forth in
the first sentence of this Section, it being understood and agreed that such
policy may contain a deductible clause on terms substantially equivalent to
those commercially available and maintained by comparable servicers. If such
policy contains a deductible clause, the Master Servicer shall, in the event
that there shall not have been maintained on the related Mortgaged Property a
policy complying with the first sentence of this Section, and there shall have
been a loss that would have been covered by such policy, deposit in the
Certificate Account the amount not otherwise payable under the blanket policy
because of such deductible clause. In connection with its activities as Master
Servicer of the Mortgage Loans, the Master Servicer agrees to present, on behalf
of itself, the Depositor, and the Trustee for the benefit of the
Certificateholders, claims under any such blanket policy.

     (c)  The Master Servicer shall not take any action which would result in
non-coverage under any applicable Primary Insurance Policy of any loss which,
but for the actions of the Master Servicer, would have been covered thereunder.
The Master Servicer shall not cancel or refuse to renew any such Primary
Insurance Policy that is in effect at the date of the initial issuance of the
Certificates and is required to be kept in force hereunder unless the
replacement Primary Insurance Policy for such canceled or non-renewed policy is
maintained with a Qualified Insurer.

     The Master Servicer shall not be required to maintain any Primary Insurance
Policy (i) with respect to any Mortgage Loan with a Loan-to-Value Ratio less
than or equal to 80% as of any date of determination or, based on a new
appraisal, the principal balance of such Mortgage Loan represents 80% or less of
the new appraised value or (ii) if maintaining such Primary Insurance Policy is
prohibited by applicable law.

     The Master Servicer agrees to effect the timely payment of the premiums on
each Primary Insurance Policy, and such costs not otherwise recoverable shall be
recoverable by the Master Servicer from the related liquidation proceeds.

                                     -50-
<PAGE>

         (d)    In connection with its activities as Master Servicer of the
Mortgage Loans, the Master Servicer agrees to present on behalf of itself, the
Trustee and Certificateholders, claims to the insurer under any Primary
Insurance Policies and, in this regard, to take such reasonable action as shall
be necessary to permit recovery under any Primary Insurance Policies respecting
defaulted Mortgage Loans. Any amounts collected by the Master Servicer under any
Primary Insurance Policies shall be deposited in the Certificate Account.

         SECTION 3.10 Enforcement of Due-on-Sale Clauses; Assumption Agreements.

         (a)    Except as otherwise provided in this Section, when any property
subject to a Mortgage has been conveyed by the Mortgagor, the Master Servicer
shall to the extent that it has knowledge of such conveyance, enforce any
due-on-sale clause contained in any Mortgage Note or Mortgage, to the extent
permitted under applicable law and governmental regulations, but only to the
extent that such enforcement will not adversely affect or jeopardize coverage
under any Required Insurance Policy. Notwithstanding the foregoing, the Master
Servicer is not required to exercise such rights with respect to a Mortgage Loan
if the Person to whom the related Mortgaged Property has been conveyed or is
proposed to be conveyed satisfies the terms and conditions contained in the
Mortgage Note and Mortgage related thereto and the consent of the mortgagee
under such Mortgage Note or Mortgage is not otherwise so required under such
Mortgage Note or Mortgage as a condition to such transfer. In the event that the
Master Servicer is prohibited by law from enforcing any such due-on-sale clause,
or if coverage under any Required Insurance Policy would be adversely affected,
or if nonenforcement is otherwise permitted hereunder, the Master Servicer is
authorized, subject to Section 3.10(b), to take or enter into an assumption and
modification agreement from or with the person to whom such property has been or
is about to be conveyed, pursuant to which such person becomes liable under the
Mortgage Note and, unless prohibited by applicable state law, the Mortgagor
remains liable thereon, provided that the Mortgage Loan shall continue to be
covered (if so covered before the Master Servicer enters such agreement) by the
applicable Required Insurance Policies. The Master Servicer, subject to Section
3.10(b), is also authorized with the prior approval of the insurers under any
Required Insurance Policies to enter into a substitution of liability agreement
with such Person, pursuant to which the original Mortgagor is released from
liability and such Person is substituted as Mortgagor and becomes liable under
the Mortgage Note. Notwithstanding the foregoing, the Master Servicer shall not
be deemed to be in default under this Section by reason of any transfer or
assumption which the Master Servicer reasonably believes it is restricted by law
from preventing, for any reason whatsoever.

         (b)    Subject to the Master Servicer's duty to enforce any due-on-sale
a Mortgaged Property has been conveyed to a Person by a Mortgagor, and such
Person is to enter into an assumption agreement or modification agreement or
supplement to the Mortgage Note or Mortgage that requires the signature of the
Trustee, or if an instrument of release signed by the Trustee is required
releasing the Mortgagor from liability on the Mortgage Loan, the Master Servicer
shall prepare and deliver or cause to be prepared and delivered to the Trustee
for signature and shall direct, in writing, the Trustee to execute the
assumption agreement with the Person to whom the Mortgaged Property is to be
conveyed and such modification agreement or supplement to the Mortgage Note or
Mortgage or other instruments as are reasonable or necessary to carry out the
terms of the Mortgage Note or Mortgage or otherwise to comply with any
applicable laws regarding assumptions or the transfer of the Mortgaged Property
to such Person. In connection with any such assumption, no material term

                                      -51-
<PAGE>

of the Mortgage Note may be changed. In addition, the substitute Mortgagor and
the Mortgaged Property must be acceptable to the Master Servicer in accordance
with its underwriting standards as then in effect. Together with each such
substitution, assumption or other agreement or instrument delivered to the
Trustee for execution by it, the Master Servicer shall deliver an Officer's
Certificate signed by a Servicing Officer stating that the requirements of this
subsection have been met in connection therewith. The Master Servicer shall
notify the Trustee that any such substitution or assumption agreement has been
completed by forwarding to the Trustee the original of such substitution or
assumption agreement, which in the case of the original shall be added to the
related Mortgage File and shall, for all purposes, be considered a part of such
Mortgage File to the same extent as all other documents and instruments
constituting a part thereof. Any fee collected by the Master Servicer for
entering into an assumption or substitution of liability agreement will be
retained by the Master Servicer as additional servicing compensation.

         SECTION 3.11 Realization Upon Defaulted Mortgage Loans; Repurchase of
Certain Mortgage Loans.

         The Master Servicer shall use reasonable efforts to foreclose upon or
otherwise comparably convert the ownership of properties securing such of the
Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments. In
connection with such foreclosure or other conversion, the Master Servicer shall
follow such practices and procedures as it shall deem necessary or advisable and
as shall be normal and usual in its general mortgage servicing activities and
meet the requirements of the insurer under any Required Insurance Policy;
provided, however, that the Master Servicer shall not be required to expend its
own funds in connection with any foreclosure or towards the restoration of any
property unless it shall determine (i) that such restoration and/or foreclosure
will increase the proceeds of liquidation of the Mortgage Loan after
reimbursement to itself of such expenses and (ii) that such expenses will be
recoverable to it through Liquidation Proceeds (respecting which it shall have
priority for purposes of withdrawals from the Certificate Account). The Master
Servicer shall be responsible for all other costs and expenses incurred by it in
any such proceedings; provided, however, that it shall be entitled to
reimbursement thereof from the liquidation proceeds with respect to the related
Mortgaged Property, as provided in the definition of Liquidation Proceeds. If
the Master Servicer has knowledge that a Mortgaged Property which the Master
Servicer is contemplating acquiring in foreclosure or by deed in lieu of
foreclosure is located within a 1 mile radius of any site listed in the
Expenditure Plan for the Hazardous Substance Clean Up Bond Act of 1984 or other
site with environmental or hazardous waste risks known to the Master Servicer,
the Master Servicer will, prior to acquiring the Mortgaged Property, consider
such risks and only take action in accordance with its established environmental
review procedures.

         With respect to any REO Property, the deed or certificate of sale shall
be taken in the name of the Trustee for the benefit of the Certificateholders,
 or its nominee, on behalf of the Certificateholders. The Trustee's name shall
 be placed on the title to such REO Property solely as the Trustee hereunder and
 not in its individual capacity. The Master Servicer shall ensure that the title
 to such REO Property references the Pooling and Servicing Agreement and the
 Trustee's capacity thereunder. Pursuant to its efforts to sell such REO
 Property, the Master Servicer shall either itself or through an agent selected
 by the Master Servicer protect and conserve such REO Property in the same
 manner and to such extent as is customary in the locality where such REO
 Property is located and may, incident to its conservation and protection of the
 interests of the

                                      -52-
<PAGE>

Certificateholders, rent the same, or any part thereof, as the Master Servicer
deems to be in the best interest of the Certificateholders for the period prior
to the sale of such REO Property. The Master Servicer shall prepare for and
deliver to the Trustee a statement with respect to each REO Property that has
been rented showing the aggregate rental income received and all expenses
incurred in connection with the management and maintenance of such REO Property
at such times as is necessary to enable the Trustee to comply with the reporting
requirements of the REMIC Provisions. The net monthly rental income, if any,
from such REO Property shall be deposited in the Certificate Account no later
than the close of business on each Determination Date. The Master Servicer shall
perform the tax reporting and withholding required by Sections 1445 and 6050J of
the Code with respect to foreclosures and abandonments, the tax reporting
required by Section 6050H of the Code with respect to the receipt of mortgage
interest from individuals and any tax reporting required by Section 6050P of the
Code with respect to the cancellation of indebtedness by certain financial
entities, by preparing such tax and information returns as may be required, in
the form required, and delivering the same to the Trustee for filing.

         In the event that the Trust Fund acquires any Mortgaged Property as
aforesaid or otherwise in connection with a default or imminent default on a
Mortgage Loan, the Master Servicer shall dispose of such Mortgaged Property
prior to the close of the third taxable year after its acquisition by the Trust
Fund unless the Trustee shall have been supplied with an Opinion of Counsel to
the effect that the holding by the Trust Fund of such Mortgaged Property
subsequent to such three-year period will not result in the imposition of taxes
on "prohibited transactions" of the REMIC hereunder as defined in Section 860F
of the Code or cause the REMIC created hereunder to fail to qualify as a REMIC
at any time that any Certificates are outstanding, in which case the Trust Fund
may continue to hold such Mortgaged Property (subject to any conditions
contained in such Opinion of Counsel). Notwithstanding any other provision of
this Agreement, no Mortgaged Property acquired by the Trust Fund shall be rented
(or allowed to continue to be rented) or otherwise used for the production of
income by or on behalf of the Trust Fund in such a manner or pursuant to any
terms that would (i) cause such Mortgaged Property to fail to qualify as
"foreclosure property" within the meaning of Section 860G(a)(8) of the Code or
(ii) subject the REMIC hereunder to the imposition of any federal, state or
local income taxes on the income earned from such Mortgaged Property under
Section 860G(c) of the Code or otherwise, unless the Master Servicer has agreed
to indemnify and hold harmless the Trust Fund with respect to the imposition of
any such taxes.

         In the event of a default on a Mortgage Loan one or more of whose
obligor is not a United States Person, as that term is defined in Section
7701(a)(30) of the Code, in connection with any foreclosure or acquisition of a
deed in lieu of foreclosure (together, "foreclosure") in respect of such
Mortgage Loan, the Master Servicer will cause compliance with the provisions of
Treasury Regulation Section 1.1445-2(d)(3) (or any successor thereto) necessary
to assure that no withholding tax obligation arises with respect to the proceeds
of such foreclosure except to the extent, if any, that proceeds of such
foreclosure are required to be remitted to the obligors on such Mortgage Loan.

         The decision of the Master Servicer to foreclose on a defaulted
Mortgage Loan shall be subject to a determination by the Master Servicer that
the proceeds of such foreclosure would exceed the costs and expenses of bringing
such a proceeding. The income earned from the management of any REO Properties,
net of reimbursement to the Master Servicer for expenses incurred (including any
property or other taxes) in connection with such management and net of
unreimbursed Master Servicing Fees, Advances and Servicing Advances, shall be
applied to the payment of principal of

                                      -53-
<PAGE>

and interest on the related defaulted Mortgage Loans (with interest accruing
as though such Mortgage Loans were still current) and all such income shall be
deemed, for all purposes in this Agreement, to be payments on account of
principal and interest on the related Mortgage Notes and shall be deposited into
the Certificate Account. To the extent the net income received during any
calendar month is in excess of the amount attributable to amortizing principal
and accrued interest at the related Mortgage Rate on the related Mortgage Loan
for such calendar month, such excess shall be considered to be a partial
prepayment of principal of the related Mortgage Loan.

         The proceeds from any liquidation of a Mortgage Loan, as well as any
income from an REO Property, will be applied in the following order of priority:
first, to reimburse the Master Servicer for any related unreimbursed Servicing
Advances and Master Servicing Fees; second, to reimburse the Master Servicer for
any unreimbursed Advances; third, to reimburse the Certificate Account for any
Nonrecoverable Advances (or portions thereof) that were previously withdrawn by
the Master Servicer pursuant to Section 3.8(a)(iii) that related to such
Mortgage Loan; fourth, to accrued and unpaid interest (to the extent no Advance
has been made for such amount or any such Advance has been reimbursed) on the
Mortgage Loan or related REO Property, at the Adjusted Net Mortgage Rate to the
Due Date occurring in the month in which such amounts are required to be
distributed; and fifth, as a recovery of principal of the Mortgage Loan. Excess
Proceeds, if any, from the liquidation of a Liquidated Mortgage Loan will be
retained by the Master Servicer as additional servicing compensation pursuant to
Section 3.14.

         The Master Servicer, in its sole discretion, shall have the right to
purchase for its own account from the Trust Fund any Mortgage Loan which is 91
days or more delinquent at a price equal to the Purchase Price. The Purchase
Price for any Mortgage Loan purchased hereunder shall be deposited in the
Certificate Account and the Trustee, upon receipt of a certificate from the
Master Servicer in the form of Exhibit M hereto, shall release or cause to be
released to the purchaser of such Mortgage Loan the related Mortgage File and
shall execute and deliver such instruments of transfer or assignment prepared by
the purchaser of such Mortgage Loan, in each case without recourse, as shall be
necessary to vest in the purchaser of such Mortgage Loan any Mortgage Loan
released pursuant hereto and the purchaser of such Mortgage Loan shall succeed
to all the Trustee's right, title and interest in and to such Mortgage Loan and
all security and documents related thereto. Such assignment shall be an
assignment outright and not for security. The purchaser of such Mortgage Loan
shall thereupon own such Mortgage Loan, and all security and documents, free of
any further obligation to the Trustee or the Certificateholders with respect
thereto.

         SECTION 3.12 Trustee to Cooperate; Release of Mortgage Files.

         Upon the payment in full of any Mortgage Loan, or the receipt by the
Master Servicer of a notification that payment in full will be escrowed in a
manner customary for such purposes, the Master Servicer will immediately notify
the Trustee by delivering, or causing to be delivered a "Request for Release"
substantially in the form of Exhibit M. Upon receipt of such request, the
Trustee shall or shall cause the Custodian to promptly release the related
Mortgage File to the Master Servicer, and the Trustee shall at the Master
Servicer's direction execute and deliver to the Master Servicer the request for
reconveyance, deed of reconveyance or release or satisfaction of mortgage or
such instrument releasing the lien of the Mortgage in each case provided by the
Master Servicer, together with the Mortgage Note with written evidence of
cancellation thereon. Expenses incurred in connection with any instrument of
satisfaction or deed of reconveyance shall be chargeable to the

                                      -54-
<PAGE>

related Mortgagor. From time to time and as shall be appropriate for the
servicing or foreclosure of any Mortgage Loan, including for such purpose,
collection under any policy of flood insurance, any fidelity bond or errors or
omissions policy, or for the purposes of effecting a partial release of any
Mortgaged Property from the lien of the Mortgage or the making of any
corrections to the Mortgage Note or the Mortgage or any of the other documents
included in the Mortgage File, the Trustee shall, upon delivery to the Trustee
of a Request for Release in the form of Exhibit L signed by a Servicing Officer,
release the Mortgage File to the Master Servicer. Subject to the further
limitations set forth below, the Master Servicer shall cause the Mortgage File
or documents so released to be returned to the Trustee or its Custodian when the
need therefor by the Master Servicer no longer exists, unless the Mortgage Loan
is liquidated and the proceeds thereof are deposited in the Certificate Account,
in which case the Master Servicer shall deliver to the Trustee a Request for
Release in the form of Exhibit M, signed by a Servicing Officer.

         If the Master Servicer at any time seeks to initiate a foreclosure
proceeding in respect of any Mortgaged Property as authorized by this Agreement,
the Master Servicer shall deliver or cause to be delivered to the Trustee, for
signature, as appropriate, any court pleadings, requests for trustee's sale or
other documents necessary to effectuate such foreclosure or any legal action
brought to obtain judgment against the Mortgagor on the Mortgage Note or the
Mortgage or to obtain a deficiency judgment or to enforce any other remedies or
rights provided by the Mortgage Note or the Mortgage or otherwise available at
law or in equity.

         SECTION 3.13 Documents Records and Funds in Possession of Master
Servicer to be Held for the Trustee.

         Notwithstanding any other provisions of this Agreement, the Master
Servicer shall transmit to the Trustee as required by this Agreement all
documents and instruments in respect of a Mortgage Loan coming into the
possession of the Master Servicer from time to time and shall account fully to
the Trustee for any funds received by the Master Servicer or which otherwise are
collected by the Master Servicer as Liquidation Proceeds or Insurance Proceeds
in respect of any Mortgage Loan. All Mortgage Files and funds collected or held
by, or under the control of, the Master Servicer in respect of any Mortgage
Loans, whether from the collection of principal and interest payments or from
Liquidation Proceeds, including but not limited to, any funds on deposit in the
Certificate Account, shall be held by the Master Servicer for and on behalf of
the Trustee and shall be and remain the sole and exclusive property of the
Trustee, subject to the applicable provisions of this Agreement. The Master
Servicer also agrees that it shall not create, incur or subject any Mortgage
File or any funds that are deposited in the Certificate Account, Distribution
Account or any Escrow Account, or any funds that otherwise are or may become due
or payable to the Trustee for the benefit of the Certificateholders, to any
claim, lien, security interest, judgment, levy, writ of attachment or other
encumbrance, or assert by legal action or otherwise any claim or right of setoff
against any Mortgage File or any funds collected on, or in connection with, a
Mortgage Loan, except, however, that the Master Servicer shall be entitled to
set off against and deduct from any such funds any amounts that are properly due
and payable to the Master Servicer under this Agreement.

         SECTION 3.14 Master Servicing Compensation.

         As compensation for its activities hereunder, the Master Servicer shall
 be entitled to retain or withdraw from the Certificate Account an amount equal
 to the Master Servicing Fee for each

                                      -55-
<PAGE>

Mortgage Loan, provided that the aggregate Master Servicing Fee with respect to
any Distribution Date shall be reduced (i) by the amount of any Compensating
Interest paid by the Master Servicer with respect to such Distribution Date, and
(ii) with respect to the first Distribution Date, an amount equal to any amount
to be deposited into the Distribution Account by the Depositor pursuant to
Section 2.1(a) and not so deposited.

         Additional servicing compensation in the form of (i) Retained Yield,
Excess Proceeds, Prepayment Interest Excess and all income and gain net of any
losses realized from Permitted Investments and (ii) prepayment penalties,
assumption fees and late payment charges in each case under the circumstances
and in the manner set forth in the applicable Mortgage Note or Mortgage shall be
retained by the Master Servicer to the extent not required to be deposited in
the Certificate Account pursuant to Section 3.5 hereof; provided that in the
event the Master Servicer is terminated pursuant to Section 7.1, the Retained
Yield shall be payable to First Horizon Home Loan Corporation in its individual
capacity and shall not be payable to the Trustee or any successor to the Master
Servicer. The Master Servicer shall be required to pay all expenses incurred by
it in connection with its master servicing activities hereunder (including
payment of any premiums for hazard insurance and any Primary Insurance Policy
and maintenance of the other forms of insurance coverage required by this
Agreement) and shall not be entitled to reimbursement therefor except as
specifically provided in this Agreement.

         SECTION 3.15 Access to Certain Documentation.

         The Master Servicer shall provide to the OTS and the FDIC and to
comparable regulatory authorities supervising Holders of Subordinated
Certificates and the examiners and supervisory agents of the OTS, the FDIC and
such other authorities, access to the documentation regarding the Mortgage Loans
required by applicable regulations of the OTS and the FDIC. Such access shall be
afforded without charge, but only upon reasonable and prior written request and
during normal business hours at the offices designated by the Master Servicer.
Nothing in this Section shall limit the obligation of the Master Servicer to
observe any applicable law prohibiting disclosure of information regarding the
Mortgagors and the failure of the Master Servicer to provide access as provided
in this Section as a result of such obligation shall not constitute a breach of
this Section.

         SECTION 3.16 Annual Statement as to Compliance.

         The Master Servicer shall deliver to the Depositor and the Trustee on
or before 120 days after the end of the Master Servicer's fiscal year,
commencing with its 2001 fiscal year, an Officer's Certificate stating, as to
the signer thereof, that (i) a review of the activities of the Master Servicer
during the preceding calendar year and of the performance of the Master Servicer
under this Agreement has been made under such officer's supervision and (ii) to
the best of such officer's knowledge, based on such review, the Master Servicer
has fulfilled all its obligations under this Agreement throughout such year, or,
if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof. The Trustee shall forward a copy of each such statement to each Rating
Agency.

         SECTION 3.17 Annual Independent Public Accountants' Servicing
Statement; Financial Statements.

                                      -56-
<PAGE>

         On or before 120 days after the end of the Master Servicer's fiscal
year, commencing with its 2000 fiscal year, the Master Servicer at its expense
shall cause a nationally or regionally recognized firm of independent public
accountants (who may also render other services to the Master Servicer, the
Seller or any affiliate thereof) which is a member of the American Institute of
Certified Public Accountants to furnish a statement to the Trustee and the
Depositor to the effect that-such firm has examined certain documents and
records relating to the servicing of the Mortgage Loans under this Agreement or
of mortgage loans under pooling and servicing agreements substantially similar
to this Agreement (such statement to have attached thereto a schedule setting
forth the pooling and servicing agreements covered thereby) and that, on the
basis of such examination, conducted substantially in compliance with the
Uniform Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FNMA and FHLMC, such servicing has been conducted in
compliance with such pooling and servicing agreements except for such
significant exceptions or errors in records that, in the opinion of such firm,
the Uniform Single Attestation Program for Mortgage Bankers or the Audit Program
for Mortgages serviced for FNMA and FHLMC requires it to report. In rendering
such statement, such firm may rely, as to matters relating to direct servicing
of mortgage loans by Subservicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FNMA and FHLMC (rendered within one year of such statement) of independent
public accountants with respect to the related Subservicer. Copies of such
statement shall be provided by the Trustee to any Certificateholder upon request
at the Master Servicer's expense, provided such statement is delivered by the
Master Servicer to the Trustee.

         SECTION 3.18 Errors and Omissions Insurance; Fidelity Bonds.

         The Master Servicer shall for so long as it acts as master servicer
under this Agreement, obtain and maintain in force (a) a policy or policies of
insurance covering errors and omissions in the performance of its obligations as
Master Servicer hereunder and (b) a fidelity bond in respect of its officers,
employees and agents. Each such policy or policies and bond shall, together,
comply with the requirements from time to time of FNMA or FHLMC for persons
performing servicing for mortgage loans purchased by FNMA or FHLMC. In the event
that any such policy or bond ceases to be in effect, the Master Servicer shall
obtain a comparable replacement policy or bond from an insurer or issuer,
meeting the requirements set forth above as of the date of such replacement.

                                  ARTICLE IV
                               DISTRIBUTIONS AND
                        ADVANCES BY THE MASTER SERVICER

         SECTION 4.1 Advances.

         The Master Servicer shall determine on or before each Master Servicer
Advance Date whether it is required to make an Advance pursuant to the
 definition thereof. If the Master Servicer determines it is required to make an
 Advance, it shall, on or before the Master Servicer Advance Date, either (i)
 deposit into the Certificate Account an amount equal to the Advance or (ii)
 make an appropriate entry in its records relating to the Certificate Account
 that any Amount Held for Future Distribution has been used by the Master
 Servicer in discharge of its obligation to make any such Advance. Any funds so
 applied shall be replaced by the Master Servicer by deposit in the Certificate

                                      -57-
<PAGE>

Account no later than the close of business on the next Master Servicer Advance
Date. The Master Servicer shall be entitled to be reimbursed from the
Certificate Account for all Advances of its own funds made pursuant to this
Section as provided in Section 3.08. The obligation to make Advances with
respect to any Mortgage Loan shall continue if such Mortgage Loan has been
foreclosed or otherwise terminated and the related Mortgaged Property has not
been liquidated.

         The Master Servicer shall deliver to the Trustee on the related Master
Servicer Advance Date an Officer's Certificate of a Servicing Officer indicating
the amount of any proposed Advance determined by the Master Servicer to be a
Nonrecoverable Advance.

         SECTION 4.2 Priorities of Distribution.

         (a)  On each Distribution Date, the Trustee shall withdraw the
Available Funds from the Distribution Account and apply such funds to
distributions on the Certificates in the following order and priority and, in
each case, to the extent of Available Funds remaining:

                (i)     to the Classes of Senior Certificates, the Accrued
         Certificate Interest on each such class for such Distribution Date, any
         shortfall in available amounts being allocated among such Classes in
         proportion to the amount of Accrued Certificate Interest otherwise
         distributable thereon; provided, however, that on each Distribution
         Date through the Accretion Termination Date, such amounts with respect
         to the Accrual Certificates will not be distributed on such
         Certificates under this Section 4.2(a)(i) but will instead be added to
         the Class Certificate Balance thereof and distributed in accordance
         with Section 4.2(b)(i) below;

                  (ii)  to the Classes of Senior Certificates, any Accrued
         Certificate Interest thereon remaining undistributed from previous
         Distribution Dates, to the extent of remaining Available Funds, any
         shortfall in available amounts being allocated among such Classes in
         proportion to the amount of such Accrued Certificate Interest remaining
         undistributed for each such Class for such Distribution Date; provided,
         however, that on each Distribution Date through the Accretion
         Termination Date, such amounts with respect to the Accrual Certificates
         will not be distributed on such Certificates under this Section
         4.2(a)(ii) but will instead be added to the Class Certificate Balance
         thereof and distributed in accordance with Section 4.2(b)(i) below
         unless such amounts have already been added to the Class Certificate
         Balance of the Accrual Certificates, as provided in Section 4.2(a)(i)
         above;

                  (iii)  to the Classes of Senior Certificates entitled to
         principal distributions, in reduction of the Class Certificate Balances
         thereof, to the extent of remaining Available Funds, the Senior Optimal
         Principal Amount for such Distribution Date, in the order of priority
         set forth below in Section 4.2(b)(ii);

                  (iv)   to the Class B-1 Certificates, to the extent of
         remaining Available Funds, in the following order: (1) the Accrued
         Certificate Interest thereon for such Distribution Date, (2) any
         Accrued Certificate Interest thereon remaining undistributed from
         previous Distribution Dates and (3) such Class's Allocable Share for
         such Distribution Date;

                                      -58-
<PAGE>

         (v)    the Class B-2 Certificates, to the extent of remaining Available
Funds, in the following order: (1) the Accrued Certificate Interest thereon for
such Distribution Date, (2) any Accrued Certificate Interest thereon remaining
undistributed from previous Distribution Dates and (3) such Class's Allocable
Share for such Distribution Date;

         (vi)   the Class B-3 Certificates, to the extent of remaining Available
Funds, in the following order: (1) the Accrued Certificate Interest thereon for
such Distribution Date, (2) any Accrued Certificate Interest thereon remaining
undistributed from previous Distribution Dates and (3) such Class's Allocable
Share for such Distribution Date;

         (vii)  to the Class B-4 Certificates, to the extent of remaining
Available Funds: (1) the Accrued Certificate Interest thereon for such
Distribution Date, (2) any Accrued Certificate Interest thereon remaining
undistributed from previous Distribution Dates and (3) such Class's Allocable
Share for such Distribution Date;

         (viii) to the Class B-5 Certificates, to the extent of remaining
Available Funds: (1) the Accrued Certificate Interest thereon for such
Distribution Date, (2) any Accrued Certificate Interest thereon remaining
undistributed from previous Distribution Dates and (3) such Class's Allocable
Share for such Distribution Date; and

         (ix)   to the Class B-6 Certificates, to the extent of remaining
 Available Funds: (1) the Accrued Certificate Interest thereon for such
 Distribution Date, (2) any Accrued Certificate Interest thereon remaining
 undistributed from previous Distribution Dates and (3) such Class's Allocable
 Share for such Distribution Date.

 (b) (i) On each Distribution Date, before distributions are made pursuant to
 the following paragraph, an amount equal to the Accrual Amount for the Class
 A-2 Certificates will be distributed as principal pro-rata to the Accretion
 Directed Certificates until the respective Class Certificate Balances of such
 Certificates have been reduced to zero.

         (ii) Amounts allocated to the Senior Certificates pursuant to Section
 4.2(a)(iii) above will be distributed in the following order of priority:

                  (1)    to the Class A-3 Certificates, in an amount equal to
                  the Class A-3 Principal Distribution Amount for such
                  Distribution Date, until the Class Certificate Balance thereof
                  has been reduced to zero; and

                  (2)    to the remaining Classes of Senior Certificates, an
                  amount equal to the Senior Optimal Principal Amount less the
                  Class A-3 Principal Distribution Amount, in the following
                  order:

                         first, to the Class A-R Certificates until the Class
                         Certificate Balance thereof has been reduced to zero;

                         second, concurrently, to the Class A-1, Class A-4 and
                         Class A-5 Certificates pro-rata until the respective
                         Class Certificate Balances have been reduced to zero;
                         and

                                      -59-
<PAGE>

         third,to the Class A-2 Certificates until the Class Certificate Balance
         thereof has been reduced to zero.

         On each Distribution Date prior to the Accretion Termination Date, the
Accrual Amount for the Accrual Certificates will be added to the Class
Certificate Balance thereof.

         On each Distribution Date after the Cross-Over Date, distributions of
principal on the outstanding Senior Certificates entitled to principal
distributions will be made pro rata among all such Certificates, regardless of
the allocation, or sequential nature, of principal payments described above.

         (c)    On each Distribution Date, the Trustee shall distribute to the
Holders of the Class A-R Certificates any Available Funds remaining in the REMIC
for such Distribution Date after application of all amounts described in clauses
(a) and (b) of this Section 4.2 on such Distribution Date. Any distributions
pursuant to this subsection (c) shall not reduce the Class Certificate Balance
of the Class A-R Certificates.

         (d)    If on any Distribution Date the Class Certificate Balances of
the Subordinated Certificates have each been reduced to zero, the amount
distributable to the Senior Certificates pursuant to Section 4.2(a)(iii) for
such Distribution Date and each succeeding Distribution Date shall be allocated
among such Classes of Senior Certificates, pro rata, on the basis of their
respective Class Certificate Balances immediately prior to such Distribution
Date, regardless of the priorities and amounts set forth in Section 4.2(a)(iii).

         (e)    If on any Distribution Date (i) the Class Certificate Balance of
any Class of Class B Certificates (other than the Class of Subordinated
Certificates with the highest priority of distribution) for which the related
Class Prepayment Distribution Trigger was satisfied on such Distribution Date is
reduced to zero and (ii) amounts distributable to such Class of Class B
Certificates pursuant to clauses (2), (3) and (5) of the Subordinated Optimal
Principal Amount remain undistributed on such Distribution Date after all
amounts otherwise distributable on such date pursuant to clauses (iv) through
(ix) of Section 4.2(a) have been distributed, such amounts shall be distributed
on such Distribution Date to the remaining Classes of Subordinated Certificates
in order of priority, such that no such distribution shall be made to any Class
of Certificates while a prior such Class is outstanding.

         (f)    In the event that in any calendar month the Master Servicer
recovers an amount (an "Unanticipated Recovery") in respect of principal of a
Mortgage Loan which had previously been allocated as a Realized Loss to any
Class of Certificates pursuant to Section 4.4, on the Distribution Date in the
next succeeding calendar month the Trustee shall withdraw from the Distribution
Account and distribute to the Holders of each outstanding Class to which such
Realized Loss had previously been allocated its share (determined as described
in the succeeding paragraph) of such Unanticipated Recovery in an amount not to
exceed the amount of such Realized Loss previously allocated to such Class. When
the Class Certificate Balance of a Class of Certificates has been reduced to
zero, the Holders of such Class shall not be entitled to any share of an
Unanticipated Recovery, and such Unanticipated Recovery shall be allocated among
all outstanding Classes of Certificates entitled thereto in accordance with the
preceding sentence, subject to the remainder of this subsection (f). In the
event that (i) any Unanticipated Recovery remains undistributed in

                                      -60-
<PAGE>

accordance with the preceding sentence or (ii) the amount of an Unanticipated
Recovery exceeds the amount of the Realized Loss previously allocated to any
outstanding Classes with respect to the related Mortgage Loan, on the applicable
Distribution Date the Trustee shall distribute to the Holders of all outstanding
Classes of the related Certificates to which Realized Losses had previously been
allocated and not reimbursed their pro rata share (determined as described
below) of such excess in an amount not to exceed the aggregate amount of any
Realized Loss previously allocated to such Class with respect to any other
Mortgage Loan that has not been recovered in accordance with this subsection
(f). Any distributions made pursuant to this subsection (f) shall not reduce the
Class Certificate Balance of the related Certificate.

         For purposes of the preceding paragraph, the share of an Unanticipated
Recovery allocable to any Class of Certificates with respect to a Mortgage Loan
shall be based on its pro rata share (in proportion to the Class Certificate
Balances thereof with respect to such Distribution Date) of the principal
portion of any such Realized Loss previously allocated with respect to such
Mortgage Loan (or Loans).

         SECTION 4.3 Method of Distribution.

         (a)    All distributions with respect to each Class of Certificates on
each Distribution Date shall be made pro rata among the outstanding Certificates
of such Class, based on the Percentage Interest in such Class represented by
each Certificate. Payments to the Certificateholders on each Distribution Date
will be made by the Trustee to the Certificateholders of record on the related
Record Date by check or money order mailed to a Certificateholder at the address
appearing in the Certificate Register, or upon written request by such
Certificateholder to the Trustee made not later than the applicable Record Date,
by wire transfer to a U.S. depository institution acceptable to the Trustee, or
by such other means of payment as such Certificateholder and the Trustee shall
agree.

         (b)    Each distribution with respect to a Book-Entry Certificate shall
be paid to the Depository, which shall credit the amount of such distribution to
the accounts of its Depository Participants in accordance with its normal
procedures. Each Depository Participant shall be responsible for disbursing such
distribution to the Certificate Owners that it represents and to each financial
intermediary for which it acts as agent. Each such financial intermediary shall
be responsible for disbursing funds to the Certificate Owners that it
represents. All such credits and disbursements with respect to a Book-Entry
Certificate are to be made by the Depository and the Depository Participants in
accordance with the provisions of the applicable Certificates. Neither the
Trustee nor the Master Servicer shall have any responsibility therefor except as
otherwise provided by applicable law.

         (c)    The Trustee shall withhold or cause to be withheld such amounts
as it reasonably determines are required by the Code (giving full effect to any
exemptions from withholding and related certifications required to be furnished
by Certificateholders or Certificate Owners and any reductions to withholding by
virtue of any bilateral tax treaties and any applicable certification required
to be furnished by Certificateholders or Certificate Owners with respect
thereto) from distributions to be made to Non-U.S. Persons. If the Trustee
reasonably determines that a more accurate determination of the amount required
to be withheld for a distribution can be made within a reasonable period after
the scheduled date for such distribution, it may hold such distribution in trust
for a Holder of a Residual Certificate until such determination can be made. For
the purposes

                                      -61-
<PAGE>

of this paragraph, a "Non-U.S. Person" is (i) an individual other than a citizen
or resident of the United States, (ii) a partnership, corporation or entity
treated as a partnership or corporation for U.S. federal income tax purposes not
formed under the laws of the United States, any state thereof or the District of
Columbia (unless, in the case of a partnership, Treasury regulations provide
otherwise), (iii) any estate, the income of which is not subject to U.S. federal
income taxation, regardless of source, and (iv) any trust, other than a trust
that a court within the United States is able to exercise primary supervision
over the administration of the trust and one or more U.S. Persons have the
authority to control all substantial decisions of the trust.

         SECTION 4.4 Allocation of Losses.

         (a)    On or prior to each Determination Date, the Master Servicer
shall determine the amount of any Realized Loss in respect of each Mortgage Loan
that occurred during the immediately preceding calendar month.

         (b)    With respect to any Distribution Date, the principal portion of
each Realized Loss (other than any Excess Loss) shall be allocated in the
following order of priority:

                first, to the Class B-6 Certificates until the Class Certificate
         Balance thereof has been reduced to zero;

                second, to the Class B-5 Certificates until the Class
         Certificate Balance thereof has been reduced to zero;

                third, to the Class B-4 Certificates until the Class Certificate
         Balance thereof has been reduced to zero;

                fourth, to the Class B-3 Certificates until the Class
         Certificate Balance thereof has been reduced to zero;

                fifth, to the Class B-2 Certificates until the Class Certificate
         Balance thereof has been reduced to zero;

                sixth, to the Class B-1 Certificates until the Class Certificate
         Balance thereof has been reduced to zero;

                seventh, to the Classes of Senior Certificates, pro rata, in
         accordance with their Class Certificate Balances; provided, that any
         such loss allocated to the Accrual Certificates shall be allocated on
         the basis of the lesser of (x) the Class Certificate Balance thereof
         immediately prior to the applicable Distribution Date and (y) the Class
         Certificate Balance thereof on the Closing Date (as reduced by any
         Realized Losses previously allocated thereto).

         (c)    With respect to any Distribution Date, the principal portion of
any Excess Loss (other than Excess Bankruptcy Losses attributable to Debt
Service Reductions) shall be allocated to each Class of Certificates, pro rata,
based on the respective Class Certificate Balances thereof; provided, that any
such loss allocated to the Accrual Certificates shall be allocated on the basis
of the lesser of (x) the Class Certificate Balance thereof immediately prior to
the applicable Distribution Date and

                                      -62-
<PAGE>

(y) the Class Certificate Balance thereof on the Closing Date (as reduced by any
Realized Losses previously allocated thereto).

         (d)    Any Realized Losses allocated to a Class of Certificates
pursuant to Section 4.4(b) or (c) shall be allocated among the Certificates of
such Class in proportion to their respective Certificate Principal Balances. Any
allocation of Realized Losses pursuant to this paragraph (d) shall be
accomplished by reducing the Certificate Principal Balances of the related
Certificates on the related Distribution Date in accordance with Section 4.4(e).

         (e)    Realized Losses allocated in accordance with this Section 4.4
shall be allocated on the Distribution Date in the month following the month in
which such loss was incurred and (i) in the case of the principal portion
thereof, after giving effect to distributions made on such Distribution Date,
and (ii) in the case of the interest portion thereof, after giving effect to the
calculation of the Accrual Amount for the Class A-3 Certificates for such
Distribution Date.

         (f)    On each Distribution Date, the Master Servicer shall determine
the Subordinated Certificate Writedown Amount, if any. Any such Subordinated
Certificate Writedown Amount shall effect, without duplication of any other
provision in this Section 4.4 that provides for a reduction in the Class
Certificate Balance of the Subordinated Certificates, a corresponding reduction
in the Class Certificate Balance of the Subordinated Certificates, which
reduction shall occur on such Distribution Date after giving effect to
distributions made on such Distribution Date.

         (g)    Notwithstanding the foregoing, no such allocation of any
Realized Loss shall be made on a Distribution Date to a Class of Certificates to
the extent that such allocation would result in the reduction of the aggregate
Certificate Principal Balances of all the Certificates as of such Distribution
Date, after giving effect to all distributions and prior allocations of Realized
Losses on such date, to an amount less than the aggregate Scheduled Principal
Balance of the Mortgage Loans as of the first day of the month of such
Distribution Date, less any Deficient Valuations occurring on or prior to the
Bankruptcy Coverage Termination Date (such limitation, the "Loss Allocation
Limitation").

         SECTION 4.5 [Reserved.]

         SECTION 4.6 Monthly Statements to Certificateholders.

         (a)    Not later than each Distribution Date, the Trustee shall prepare
and cause to be forwarded by first class mail to each Certificateholder, the
Master Servicer, the Depositor and each Rating Agency a statement setting forth
with respect to the related distribution and may post such statement on its
website located at www.mbsreporting.com:

                (i)    the amount thereof allocable to principal, separately
         identifying the aggregate amount of any Principal Prepayments and
         Liquidation Proceeds included therein;

                (ii)   the amount thereof allocable to interest, the amount of
         any Compensating Interest included in such distribution and any
         remaining Net Interest Shortfalls after giving effect to such
         distribution;

                                      -63-
<PAGE>

                (iii)  if the distribution to the Holders of such Class of
         Certificates is less than the full amount that would be distributable
         to such Holders if there were sufficient funds available therefor, the
         amount of the shortfall and the allocation thereof as between principal
         and interest;

                (iv)   the Class Certificate Balance of each Class of
         Certificates after giving effect to the distribution of principal on
         such Distribution Date;

                (v)    the Pool Principal Balance for the following Distribution
         Date;

                (vi)   the Senior Percentage and Subordinated Percentage for the
         following Distribution Date;

                (vii)  the amount of the Master Servicing Fees paid to or
         retained by the Master Servicer with respect to such Distribution Date;

                (viii) the Pass-Through Rate for each such Class of Certificates
         with respect to such Distribution Date;

                (ix)   the amount of Advances included in the distribution on
         such Distribution Date and the aggregate amount of Advances outstanding
         as of the close of business on such Distribution Date; (x) the number
         and aggregate principal amounts of Mortgage Loans (A) delinquent
         (exclusive of Mortgage Loans in foreclosure) (1) 1 to 30 days (2) 31 to
         60 days (3) 61 to 90 days and (4) 91 or more days and (B) in
         foreclosure and delinquent (1) 1 to 30 days (2) 31 to 60 days (3) 61 to
         90 days and (4) 91 or more days, as of the close of business on the
         last day of the calendar month preceding such Distribution Date;

                (xi)   with respect to any Mortgage Loan that became an REO
         Property during the preceding calendar month, the loan number and
         Stated Principal Balance of such Mortgage Loan as of the close of
         business on the Determination Date preceding such Distribution Date and
         the date of acquisition thereof;

                (xii)  the total number and principal balance of any REO
         Properties (and market value, if available) as of the close of business
         on the Determination Date preceding such Distribution Date;

                (xiii) the Senior Prepayment Percentage for the following
         Distribution Date;

                (xiv)  the aggregate amount of Realized Losses incurred during
         the preceding calendar month;

                (xv)   the cumulative amount of Realized Losses applied in
         reduction of the principal balance of each class of Certificates since
         the Closing Date;

                                      -64-
<PAGE>

                (xvi)  the Special Hazard Loss Coverage Amount, the Fraud Loss
         Coverage Amount and the Bankruptcy Loss Coverage Amount, in each case
         as of the related Determination Date; and

                (xvii) with respect to the second Distribution Date, the number
         and aggregate balance of any Delay Delivery Mortgage Loans not
         delivered within thirty days after the Closing Date;

         (b)    The Trustee's responsibility for disbursing the above
information to the Certificateholders is limited to the availability, timeliness
and accuracy of the information provided by the Master Servicer.

         (c)    On or before the fifth Business Day following the end of each
Prepayment Period (but in no event later than the third Business Day prior to
the related Distribution Date), the Master Servicer shall deliver to the Trustee
(which delivery may be by electronic data transmission) a report in
substantially the form set forth as Schedule IV hereto.

         (d)    Within a reasonable period of time after the end of each
calendar year, the Trustee shall cause to be furnished to each Person who at any
time during the calendar year was a Certificateholder, a statement containing
the information set forth in clauses (a)(i), (a)(ii) and (a)(vii) of this
Section 4.6 aggregated for such calendar year or applicable portion thereof
during which such Person was a Certificateholder. Such obligation of the Trustee
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Trustee pursuant to any
requirements of the Code as from time to time in effect.

                                   ARTICLE V
                               THE CERTIFICATES

         SECTION 5.1 The Certificates.

         The Certificates shall be substantially in the forms attached hereto as
exhibits. The Certificates shall be issuable in registered form, in the minimum
denominations, integral multiples in excess thereof (except that one Certificate
in each Class may be issued in a different amount which must be in excess of the
applicable minimum denomination) and aggregate denominations per Class set forth
in the Preliminary Statement.

         Subject to Section 9.2 hereof respecting the final distribution on the
Certificates, on each Distribution Date the Trustee shall make distributions to
each Certificateholder of record on the preceding Record Date either (x) by wire
transfer in immediately available funds to the account of such Holder at a bank
or other entity having appropriate facilities therefor, if (i) such Holder has
so notified the Trustee at least five Business Days prior to the related Record
Date and (ii) such Holder shall hold (A) 100% of the Class Certificate Balance
of any Class of Certificates or (B) Certificates of any Class with aggregate
principal Denominations of not less than $1,000,000 or (y) by check mailed by
first class mail to such Certificateholder at the address of such Holder
appearing in the Certificate Register.

                                      -65-
<PAGE>

         The Certificates shall be executed by manual or facsimile signature on
behalf of the Trustee by an authorized officer. Certificates bearing the manual
or facsimile signatures of individuals who were, at the time when such
signatures were affixed, authorized to sign on behalf of the Trustee shall bind
the Trustee, notwithstanding that such individuals or any of them have ceased to
be so authorized prior to the countersignature and delivery of such Certificates
or did not hold such offices at the date of such Certificate. No Certificate
shall be entitled to any benefit under this Agreement, or be valid for any
purpose, unless countersigned by the Trustee by manual signature, and such
countersignature upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly executed and delivered hereunder.
All Certificates shall be dated the date of their countersignature. On the
Closing Date, the Trustee shall countersign the Certificates to be issued at the
direction of the Depositor, or any affiliate thereof.

         The Depositor shall provide, or cause to be provided, to the Trustee on
a continuous basis, an adequate inventory of Certificates to facilitate
transfers.

         SECTION 5.2 Certificate Register; Registration of Transfer and Exchange
of Certificates.

         (a)    The Trustee shall maintain, or cause to be maintained in
accordance with the provisions of Section 5.6 hereof, a Certificate Register for
the Trust Fund in which, subject to the provisions of subsections (b) and (c)
below and to such reasonable regulations as it may prescribe, the Trustee shall
provide for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided. Upon surrender for registration of transfer of
any Certificate, the Trustee shall execute and deliver, in the name of the
designated transferee or transferees, one or more new Certificates of the same
Class and aggregate Percentage Interest.

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

         No service charge to the Certificateholders shall be made for any
registration of transfer or exchange of Certificates, but payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates may be required.

         All Certificates surrendered for registration of transfer or exchange
shall be cancelled and subsequently destroyed by the Trustee in accordance with
the Trustee's customary procedures.

         (b)    No transfer of a Private Certificate shall be made unless such
transfer is made pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws or is exempt from the
registration requirements under said Act and such state securities laws. In the
event that a transfer is to be made in reliance upon an exemption from the
Securities Act and such laws, in order to assure compliance with the Securities
Act and such laws, the Certificateholder desiring to effect such transfer and
such Certificateholder's prospective

                                      -66-
<PAGE>

transferee shall each certify to the Trustee in writing the facts surrounding
the transfer in substantially the forms set forth in Exhibit I (the "Transferor
Certificate") and (i) deliver a letter in substantially the form of either
Exhibit J (the "Investment Letter") or Exhibit K (the "Rule 144A Letter") or
(ii) there shall be delivered to the Trustee at the expense of the transferor an
Opinion of Counsel that such transfer may be made pursuant to an exemption from
the Securities Act. The Depositor shall provide to any Holder of a Private
Certificate and any prospective transferee designated by any such Holder,
information regarding the related Certificates and the Mortgage Loans and such
other information as shall be necessary to satisfy the condition to eligibility
set forth in Rule 144A(d)(4) for transfer of any such Certificate without
registration thereof under the Securities Act pursuant to the registration
exemption provided by Rule 144A. The Trustee and the Master Servicer shall
cooperate with the Depositor in providing the Rule 144A information referenced
in the preceding sentence, including providing to the Depositor such information
regarding the Certificates, the Mortgage Loans and other matters regarding the
Trust Fund as the Depositor shall reasonably request to meet its obligation
under the preceding sentence. Each Holder of a Private Certificate desiring to
effect such transfer shall, and does hereby agree to, indemnify the Trustee and
the Purchaser, the Depositor, the Seller and the Master Servicer against any
liability that may result if the transfer is not so exempt or is not made in
accordance with such federal and state laws.

         No transfer of an ERISA-Restricted Certificate shall be made unless the
Trustee shall have received either (i) a representation from the transferee of
such Certificate acceptable to and in form and substance satisfactory to the
Trustee (in the event such Certificate is a Private Certificate, such
requirement is satisfied only by the Trustee's receipt of a representation
letter from the transferee substantially in the form of Exhibit J or Exhibit K),
to the effect that such transferee is not an employee benefit plan or
arrangement subject to Section 406 of ERISA or a plan or arrangement subject to
Section 4975 of the Code, nor a person acting on behalf of any such plan or
arrangement, nor using the assets of any such plan or arrangement to effect such
transfer, (ii) in the case of a Private Certificate or a Residual Certificate,
if the purchaser is an insurance company, a representation that the purchaser is
an insurance company which is purchasing such Certificates with funds contained
in an "insurance company general account" (as such term is defined in Section
V(e) of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")) and that
the purchase and holding of such Certificates are covered under PTCE 95-60 or
(iii) in the case of any such ERISA-Restricted Certificate presented for
registration in the name of an employee benefit plan subject to ERISA, or a plan
or arrangement subject to Section 4975 of the Code (or comparable provisions of
any subsequent enactments), or a trustee of any such plan or any other person
acting on behalf of any such plan or arrangement, or using such plan's or
arrangement's assets, an Opinion of Counsel satisfactory to the Trustee, which
Opinion of Counsel shall not be an expense of either the Trustee or the Trust
Fund, addressed to the Trustee to the effect that the purchase or holding of
such ERISA-Restricted Certificate will not result in the assets of the Trust
Fund being deemed to be "plan assets" and subject to the prohibited transaction
provisions of ERISA and the Code and will not subject the Trustee to any
obligation in addition to those expressly undertaken in this Agreement or to any
liability. Notwithstanding anything else to the contrary herein, any purported
transfer of an ERISA-Restricted Certificate to or on behalf of an employee
benefit plan subject to ERISA or to the Code without the delivery to the Trustee
of an Opinion of Counsel satisfactory to the Trustee as described above shall be
void and of no effect.

                                      -67-
<PAGE>

         To the extent permitted under applicable law (including, but not
limited to, ERISA), the Trustee shall be under no liability to any Person for
any registration of transfer of any ERISA-Restricted Certificate that is in fact
not permitted by this Section 5.2(b) or for making any payments due on such
Certificate to the Holder thereof or taking any other action with respect to
such Holder under the provisions of this Agreement so long as the transfer was
registered by the Trustee in accordance with the foregoing requirements.

         (c)    Each Person who has or who acquires any Ownership Interest in a
Residual Certificate shall be deemed by the acceptance or acquisition of such
Ownership Interest to have agreed to be bound by the following provisions, and
the rights of each Person acquiring any Ownership Interest in a Residual
Certificate are expressly subject to the following provisions:

                (i)    Each Person holding or acquiring any Ownership Interest
         in a Residual Certificate shall be a Permitted Transferee and shall
         promptly notify the Trustee of any change or impending change in its
         status as a Permitted Transferee.

                (ii)   No Ownership Interest in a Residual Certificate may be
         registered on the Closing Date or thereafter transferred, and the
         Trustee shall not register the Transfer of any Residual Certificate
         unless, in addition to the certificates required to be delivered to the
         Trustee under subparagraph (b) above, the Trustee shall have been
         furnished with an affidavit (a "Transfer Affidavit") of the initial
         owner or the proposed transferee in the form attached hereto as Exhibit
         H.

                 (iii) Each Person holding or acquiring any Ownership Interest
         in a Residual Certificate shall agree (A) to obtain a Transfer
         Affidavit from any other Person to whom such Person attempts to
         Transfer its Ownership Interest in a Residual Certificate, (B) to
         obtain a Transfer Affidavit from any Person for whom such Person is
         acting as nominee, trustee or agent in connection with any Transfer of
         a Residual Certificate and (C) not to Transfer its Ownership Interest
         in a Residual Certificate or to cause the Transfer of an Ownership
         Interest in a Residual Certificate to any other Person if it has actual
         knowledge that such Person is not a Permitted Transferee.

                 (iv)  Any attempted or purported Transfer of any Ownership
         Interest in a Residual Certificate in violation of the provisions of
         this Section 5.2(c) shall be absolutely null and void and shall vest no
         rights in the purported Transferee. If any purported transferee shall
         become a Holder of a Residual Certificate in violation of the
         provisions of this Section 5.2(c), then the last preceding Permitted
         Transferee shall be restored to all rights as Holder thereof
         retroactive to the date of registration of Transfer of such Residual
         Certificate. The Trustee shall be under no liability to any Person for
         any registration of Transfer of a Residual Certificate that is in fact
         not permitted by Section 5.2(b) and this Section 5.2(c) or for making
         any payments due on such Certificate to the Holder thereof or taking
         any other action with respect to such Holder under the provisions of
         this Agreement so long as the Transfer was registered after receipt of
         the related Transfer Affidavit, Transferor Certificate and either the
         Rule 144A Letter or the Investment Letter. The Trustee shall be
         entitled but not obligated to recover from any Holder of a Residual
         Certificate that was in fact not a Permitted Transferee at the time it
         became a Holder or, at such subsequent time as it became other than a
         Permitted Transferee, all payments made on such Residual Certificate at
         and after either such

                                      -68-
<PAGE>

         time. Any such payments so recovered by the Trustee shall be paid and
         delivered by the Trustee to the last preceding Permitted Transferee of
         such Certificate.

               (v)    The Depositor shall use its best efforts to make
         available, upon receipt of written request from the Trustee, all
         information necessary to compute any tax imposed under Section 860E(e)
         of the Code as a result of a Transfer of an Ownership Interest in a
         Residual Certificate to any Holder who is not a Permitted Transferee.

         The restrictions on Transfers of a Residual Certificate set forth in
this Section 5.2(c) shall cease to apply (and the applicable portions of the
legend on a Residual Certificate may be deleted) with respect to Transfers
occurring after delivery to the Trustee of an Opinion of Counsel, which Opinion
of Counsel shall not be an expense of the Trust Fund, the Trustee, the
Purchaser, the Seller or the Master Servicer, to the effect that the elimination
of such restrictions will not cause the REMIC created hereunder to fail to
qualify as a REMIC at any time that the Certificates are outstanding or result
in the imposition of any tax on the Trust Fund, a Certificateholder or another
Person. Each Person holding or acquiring any Ownership Interest in a Residual
Certificate hereby consents to any amendment of this Agreement which, based on
an Opinion of Counsel furnished to the Trustee, is reasonably necessary (a) to
ensure that the record ownership of, or any beneficial interest in, a Residual
Certificate is not transferred, directly or indirectly, to a Person that is not
a Permitted Transferee and (b) to provide for a means to compel the Transfer of
a Residual Certificate which is held by a Person that is not a Permitted
Transferee to a Holder that is a Permitted Transferee.

         (d)   The preparation and delivery of all certificates and opinions
referred to above in this Section 5.2 in connection with transfer shall be at
the expense of the parties to such transfers.

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

         All transfers by Certificate Owners of Book-Entry Certificates shall be
made in accordance with the procedures established by the Depository Participant
or brokerage firm representing such Certificate Owner. Each Depository
Participant shall only transfer Book-Entry Certificates of

                                      -69-
<PAGE>

Certificate Owners it represents or of brokerage firms for which it acts as
agent in accordance with the Depository's normal procedures.

         If (x) (i) the Depository or the Depositor advises the Trustee in
writing that the Depository is no longer willing or able to properly discharge
its responsibilities as Depository, and (ii) the Trustee or the Depositor is
unable to locate a qualified successor, (y) the Depositor at its option advises
the Trustee in writing that it elects to terminate the book-entry system through
the Depository or (z) after the occurrence of an Event of Default, Certificate
Owners representing at least 51% of the Class Certificate Balance of the
Book-Entry Certificates together advise the Trustee and the Depository through
the Depository Participants in writing that the continuation of a book-entry
system through the Depository is no longer in the best interests of the
Certificate Owners, the Trustee shall notify all Certificate Owners, through the
Depository, of the occurrence of any such event and of the availability of
definitive, fully-registered Certificates (the "Definitive Certificates") to
Certificate Owners requesting the same. Upon surrender to the Trustee of the
related Class of Certificates by the Depository, accompanied by the instructions
from the Depository for registration, the Trustee shall issue the Definitive
Certificates. Neither the Master Servicer, the Depositor nor the Trustee shall
be liable for any delay in delivery of such instruction and each may
conclusively rely on, and shall be protected in relying on, such instructions.
The Master Servicer shall provide the Trustee with an adequate inventory of
certificates to facilitate the issuance and transfer of Definitive Certificates.
Upon the issuance of Definitive Certificates all references herein to
obligations imposed upon or to be performed by the Depository shall be deemed to
be imposed upon and performed by the Trustee, to the extent applicable with
respect to such Definitive Certificates and the Trustee shall recognize the
Holders of the Definitive Certificates as Certificateholders hereunder; provided
that the Trustee shall not by virtue of its assumption of such obligations
become liable to any party for any act or failure to act of the Depository.

         SECTION 5.3 Mutilated, Destroyed, Lost or Stolen Certificates.

         If (a) any mutilated Certificate is surrendered to the Trustee, or the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Certificate and (b) there is delivered to the Master Servicer and the
Trustee such security or indemnity as may be required by them to save each of
them harmless, then, in the absence of notice to the Trustee that such
Certificate has been acquired by a bona fide purchaser, the Trustee shall
execute, countersign and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
Class, tenor and Percentage Interest. In connection with the issuance of any new
Certificate under this Section 5.3, the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Trustee) connected therewith. Any replacement Certificate issued pursuant to
this Section 5.3 shall constitute complete and indefeasible evidence of
ownership, as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.

          SECTION 5.4 Persons Deemed Owners.

          The Master Servicer, the Trustee and any agent of the Master Servicer
or the Trustee may treat the Person in whose name any Certificate is registered
as the owner of such Certificate for the purpose of receiving distributions as
provided in this Agreement and for all other purposes

                                      -70-
<PAGE>

whatsoever, and neither the Master Servicer, the Trustee nor any agent of
the Master Servicer or the Trustee shall be affected by any notice to the
contrary.

         SECTION 5.5 Access to List of Certificateholders' Names and Addresses.

         If three or more Certificateholders (a) request such information in
writing from the Trustee, (b) state that such Certificateholders desire to
communicate with other Certificateholders with respect to their rights under
this Agreement or under the Certificates, and (c) provide a copy of the
communication which such Certificateholders propose to transmit, or if the
Depositor or Master Servicer shall request such information in writing from the
Trustee, then the Trustee shall, within ten Business Days after the receipt of
such request, provide the Depositor, the Master Servicer or such
Certificateholders at such recipients' expense the most recent list of the
Certificateholders of such Trust Fund held by the Trustee, if any. The Depositor
and every Certificateholder, by receiving and holding a Certificate, agree that
the Trustee shall not be held accountable by reason of the disclosure of any
such information as to the list of the Certificateholders hereunder, regardless
of the source from which such information was derived.

         SECTION 5.6 Maintenance of Office or Agency.

         The Trustee will maintain or cause to be maintained at its expense an
office or offices or agency or agencies in New York City where Certificates may
be surrendered for registration of transfer or exchange. The Trustee initially
designates its Corporate Trust Office for such purposes. The Trustee will give
prompt written notice to the Certificateholders of any change in such location
of any such office or agency.

                                  ARTICLE VI
                     THE DEPOSITOR AND THE MASTER SERVICER

         SECTION 6.1 Respective Liabilities of the Depositor and the Master
Servicer.

         The Depositor and the Master Servicer shall each be liable in
accordance herewith only to the extent of the obligations specifically and
respectively imposed upon and undertaken by them herein.

         SECTION 6.2 Merger or Consolidation of the Depositor or the Master
Servicer.

         The Depositor and the Master Servicer will each keep in full effect its
existence, rights and franchises as a corporation under the laws of the United
States or under the laws of one of the states thereof and will each obtain and
preserve its qualification to do business as a foreign corporation in each
jurisdiction in which such qualification is or shall be necessary to protect the
validity and enforceability of this Agreement, or any of the Mortgage Loans and
to perform its respective duties under this Agreement.

         Any Person into which the Depositor or the Master Servicer may be
merged or consolidated, or any Person resulting from any merger or consolidation
to which the Depositor or the Master Servicer shall be a party, or any person
succeeding to the business of the Depositor or the Master Servicer, shall be the
successor of the Depositor or the Master Servicer, as the case may be,

                                      -71-
<PAGE>

hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, however, that the successor or surviving Person to
the Master Servicer shall be qualified to sell mortgage loans to, and to service
mortgage loans on behalf of, FNMA or FHLMC.

         SECTION 6.3 Limitation on Liability of the Purchaser, the Depositor,
the Seller, the Master Servicer and Others.

         None of the Purchaser, the Depositor, the Seller, the Master Servicer
or any of the directors, officers, employees or agents of the Purchaser, the
Depositor, the Seller or the Master Servicer shall be under any liability to the
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Purchaser, the
Depositor, the Seller, the Master Servicer or any such Person against any breach
of representations or warranties made by it herein or protect the Purchaser, the
Depositor, the Seller, the Master Servicer or any such Person from any liability
which would otherwise be imposed by reasons of willful misfeasance, bad faith or
gross negligence in the performance of duties or by reason of reckless disregard
of obligations and duties hereunder. The Purchaser, the Depositor, the Seller,
the Master Servicer and any director, officer, employee or agent of the
Purchaser, the Depositor, the Seller or the Master Servicer may rely in good
faith on any document of any kind prima facie properly executed and submitted by
any Person respecting any matters arising hereunder. The Purchaser, the
Depositor, the Seller, the Master Servicer and any director, officer, employee
or agent of the Purchaser, the Depositor, the Seller or the Master Servicer
shall be indemnified by the Trust Fund and held harmless against any loss,
liability or expense incurred in connection with any audit, controversy or
judicial proceeding relating to a governmental taxing authority or any legal
action relating to this Agreement or the Certificates, other than any loss,
liability or expense related to any specific Mortgage Loan or Mortgage Loans
(except as any such loss, liability or expense shall be otherwise reimbursable
pursuant to this Agreement) and any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or gross negligence in the performance
of duties hereunder or by reason of reckless disregard of obligations and duties
hereunder. None of the Purchaser, the Depositor, the Seller or the Master
Servicer shall be under any obligation to appear in, prosecute or defend any
legal action that is not incidental to its respective duties hereunder and which
in its opinion may involve it in any expense or liability; provided, however,
that any of the Purchaser, the Depositor, the Seller or the Master Servicer may
in its discretion undertake any such action that it may deem necessary or
desirable in respect of this Agreement and the rights and duties of the parties
hereto and interests of the Trustee and the Certificateholders hereunder. In
such event, the legal expenses and costs of such action and any liability
resulting therefrom shall be expenses, costs and liabilities of the Trust Fund,
and the Purchaser, the Depositor, the Seller and the Master Servicer shall be
entitled to be reimbursed therefor out of the Certificate Account.

         SECTION 6.4 Limitation on Resignation of Master Servicer.

         The Master Servicer shall not resign from the obligations and duties
hereby imposed on it except (a) upon appointment of a successor servicer and
receipt by the Trustee of a letter from each Rating Agency that such a
resignation and appointment will not result in a downgrading of the rating of
any of the Certificates, or (b) upon determination that its duties hereunder are
no longer permissible under applicable law. Any such determination under clause
(b) permitting the resignation

                                      -72-
<PAGE>

of the Master Servicer shall be evidenced by an Opinion of Counsel to such
effect delivered to the Trustee. No such resignation shall become effective
until the Trustee or a successor master servicer shall have assumed the Master
Servicer's responsibilities, duties, liabilities and obligations hereunder.

                                  ARTICLE VII
                                    DEFAULT

         SECTION 7.1 Events of Default.

         "Event of Default," wherever used herein, means any one of the
following events:

                  (i)   any failure by the Master Servicer to deposit in the
         Certificate Account or remit to the Trustee any payment required to be
         made under the terms of this Agreement, which failure shall continue
         unremedied for five days after the date upon which written notice of
         such failure shall have been given to the Master Servicer by the
         Trustee or the Depositor or to the Master Servicer and the Trustee by
         the Holders of Certificates having not less than 25% of the Voting
         Rights evidenced by the Certificates; or

                  (ii)  any failure by the Master Servicer to observe or perform
         in any material respect any other of the covenants or agreements on the
         part of the Master Servicer contained in this Agreement, which failure
         materially affects the rights of Certificateholders, which failure
         continues unremedied for a period of 60 days after the date on which
         written notice of such failure shall have been given to the Master
         Servicer by the Trustee or the Depositor, or to the Master Servicer and
         the Trustee by the Holders of Certificates evidencing not less than 25%
         of the Voting Rights evidenced by the Certificates; provided, however,
         that the 60-day cure period shall not apply to the initial delivery of
         the Mortgage File for Delay Delivery Mortgage Loans nor the failure to
         substitute or repurchase in lieu thereof; or

                  (iii) a decree or order of a court or agency or supervisory
         authority having jurisdiction in the premises for the appointment of a
         receiver or liquidator in any insolvency, readjustment of debt,
         marshalling of assets and liabilities or similar proceedings, or for
         the winding-up or liquidation of its affairs, shall have been entered
         against the Master Servicer and such decree or order shall have
         remained in force undischarged or unstayed for a period of 60
         consecutive days; or

                  (iv)  the Master Servicer shall consent to the appointment of
         a receiver or liquidator in any insolvency, readjustment of debt,
         marshalling of assets and liabilities or similar proceedings of or
         relating to the Master Servicer or all or substantially all of the
         property of the Master Servicer; or

                  (v)   the Master Servicer shall admit in writing its inability
         to pay its debts generally as they become due, file a petition to take
         advantage of, or commence a voluntary case under, any applicable
         insolvency or reorganization statute, make an assignment for the
         benefit of its creditors, or voluntarily suspend payment of its
         obligations.

                                      -73-
<PAGE>

         If an Event of Default described in clauses (i) to (v) of this Section
shall occur, then, and in each and every such case, so long as such Event of
Default shall not have been remedied, the Trustee may, or at the direction of
the Holders of Certificates evidencing not less than 66 2/3% of the Voting
Rights evidenced by the Certificates, the Trustee shall by notice in writing to
the Master Servicer (with a copy to each Rating Agency), terminate all of the
rights and obligations of the Master Servicer under this Agreement and in and to
the Mortgage Loans and the proceeds thereof, other than its rights as a
Certificateholder hereunder. On and after the receipt by the Master Servicer of
such written notice, all authority and power of the Master Servicer hereunder,
whether with respect to the Mortgage Loans or otherwise, shall pass to and be
vested in the Trustee. The Trustee, in its capacity as successor to the Master
Servicer, shall thereupon make any Advance which the Master Servicer failed to
make subject to Section 4.1 hereof. The Trustee is hereby authorized and
empowered to execute and deliver, on behalf of the Master Servicer, as
attorney-in-fact or otherwise, any and all documents and other instruments, and
to do or accomplish all other acts or things necessary or appropriate to effect
the purposes of such notice of termination, whether to complete the transfer and
endorsement or assignment of the Mortgage Loans and related documents, or
otherwise. Unless expressly provided in such written notice, no such termination
shall affect any obligation of the Master Servicer to pay amounts owed pursuant
to Article VIII. The Master Servicer agrees to cooperate with the Trustee in
effecting the termination of the Master Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to the Trustee of all
cash amounts which shall at the time be credited to the Certificate Account, or
thereafter be received with respect to the Mortgage Loans. All expenses incurred
in the transferring of the servicing duties from the Master Servicer to a
Successor Servicer shall be paid by the Master Servicer, and if not paid by the
Master Servicer, shall be paid from amounts on deposit in the Certificate
Account.

         Notwithstanding any termination of the activities of the Master
Servicer hereunder, the Master Servicer shall be entitled to receive, out of any
late collection of a Scheduled Payment on a Mortgage Loan which was due prior to
the notice terminating such Master Servicer's rights and obligations as Master
Servicer hereunder and received after such notice, that portion thereof to which
such Master Servicer would have been entitled pursuant to Sections 3.8(a)(i)
through (viii),and any other amounts payable to such Master Servicer hereunder
the entitlement to which arose prior to the termination of its activities
hereunder.

         SECTION 7.2 Trustee to Act; Appointment of Successor.

         On and after the time the Master Servicer receives a notice of
termination pursuant to Section 7.1 hereof, the Trustee shall, subject to and to
the extent provided in Section 3.4, be the successor to the Master Servicer in
its capacity as master servicer under this Agreement and the transactions set
forth or provided for herein and shall be subject to all the responsibilities,
duties and liabilities relating thereto placed on the Master Servicer by the
terms and provisions hereof and applicable law including the obligation to make
Advances pursuant to Section 4.1. As compensation therefor, the Trustee shall be
entitled to all funds relating to the Mortgage Loans that the Master Servicer
would have been entitled to charge to the Certificate Account or Distribution
Account if the Master Servicer had continued to act hereunder. Notwithstanding
the foregoing, if the Trustee has become the successor to the Master Servicer in
accordance with Section 7.1 hereof, the Trustee may, if it shall be unwilling to
so act, or shall, if it is prohibited by applicable law from making Advances
pursuant to Section 4.1 hereof or if it is otherwise unable to so act, appoint,
or petition a court of competent jurisdiction to appoint, any established
mortgage loan servicing institution the appointment of which

                                      -74-
<PAGE>

does not adversely affect the then current rating of the Certificates by each
Rating Agency as the successor to the Master Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Master Servicer hereunder. Any successor to the Master Servicer shall be an
institution which is a FNMA and FHLMC approved seller/servicer in good standing,
which has a net worth of at least $10,000,000, and which is willing to service
the Mortgage Loans and executes and delivers to the Depositor and the Trustee an
agreement accepting such delegation and assignment, which contains an assumption
by such Person of the rights, powers, duties, responsibilities, obligations and
liabilities of the Master Servicer (other than liabilities of the Master
Servicer under Section 6.3 hereof incurred prior to termination of the Master
Servicer under Section 7.1), with like effect as if originally named as a party
to this Agreement; and provided further that each Rating Agency acknowledges
that its rating of the Certificates in effect immediately prior to such
assignment and delegation will not be qualified or reduced, as a result of such
assignment and delegation. Pending appointment of a successor to the Master
Servicer hereunder, the Trustee, unless the Trustee is prohibited by law from so
acting, shall, subject to Section 3.4 hereof, act in such capacity as provided
above. In connection with such appointment and assumption, the Trustee may make
such arrangements for the compensation of such successor out of payments on
Mortgage Loans as it and such successor shall agree; provided, however, that no
such compensation shall be in excess of the Master Servicing Fee permitted the
Master Servicer hereunder. The Trustee and such successor shall take such
action, consistent with this Agreement, as shall be necessary to effectuate any
such succession. Neither the Trustee nor any other successor master servicer
shall be deemed to be in default hereunder by reason of any failure to make, or
any delay in making, any distribution hereunder or any portion thereof or any
failure to perform, or any delay in performing, any duties or responsibilities
hereunder, in either case caused by the failure of the Master Servicer to
deliver or provide, or any delay in delivering or providing, any cash,
information, documents or records to it.

         Any successor to the Master Servicer as master servicer shall give
notice to the Mortgagors of such change of servicer and shall, during the term
of its service as master servicer maintain in force the policy or policies that
the Master Servicer is required to maintain pursuant to Section 6.5.

         SECTION 7.3 Notification to Certificateholders.

         (a) Upon any termination of or appointment of a successor to the Master
Servicer, the Trustee shall give prompt written notice thereof to
Certificateholders and to each Rating Agency.

         (b) Within 60 days after the occurrence of any Event of Default, the
Trustee shall transmit by mail to all Certificateholders notice of each such
Event of Default hereunder known to the Trustee, unless such Event of Default
shall have been cured or waived.

                                 ARTICLE VIII
                            CONCERNING THE TRUSTEE

         SECTION 8.1 Duties of Trustee.

         The Trustee, prior to the occurrence of an Event of Default of which a
Responsible Officer of the Trustee has actual knowledge and after the curing of
all Events of Default that may have occurred, shall undertake to perform such
duties and only such duties as are specifically set forth in this Agreement. In
case an Event of Default of which a Responsible Officer of the Trustee has
actual

                                      -75-
<PAGE>

knowledge has occurred and remains uncured, the Trustee shall exercise such of
the rights and powers vested in it by this Agreement, and use the same degree of
care and skill in their exercise as a prudent person would exercise or use under
the circumstances in the conduct of such person's own affairs.

         The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee that are specifically required to be furnished pursuant to any provision
of this Agreement shall examine them to determine whether they are in the form
required by this Agreement; provided, however, that the Trustee shall not be
responsible for the accuracy or content of any such resolution, certificate,
statement, opinion, report, document, order or other instrument. If any such
instrument is found not to conform in any material respect to the requirements
of this Agreement, the Trustee shall notify the Certificateholders of such
instrument in the event that the Trustee, after so requesting, does not receive
a satisfactorily corrected instrument.

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

                  (i)   unless an Event of Default of which a Responsible
         Officer of the Trustee has actual knowledge shall have occurred and be
         continuing, the duties and obligations of the Trustee shall be
         determined solely by the express provisions of this Agreement, the
         Trustee shall not be liable except for the performance of such duties
         and obligations as are specifically set forth in this Agreement, no
         implied covenants or obligations shall be read into this Agreement
         against the Trustee and the Trustee may conclusively rely, as to the
         truth of the statements and the correctness of the opinions expressed
         therein, upon any certificates or opinions furnished to the Trustee and
         conforming to the requirements of this Agreement which it believed in
         good faith to be genuine and to have been duly executed by the proper
         authorities respecting any matters arising hereunder;

                  (ii)  the Trustee shall not be liable for an error of judgment
         made in good faith by a Responsible Officer or Responsible Officers of
         the Trustee, unless it shall be finally proven that the Trustee was
         negligent in ascertaining the pertinent facts;

                  (iii) the Trustee shall not be liable with respect to any
         action taken, suffered or omitted to be taken by it in good faith in
         accordance with the direction of Holders of Certificates evidencing not
         less than 25% of the Voting Rights of Certificates relating to the
         time, method and place of conducting any proceeding for any remedy
         available to the Trustee, or exercising any trust or power conferred
         upon the Trustee under this Agreement;

                  (iv)  the Trustee shall not be required to expend or risk its
         own funds or otherwise incur financial liability in the performance of
         any of its duties hereunder or the exercise of any of its rights or
         powers if there is reasonable ground for believing that the repayment
         of such funds or adequate indemnity against such risk or liability is
         not assured to it, and none of the provisions contained in this
         Agreement shall in any event require the Trustee to perform, or be
         responsible for the manner of performance of, any of the obligations of
         the Master Servicer under this Agreement except during such time, if
         any, as the Trustee shall

                                      -76-
<PAGE>

         be the successor to, and be vested with the rights, duties, powers and
         privileges of, the Master Servicer; and

                  (v)   without limiting the generality of this Section 8.1, the
         Trustee shall have no duty (A) to see to any recording, filing, or
         depositing of this Agreement or any agreement referred to herein or any
         financing statement or continuation statement evidencing a security
         interest, or to see to the maintenance of any such recording or filing
         or deposit or to any rerecording, refiling or redepositing of any
         thereof, (B) to see to any insurance, (C) to see to the payment or
         discharge of any tax, assessment, or other governmental charge or any
         lien or encumbrance of any kind owing with respect to, assessed or
         levied against, any part of the Trust Fund other than from funds
         available in the Distribution Account (D) to confirm or verify the
         contents of any reports or certificates of the Servicer delivered to
         the Trustee pursuant to this Agreement believed by the Trustee to be
         genuine and to have been signed or presented by the proper party or
         parties.

         SECTION 8.2 Certain Matters Affecting the Trustee.

         Except as otherwise provided in Section 8.1:

                  (i)   the Trustee may request and rely upon and shall be
         protected in acting or refraining from acting upon any resolution,
         Officers' Certificate, certificate of auditors or any other
         certificate, statement, instrument, opinion, report, notice, request,
         consent, order, appraisal, bond or other paper or document believed by
         it to be genuine and to have been signed or presented by the proper
         party or parties and the Trustee shall have no responsibility to
         ascertain or confirm the genuineness of any signature of any such party
         or parties;

                  (ii)  the Trustee may consult with counsel, financial advisers
         or accountants and the advice of any such counsel, financial advisers
         or accountants and any Opinion of Counsel shall be full and complete
         authorization and protection in respect of any action taken or suffered
         or omitted by it hereunder in good faith and in accordance with such
         Opinion of Counsel;

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

                  (iv)  the Trustee shall not be bound to make any investigation
         into the facts or matters stated in any resolution, certificate,
         statement, instrument, opinion, report, notice, request, consent,
         order, approval, bond or other paper or document, unless requested in
         writing so to do by Holders of Certificates evidencing not less than
         25% of the Voting Rights allocated to each Class of Certificates;
         provided, however, that if the payment within a reasonable time to the
         Trustee of the costs, expenses or liabilities likely to be incurred by
         it in the making of such investigation is, in the opinion of the
         Trustee, not assured to the Trustee by the security afforded to it by
         the terms of this Agreement, the Trustee may require indemnity
         satisfactory to the Trustee against such cost, expense or liability as
         a condition to taking any such action. The reasonable expense of every
         such examination shall be paid by

                                      -77-
<PAGE>

         the Master Servicer or, if paid by the Trustee, shall be repaid by the
         Master Servicer upon demand from the Servicer's own funds.

                  (v)   the Trustee may execute any of the trusts or powers
         hereunder or perform any duties hereunder either directly or by or
         through agents, accountants or attorneys and the Trustee shall not be
         responsible for any misconduct or negligence on the part of such agent,
         accountant or attorney appointed by the Trustee with due care;

                  (vi)  the Trustee shall not be required to risk or expend its
         own funds or otherwise incur any financial liability in the performance
         of any of its duties or in the exercise of any of its rights or powers
         hereunder if it shall have reasonable grounds for believing that
         repayment of such funds or adequate indemnity against such risk or
         liability is not assured to it;

                  (vii) the Trustee shall not be liable for any loss on any
         investment of funds pursuant to this Agreement (other than as issuer of
         the investment security);

                  (viii) the Trustee shall not be deemed to have knowledge of an
         Event of Default until a Responsible Officer of the Trustee shall have
         received written notice thereof and in the absence of such notice, the
         Trustee may conclusively assume that there is no Event of Default;

                  (ix)  the Trustee shall be under no obligation to exercise any
         of the trusts, rights or powers vested in it by this Agreement or to
         institute, conduct or defend any litigation hereunder or in relation
         hereto at the request, order or direction of any of the
         Certificateholders, pursuant to the provisions of this Agreement,
         unless such Certificateholders shall have offered to the Trustee
         reasonable security or indemnity satisfactory to the Trustee against
         the costs, expenses and liabilities which may be incurred therein or
         thereby;

                  (x)   the right of the Trustee to perform any discretionary
         act enumerated in this Agreement shall not be construed as a duty, and
         the Trustee shall not be answerable for other than its negligence or
         willful misconduct in the performance of such act; and

                  (xi)  the Trustee shall not be required to give any bond or
         surety in respect of the execution of the Trust Fund created hereby or
         the powers granted hereunder.

         SECTION 8.3 Trustee Not Liable for Certificates or Mortgage Loans.

         The recitals contained herein and in the Certificates shall be taken as
the statements of the Depositor or the Seller, as the case may be, and the
Trustee assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Agreement or of the
Certificates or of any Mortgage Loan or related document other than with respect
to the Trustee's execution and counter-signature of the Certificates. The
Trustee shall not be accountable for the use or application by the Depositor or
the Master Servicer of any funds paid to the Depositor

                                      -78-
<PAGE>

or the Master Servicer in respect of the Mortgage Loans or deposited in or
withdrawn from the Certificate Account by the Depositor or the Master Servicer.

         SECTION 8.4 Trustee May Own Certificates.

         The Trustee in its individual or any other capacity may become the
owner or pledgee of Certificates with the same rights as it would have if it
were not the Trustee.

         SECTION 8.5 Trustee's Fees and Expenses.

         The Trustee, as compensation for its activities prior to making the
distributions pursuant to Section 4.2 hereunder, shall be entitled to withdraw
from the Distribution Account on each Distribution Date an amount equal to the
Trustee Fee for such Distribution Date. The Trustee and any director, officer,
employee or agent of the Trustee shall be indemnified by the Master Servicer and
held harmless against any loss, liability or expense (including reasonable
attorney's fees) (i) incurred in connection with any claim or legal action
relating to (a) this Agreement, (b) the Certificates or (c) in connection with
the performance of any of the Trustee's duties hereunder, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of any of the Trustee's duties hereunder or
incurred by reason of any action of the Trustee taken at the direction of the
Certificateholders and (ii) resulting from any error in any tax or information
return prepared by the Master Servicer. Such indemnity shall survive the
termination of this Agreement or the resignation or removal of the Trustee
hereunder. Without limiting the foregoing, the Master Servicer covenants and
agrees, except as otherwise agreed upon in writing by the Depositor and the
Trustee, and except for any such expense, disbursement or advance as may arise
from the Trustee's negligence, bad faith or willful misconduct, to pay or
reimburse the Trustee, for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any of the provisions of this
Agreement with respect to: (A) the reasonable compensation and the expenses and
disbursements of its counsel not associated with the closing of the issuance of
the Certificates, (B) the reasonable compensation, expenses and disbursements of
any accountant, engineer or appraiser that is not regularly employed by the
Trustee, to the extent that the Trustee must engage such persons to perform acts
or services hereunder and (C) printing and engraving expenses in connection with
preparing any Definitive Certificates. Except as otherwise provided herein, the
Trustee shall not be entitled to payment or reimbursement for any routine
ongoing expenses incurred by the Trustee in the ordinary course of its duties as
Trustee, Registrar, Tax Matters Person or Paying Agent hereunder or for any
other expenses.

         SECTION 8.6 Eligibility Requirements for Trustee.

         The Trustee hereunder shall at all times be a corporation or
association organized and doing business under the laws of a state or the United
States of America, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000, subject
to super-vision or examination by federal or state authority and with a credit
rating which would not cause either of the Rating Agencies to reduce their
respective then current ratings of the Certificates (or having provided such
security from time to time as is sufficient to avoid such reduction). If such
corporation or association publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 8.6 the combined capital and
surplus of such corporation or association

                                      -79-
<PAGE>

shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section 8.6, the
Trustee shall resign immediately in the manner and with the effect specified in
Section 8.7 hereof. The entity serving as Trustee may have normal banking and
trust relationships with the Depositor and its affiliates or the Master Servicer
and its affiliates; provided, however, that such entity cannot be an affiliate
of the Master Servicer other than the Trustee in its role as successor to the
Master Servicer.

         SECTION 8.7 Resignation and Removal of Trustee.

         The Trustee may at any time resign and be discharged from the trusts
hereby created by giving written notice of resignation to the Depositor and the
Master Servicer and each Rating Agency not less than 60 days before the date
specified in such notice when, subject to Section 8.8, such resignation is to
take effect, and acceptance by a successor trustee in accordance with Section
8.8 meeting the qualifications set forth in Section 8.6. If no successor trustee
meeting such qualifications shall have been so appointed and have accepted
appointment within 30 days after the giving of such notice or resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee.

         If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 8.6 hereof and shall fail to resign after written
request thereto by the Depositor, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged as bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, or a tax
is imposed with respect to the Trust Fund by any state in which the Trustee or
the Trust Fund is located and the imposition of such tax would be avoided by the
appointment of a different trustee, then the Depositor or the Master Servicer
may remove the Trustee and appoint a successor trustee by written instrument, in
triplicate, one copy of which instrument shall be delivered to the Trustee, one
copy of which shall be delivered to the Master Servicer and one copy to the
successor trustee.

         The Holders of Certificates entitled to at least 51% of the Voting
Rights may at any time remove the Trustee and appoint a successor trustee by
written instrument or instruments, in triplicate, signed by such Holders or
their attorneys-in-fact duly authorized, one complete set of which instruments
shall be delivered by the successor Trustee to the Master Servicer, one complete
set to the Trustee so removed and one complete set to the successor so
appointed. Notice of any removal of the Trustee shall be given to each Rating
Agency by the Successor Trustee.

         Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 8.7 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 8.8 hereof.

         SECTION 8.8 Successor Trustee.

         Any successor trustee appointed as provided in Section 8.7 hereof shall
execute, acknowledge and deliver to the Depositor and to its predecessor trustee
and the Master Servicer an instrument accepting such appointment hereunder and
thereupon the resignation or removal of the predecessor

                                      -80-
<PAGE>

trustee shall become effective and such successor trustee, without any further
act, deed or conveyance, shall become fully vested with all the rights, powers,
duties and obligations of its predecessor hereunder, with the like effect as if
originally named as trustee herein. The Depositor, the Master Servicer and the
predecessor trustee shall execute and deliver such instruments and do such other
things as may reasonably be required for more fully and certainly vesting and
confirming in the successor trustee all such rights, powers, duties, and
obligations.

         No successor trustee shall accept appointment as provided in this
Section 8.8 unless at the time of such acceptance such successor trustee shall
be eligible under the provisions of Section 8.6 hereof and its appointment shall
not adversely affect the then current rating of the Certificates.

         Upon acceptance of appointment by a successor trustee as provided in
this Section 8.8, the Depositor shall mail notice of the succession of such
trustee hereunder to all Holders of Certificates. If the Depositor fails to mail
such notice within 10 days after acceptance of appointment by the successor
trustee, the successor trustee shall cause such notice to be mailed at the
expense of the Depositor.

         SECTION 8.9 Merger or Consolidation of Trustee.

         Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the business of the Trustee, shall be the successor of
the Trustee hereunder, provided that such corporation shall be eligible under
the provisions of Section 8.6 hereof without the execution or filing of any
paper or further act on the part of any of the parties hereto, anything herein
to the contrary notwithstanding.

         SECTION 8.10 Appointment of Co-Trustee or Separate Trustee.

         Notwithstanding any other provisions of this Agreement, at any time,
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust Fund or property securing any Mortgage Note may at the
time be located, the Master Servicer and the Trustee acting jointly shall have
the power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Trustee to act as co-trustee or co-trustees jointly with
the Trustee, or separate trustee or separate trustees, of all or any part of the
Trust Fund, and to vest in such Person or Persons, in such capacity and for the
benefit of the Certificateholders, such title to the Trust Fund or any part
thereof, whichever is applicable, and, subject to the other provisions of this
Section 8.10, such powers, duties, obligations, rights and trusts as the Master
Servicer and the Trustee may consider necessary or desirable. If the Master
Servicer shall not have joined in such appointment within 15 days after the
receipt by it of a request to do so, or in the case an Event of Default shall
have occurred and be continuing, the Trustee alone shall have the power to make
such appointment. No co-trustee or separate trustee hereunder shall be required
to meet the terms of eligibility as a successor trustee under Section 8.6 and no
notice to Certificateholders of the appointment of any co-trustee or separate
trustee shall be required under Section 8.8.

         Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:

                                      -81-
<PAGE>

                  (i)   To the extent necessary to effectuate the purposes of
         this Section 8.10, all rights, powers, duties and obligations conferred
         or imposed upon the Trustee shall be conferred or imposed upon and
         exercised or performed by the Trustee and such separate trustee or co-
         trustee jointly (it being understood that such separate trustee or co-
         trustee is not authorized to act separately without the Trustee joining
         in such act), except to the extent that under any law of any
         jurisdiction in which any particular act or acts are to be performed
         (whether as Trustee hereunder or as successor to the Master Servicer
         hereunder), the Trustee shall be incompetent or unqualified to perform
         such act or acts, in which event such rights, powers, duties and
         obligations (including the holding of title to the applicable Trust
         Fund or any portion thereof in any such jurisdiction) shall be
         exercised and performed singly by such separate trustee or co-trustee,
         but solely at the direction of the Trustee;

                  (ii)  No trustee hereunder shall be held personally liable by
         reason of any act or omission of any other trustee hereunder and such
         appointment shall not, and shall not be deemed to, constitute any such
         separate trustee or co-trustee as agent of the Trustee;

                  (iii) The Trustee may at any time accept the resignation of or
         remove any separate trustee or co-trustee; and

                  (iv)  The Master Servicer, and not the Trustee, shall be
         liable for the payment of reasonable compensation, reimbursement and
         indemnification to any such separate trustee or co-trustee.

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

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

         SECTION 8.11 Tax Matters.

         It is intended that the assets with respect to which the REMIC election
is to be made, as set forth in the preliminary statement shall constitute, and
that the conduct of matters relating to such assets shall be such as to qualify
such assets as, a "real estate mortgage investment conduit" as defined in and in
accordance with the REMIC Provisions. In furtherance of such intention, the
Trustee covenants and agrees that it shall act as agent (and the Trustee is
hereby appointed to act as

                                      -82-
<PAGE>

agent) on behalf of any such REMIC and that in such capacity it shall: (a)
prepare and file, or cause to be prepared and filed, in a timely manner, a U.S.
Real Estate Mortgage Investment Conduit Income Tax Return (Form 1066 or any
successor form adopted by the Internal Revenue Service) and prepare and file or
cause to be prepared and filed with the Internal Revenue Service and applicable
state or local tax authorities income tax or information returns for each
taxable year with respect to any such REMIC, containing such information and at
the times and in the manner as may be required by the Code or state or local tax
laws, regulations, or rules, and furnish or cause to be furnished to
Certificateholders the schedules, statements or information at such times and in
such manner as may be required thereby; (b) within thirty days of the Closing
Date, furnish or cause to be furnished to the Internal Revenue Service, on Forms
8811 or as otherwise may be required by the Code, the name, title, address, and
telephone number of the person that the Holders of the Certificates may contact
for tax information relating thereto, together with such additional information
as may be required by such Form, and update such information at the time or
times in the manner required by the Code; (c) make or cause to be made elections
that such assets be treated as a REMIC on the federal tax return for its first
taxable year (and, if necessary, under applicable state law); (d) prepare and
forward, or cause to be prepared and forwarded, to the Certificateholders and to
the Internal Revenue Service and, if necessary, state tax authorities, all
information returns and reports as and when required to be provided to them in
accordance with the REMIC Provisions, including without limitation, the
calculation of any original issue discount using the prepayment assumption; (e)
provide information necessary for the computation of tax imposed on the transfer
of a Residual Certificate to a Person that is not a Permitted Transferee, or an
agent (including a broker, nominee or other middleman) of a Non-Permitted
Transferee, or a pass-through entity in which a Non-Permitted Transferee is the
record holder of an interest (the reasonable cost of computing and furnishing
such information may be charged to the Person liable for such tax); (f) to the
extent that they are under its control conduct matters relating to such assets
at all times that any Certificates are outstanding so as to maintain the status
as a REMIC under the REMIC Provisions; (g) not knowingly or intentionally take
any action or omit to take any action that would cause the termination of the
REMIC status; (h) pay, from the sources specified in the last paragraph of this
Section 8.11, the amount of any federal or state tax, including prohibited
transaction taxes as described below, imposed on any such REMIC prior to its
termination when and as the same shall be due and payable (but such obligation
shall not prevent the Trustee or any other appropriate Person from contesting
any such tax in appropriate proceedings and shall not prevent the Trustee from
withholding payment of such tax, if permitted by law, pending the outcome of
such proceedings); (i) ensure that federal, state or local income tax or
information returns shall be signed by the Trustee or such other person as may
be required to sign such returns by the Code or state or local laws, regulations
or rules; (j) maintain records relating to any such REMIC, including but not
limited to the income, expenses, assets and liabilities thereof and the fair
market value and adjusted basis of the assets determined at such intervals as
may be required by the Code, as may be necessary to prepare the foregoing
returns, schedules, statements or information; and (k) as and when necessary and
appropriate, represent any such REMIC in any administrative or judicial
proceedings relating to an examination or audit by any governmental taxing
authority, request an administrative adjustment as to any taxable year of any
such REMIC, enter into settlement agreements with any governmental taxing
agency, extend any statute of limitations relating to any tax item of any such
REMIC, and otherwise act on behalf of any such REMIC in relation to any tax
matter or controversy involving it.

         In order to enable the Trustee to perform its duties as set forth
herein, the Depositor shall provide, or cause to be provided, to the Trustee
within ten (10) days after the Closing Date all

                                      -83-
<PAGE>

 information or data that the Trustee requests in writing and determines to be
 relevant for tax purposes to the valuations and offering prices of the
 Certificates, including, without limitation, the price, yield, prepayment
 assumption and projected cash flows of the Certificates and the Mortgage Loans.
 Thereafter, the Depositor shall provide to the Trustee promptly upon written
 request therefor, any such additional information or data that the Trustee may,
 from time to time, reasonably request in order to enable the Trustee to perform
 its duties as set forth herein. The Depositor hereby indemnifies the Trustee
 for any losses, liabilities, damages, claims or expenses of the Trustee arising
 from any errors or miscalculations of the Trustee that result from any failure
 of the Depositor to provide, or to cause to be provided, accurate information
 or data to the Trustee on a timely basis.

         In the event that any tax is imposed on "prohibited transactions" of
 any REMIC as defined in Section 860F(a)(2) of the Code, on the "net income from
 foreclosure property" of any REMIC as defined in Section 860G(c) of the Code,
 on any contribution to any REMIC after the Startup Day pursuant to Section
 860G(d) of the Code, or any other tax is imposed, if not paid as otherwise
 provided for herein, such tax shall be paid by (i) the Trustee, if any such
 other tax arises out of or results from a breach by the Trustee of any of its
 obligations under this Agreement which breach was caused by its negligence or
 willful misconduct, (ii) the Master Servicer, in the case of any such minimum
 tax, or if such tax arises out of or results from a breach by the Master
 Servicer or Seller of any of their obligations under this Agreement, (iii) the
 Seller, if any such tax arises out of or results from the Seller's obligation
 to repurchase a Mortgage Loan pursuant to Section 2.2 or 2.3 or (iv) in all
 other cases, or in the event that the Trustee, the Master Servicer or the
 Seller fails to honor its obligations under the preceding clauses (i), (ii) or
 (iii), any such tax will be paid with amounts otherwise to be distributed to
 the Certificateholders, as provided in Section 3.8(b).

         SECTION 8.12 Periodic Filings.

         Pursuant to written instructions from the Depositor, the Trustee shall
 prepare, execute and file all periodic reports required under the Securities
 Exchange Act of 1934 in conformity with the terms of the "no-action" relief
 granted by the SEC to issuers of asset-backed securities such as the
 Certificates. In connection with the preparation and filing of such periodic
 reports, the Depositor and the Master Servicer shall timely provide to the
 Trustee all material information available to them which is required to be
 included in such reports and not known to them to be in the possession of the
 Trustee and such other information as the Trustee reasonably may request from
 either of them and otherwise reasonably shall cooperate with the Trustee. The
 Trustee shall have no liability with respect to any failure to properly prepare
 or file such periodic reports resulting from or relating to the Trustee's
 inability or failure to obtain any information not resulting from its own
 negligence or willful misconduct.

                                  ARTICLE IX
                                  TERMINATION

         SECTION 9.1 Termination upon Liquidation or Purchase of all Mortgage
 Loans.

         Subject to Section 9.3, the obligations and responsibilities of the
 Depositor, the Master Servicer and the Trustee created hereby with respect to
 the Trust Fund shall terminate upon the earlier of (a) the purchase by the
 Master Servicer of all Mortgage Loans (and REO Properties) remaining in the
 Trust Fund at the price equal to the sum of (i) 100% of the Stated Principal
 Balance of each Mortgage Loan plus one month's accrued interest thereon at the
 applicable Adjusted

                                      -84-
<PAGE>

 Mortgage Rate and (ii) the lesser of (x) the appraised value of any REO
 Property as determined by the higher of two appraisals completed by two
 independent appraisers selected by the Master Servicer at the expense of the
 Master Servicer and (y) the Stated Principal Balance of each Mortgage Loan
 related to any REO Property, in each case plus accrued and unpaid interest
 thereon at the applicable Adjusted Mortgage Rate and (b) the later of (i) the
 maturity or other liquidation (or any Advance with respect thereto) of the last
 Mortgage Loan remaining in the Trust Fund and the disposition of all REO
 Property and (ii) the distribution to Certificateholders of all amounts
 required to be distributed to them pursuant to this Agreement. In no event
 shall the trusts created hereby continue beyond the earlier of (i) the
 expiration of 21 years from the death of the survivor of the descendants of
 Joseph P. Kennedy, the late Ambassador of the United States to the Court of St.
 James's, living on the date hereof, and (ii) the Latest Possible Maturity Date.
 The right to purchase all Mortgage Loans and REO Properties pursuant to clause
 (a) above shall be conditioned upon the Pool Principal Balance, at the time of
 any such repurchase, aggregating less than ten percent of the aggregate Cut-off
 Date Principal Balance of the Mortgage Loans.

         SECTION 9.2 Final Distribution on the Certificates.

         If on any Determination Date, the Master Servicer determines that there
 are no Outstanding Mortgage Loans and no other funds or assets in the Trust
 Fund other than the funds in the Certificate Account, the Master Servicer shall
 direct the Trustee promptly to send a final distribution notice to each
 Certificateholder. If the Master Servicer elects to terminate the Trust Fund
 pursuant to clause (a) of Section 9.1, at least 20 days prior to the date
 notice is to be mailed to the affected Certificateholders, the Master Servicer
 shall notify the Depositor and the Trustee of the date the Master Servicer
 intends to terminate the Trust Fund and of the applicable repurchase price of
 the Mortgage Loans and REO Properties.

         Notice of any termination of the Trust Fund, specifying the
 Distribution Date on which Certificateholders may surrender their Certificates
 for payment of the final distribution and cancellation, shall be given promptly
 by the Trustee by letter to Certificateholders mailed not earlier than the 10th
 day and no later than the 15th day of the month next preceding the month of
 such final distribution. Any such notice shall specify (a) the Distribution
 Date upon which final distribution on the Certificates will be made upon
 presentation and surrender of Certificates at the office therein designated,
 (b) the amount of such final distribution, (c) the location of the office or
 agency at which such presentation and surrender must be made, and (d) that the
 Record Date otherwise applicable to such Distribution Date is not applicable,
 distributions being made only upon presentation and surrender of the
 Certificates at the office therein specified. The Master Servicer will give
 such notice to each Rating Agency at the time such notice is given to
 Certificateholders.

         In the event such notice is given, the Master Servicer shall cause all
 funds in the Certificate Account to be remitted to the Trustee for deposit in
 the Distribution Account on the Business Day prior to the applicable
 Distribution Date in an amount equal to the final distribution in respect of
 the Certificates. Upon such final deposit with respect to the Trust Fund and
 the receipt by the Trustee of a Request for Release therefor, the Trustee shall
 promptly release to the Master Servicer the Mortgage Files for the Mortgage
 Loans.

         Upon presentation and surrender of the Certificates, the Trustee shall
 cause to be distributed to the Certificateholders of each Class, in the order
 set forth in Section 4.2 hereof, on the final

                                      -85-
<PAGE>

 Distribution Date, in the case of the Certificateholders, in proportion to
 their respective Percentage Interests, with respect to Certificateholders of
 the same Class, an amount equal to (i) as to each Class of Regular
 Certificates, the Class Certificate Balance thereof plus accrued interest
 thereon (or on their Notional Amount, if applicable) in the case of an interest
 bearing Certificate, and (ii) as to the Residual Certificates, the amount, if
 any, which remains on deposit in the Distribution Account (other than the
 amounts retained to meet claims) after application pursuant to clause (i)
 above.

         In the event that any affected Certificateholders shall not surrender
 Certificates for cancellation within six months after the date specified in the
 above mentioned written notice, the Trustee shall give a second written notice
 to the remaining Certificateholders to surrender their Certificates for
 cancellation and receive the final distribution with respect thereto. If within
 six months after the second notice all the applicable Certificates shall not
 have been surrendered for cancellation, the Trustee may take appropriate steps,
 or may appoint an agent to take appropriate steps, to contact the remaining
 Certificateholders concerning surrender of their Certificates, and the cost
 thereof shall be paid out of the funds and other assets which remain a part of
 the Trust Fund. If within one year after the second notice all Certificates
 shall not have been surrendered for cancellation, the holder of each of the
 Class A-R Certificates shall be entitled to all unclaimed funds and other
 assets of the Trust Fund held for distribution to such Certificateholders,
 which remain subject hereto.

         SECTION 9.3 Additional Termination Requirements.

         (a) In the event the Master Servicer exercises its purchase option as
 provided in Section 9.1, the Trust Fund shall be terminated in accordance with
 the following additional requirements, unless the Trustee has been supplied
 with an Opinion of Counsel, at the expense of the Master Servicer, to the
 effect that the failure to comply with the requirements of this Section 9.3
 will not (i) result in the imposition of taxes on "prohibited transactions" on
 any REMIC as defined in section 860F of the Code, or (ii) cause any REMIC to
 fail to qualify as a REMIC at any time that any Certificates are outstanding:

             (1) Within 90 days prior to the final Distribution Date set forth
         in the notice given by the Master Servicer under Section 9.2, the
         Master Servicer shall prepare and the Trustee, at the expense of the
         "tax matters person," shall adopt a plan of complete liquidation within
         the meaning of section 860F(a)(4) of the Code which, as evidenced by an
         Opinion of Counsel addressed to the Trustee (which opinion shall not be
         an expense of the Trustee or the Tax Matters Person), meets the
         requirements of a qualified liquidation; and

             (2) Within 90 days after the time of adoption of such a plan of
         complete liquidation, the Trustee shall sell all of the assets of the
         Trust Fund to the Master Servicer for cash in accordance with Section
         9.1.

         (b) The Trustee as agent for the REMIC established hereunder hereby
 agrees to adopt and sign such a plan of complete liquidation upon the written
 request of the Master Servicer, and the receipt of the Opinion of Counsel
 referred to in Section 9.3(a)(1) and to take such other action in connection
 therewith as may be reasonably requested by the Master Servicer.

                                      -86-
<PAGE>

         (c)    By their acceptance of the Certificates, the Holders thereof
hereby authorize the Master Servicer to prepare and the Trustee to adopt and
sign a plan of complete liquidation.

                                  ARTICLE X
                                  [RESERVED]

                                  ARTICLE XI
                           MISCELLANEOUS PROVISIONS

         SECTION 11.1 Amendment.

         This Agreement may be amended from time to time by the Depositor, the
Master Servicer and the Trustee without the consent of any of the
Certificateholders (i) to cure any ambiguity or mistake, (ii) to correct any
defective provision herein or to supplement any provision herein which may be
inconsistent with any other provision herein, (iii) to add to the duties of the
Depositor, the Seller or the Master Servicer, (iv) to add any other provisions
with respect to matters or questions arising hereunder or (v) to modify, alter,
amend, add to or rescind any of the terms or provisions contained in this
Agreement; provided that any action pursuant to clauses (iv) or (v) above shall
not, as evidenced by an Opinion of Counsel delivered to the Trustee (which
Opinion of Counsel shall not be an expense of the Trustee or the Trust Fund),
adversely affect in any material respect the interests of any Certificateholder;
provided, however, that the amendment shall not be deemed to adversely affect in
any material respect the interests of the Certificateholders if the Person
requesting the amendment obtains a letter from each Rating Agency stating that
the amendment would not result in the downgrading or withdrawal of the
respective ratings then assigned to the Certificates; it being understood and
agreed that any such letter in and of itself will not represent a determination
as to the materiality of any such amendment and will represent a determination
only as to the credit issues affecting any such rating. The Trustee, the
Depositor and the Master Servicer also may at any time and from time to time
amend this Agreement without the consent of the Certificateholders to modify,
eliminate or add to any of its provisions to such extent as shall be necessary
or helpful to (i) maintain the qualification of the REMIC as a REMIC under the
Code, (ii) avoid or minimize the risk of the imposition of any tax on the REMIC
pursuant to the Code that would be a claim at any time prior to the final
redemption of the Certificates or (iii) comply with any other requirements of
the Code, provided that the Trustee have been provided an Opinion of Counsel,
which opinion shall be an expense of the party requesting such opinion but in
any case shall not be an expense of the Trustee or the Trust Fund, to the effect
that such action is necessary or helpful to, as applicable, (i) maintain such
qualification, (ii) avoid or minimize the risk of the imposition of such a tax
or (iii) comply with any such requirements of the Code.

         This Agreement may also be amended from time to time by the Depositor,
the Master Servicer and the Trustee with the consent of the Holders of a
Majority in Interest of each Class of Certificates affected thereby for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Holders of Certificates; provided, however, that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, payments required to
be distributed on any Certificate without the consent of the Holder of such
Certificate, (ii) adversely affect in any material respect the interests of the
Holders of any Class of Certificates in a manner other than as described in (i),
without the consent of the Holders of Certificates of such Class evidencing, as
to such Class,

                                      -87-
<PAGE>

Percentage Interests aggregating 66%, or (iii) reduce the aforesaid percentages
of Certificates the Holders of which are required to consent to any such
amendment, without the consent of the Holders of all such Certificates then
outstanding.

         Notwithstanding any contrary provision of this Agreement, the Trustee
shall not consent to any amendment to this Agreement unless it shall have first
received an Opinion of Counsel, which opinion shall not be an expense of the
Trustee or the Trust Fund, to the effect that such amendment will not cause the
imposition of any tax on the REMIC or the Certificateholders or cause the REMIC
to fail to qualify as a REMIC at any time that any Certificates are outstanding.

         Promptly after the execution of any amendment to this Agreement
requiring the consent of Certificateholders, the Trustee shall furnish written
notification of the substance or a copy of such amendment to each
Certificateholder and each Rating Agency.

         It shall not be necessary for the consent of Certificateholders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Trustee may prescribe.

         Nothing in this Agreement shall require the Trustee to enter into an
amendment without receiving an Opinion of Counsel (which Opinion shall not be an
expense of the Trustee or the Trust Fund), satisfactory to the Trustee that (i)
such amendment is permitted and is not prohibited by this Agreement and that all
requirements for amending this Agreement have been complied with; and (ii)
either (A) the amendment does not adversely affect in any material respect the
interests of any Certificateholder or (B) the conclusion set forth in the
immediately preceding clause (A) is not required to be reached pursuant to this
Section 11.1.

         SECTION 11.2 Recordation of Agreement; Counterparts.

         This Agreement is subject to recordation in all appropriate public
offices for real property records in all the counties or other comparable
jurisdictions in which any or all of the properties subject to the Mortgages are
situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Master Servicer at its expense, but only
upon direction a majority of the Certificateholders to the effect that such
recordation materially and beneficially affects the interests of the
Certificateholders.

         For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed (by
facsimile or otherwise) simultaneously in any number of counterparts, each of
which counterparts shall be deemed to be an original, and such counterparts
shall constitute but one and the same instrument.

         SECTION 11.3 Governing Law.

         THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND
TO BE PERFORMED IN THE STATE OF NEW YORK AND

                                      -88-
<PAGE>

THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HERETO AND THE
CERTIFICATEHOLDERS SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

         SECTION 11.4 Intention of Parties.

         (a)    It is the express intent of the parties hereto that the
conveyance of the Mortgage Loans by the Seller to the Purchaser and by the
Purchaser to the Depositor be, and be construed as, absolute sales thereof. It
is, further, not the intention of the parties that such conveyances be deemed a
pledge thereof by the Seller to the Purchaser, and by the Purchaser to the
Depositor. However, in the event that, notwithstanding the intent of the
parties, the Mortgage Loans are held to be the property of the Seller or the
Purchaser, respectively, or if for any other reason this Agreement is held or
deemed to create a security interest in such assets, then (i) this Agreement
shall be deemed to be a security agreement within the meaning of the Uniform
Commercial Code of the State of New York and (ii) the conveyance of the Mortgage
Loans provided for in this Agreement shall be deemed to be an assignment and a
grant by the Seller to the Purchaser, and by the Purchaser to the Depositor, for
the benefit of the Certificateholders, of a security interest in all of the
Mortgage Loans, whether now owned or hereafter acquired.

         The Seller and the Purchaser, for the benefit of the
Certificateholders, shall, to the extent consistent with this Agreement, take
such actions as may be necessary to ensure that, if this Agreement were deemed
to create a security interest in the Mortgage Loans, such security interest
would be deemed to be a perfected security interest of first priority under
applicable law and will be maintained as such throughout the term of the
Agreement. The Seller and the Purchaser shall arrange for filing any Uniform
Commercial Code continuation statements in connection with any security interest
granted or assigned to the Depositor for the benefit of the Certificateholders.

         (b)    It is the express intent of the parties hereto that the
conveyance of the Trust Fund by the Depositor to the Trustee be, and be
construed as, absolute sales thereof to the Trustee. It is, further, not the
intention of the parties that such conveyances be deemed a pledge thereof by the
Depositor to the Trustee. However, in the event that, notwithstanding the intent
of the parties, such assets are held to be the property of the Depositor, or if
for any other reason this Agreement is held or deemed to create a security
interest in such assets, then (i) this Agreement shall be deemed to be a
security agreement within the meaning of the Uniform Commercial Code of the
State of New York and (ii) the conveyance provided for in this Agreement shall
be deemed to be an assignment and a grant by the Depositor to the Trustee, for
the benefit of the Certificateholders, of a security interest in all of the
assets that constitute the Trust Fund, whether now owned or hereafter acquired.

         The Depositor, for the benefit of the Certificateholders, shall, to the
extent consistent with this Agreement, take such actions as may be necessary to
ensure that, if this Agreement were deemed to create a security interest in the
Trust Fund, such security interest would be deemed to be a perfected security
interest of first priority under applicable law and will be maintained as such
throughout the term of the Agreement. The Depositor shall arrange for filing any
Uniform Commercial Code continuation statements in connection with any security
interest granted or assigned to the Trustee for the benefit of the
Certificateholders.

                                      -89-
<PAGE>

         SECTION 11.5 Notices.

         (a)    The Trustee shall use its best efforts to promptly provide
notice to each Rating Agency with respect to each of the following of which it
has actual knowledge:

         1.     Any material change or amendment to this Agreement;
         2.     The occurrence of any Event of Default that has not been cured;
         3.     The resignation or termination of the Master Servicer or the
                Trustee and the appointment of any successor;
         4.     The repurchase or substitution of Mortgage Loans pursuant to
                Section 2.3; and
         5.     The final payment to Certificateholders.
         6.     Any rating action involving the long-term credit rating of the
                Master Servicer, which notice shall be made by first-class mail
                within two Business Days after the Trustee gains actual
                knowledge thereof.

         In addition, the Trustee shall promptly furnish to each Rating Agency
copies of the following:

         1.     Each report to Certificateholders described in Section 4.6;
         2.     Each annual statement as to compliance described in Section
                3.16;
         3.     Each annual independent public accountants' servicing report
                described in Section 3.17; and
         4.     Any notice of a purchase of a Mortgage Loan pursuant to Section
                2.2, 2.3 or 3.11.

         (b)    All directions, demands, authorizations, consents, waivers,
communications and notices hereunder shall be in writing and shall be deemed to
have been duly given when delivered by first class mail, facsimile or courier to
(a) in the case of the Depositor, First Horizon Asset Securities Inc., 4000
Horizon Way, Irving, Texas 75063, Attention: Wade Walker; (b) in the case of the
Master Servicer, First Horizon Home Loan Corporation, 4000 Horizon Way, Irving,
Texas 75063, Attention: Wade Walker or such other address as may be hereafter
furnished to the Depositor and the Trustee by the Master Servicer in writing;
(c) in the case of the Purchaser, First Tennessee Bank National Association, 165
Madison Avenue, Memphis, Tennessee 38103, Attention: Joel Ross or such other
address as may be hereafter furnished to the Depositor and the Trustee by the
Purchaser in writing; (d) in the case of the Trustee, The Bank of New York, 101
Barclay Street 12E, New York, New York 10286, Attention: Diane Pickett, or such
other address as the Trustee may hereafter furnish to the Depositor or Master
Servicer; (e) in the case of the Rating Agencies, the address specified therefor
in the definition corresponding to the name of such Rating Agency. Notices to
Certificateholders shall be deemed given when mailed, first class postage
prepaid, to their respective addresses appearing in the Certificate Register.

         SECTION 11.6 Severability of Provisions.

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

                                      -90-
<PAGE>

         SECTION 11.7 Assignment.

         Notwithstanding anything to the contrary contained herein, except as
provided in Section 6.02, this Agreement may not be assigned by the Master
Servicer without the prior written consent of the Trustee and Depositor.

         SECTION 11.8 Limitation on Rights of Certificateholders.

         The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the trust created hereby, nor entitle such
Certificateholder's legal representative or heirs to claim an accounting or to
take any action or commence any proceeding in any court for a petition or
winding up of the trust created hereby, or otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them.

         No Certificateholder shall have any right to vote (except as provided
herein) or in any manner otherwise control the operation and management of the
Trust Fund, or the obligations of the parties hereto, nor shall anything herein
set forth or contained in the terms of the Certificates be construed so as to
constitute the Certificateholders from time to time as partners or members of an
association; nor shall any Certificateholder be under any liability to any third
party by reason of any action taken by the parties to this Agreement pursuant to
any provision hereof.

         No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Agreement,
unless such Holder previously shall have given to the Trustee a written notice
of an Event of Default and of the continuance thereof, as herein provided, and
unless the Holders of Certificates evidencing not less than 25% of the Voting
Rights evidenced by the Certificates shall also have made written request to the
Trustee to institute such action, suit or proceeding in its own name as Trustee
hereunder and shall have offered to the Trustee such reasonable indemnity as it
may require against the costs, expenses, and liabilities to be incurred therein
or thereby, and the Trustee, for 60 days after its receipt of such notice,
request and offer of indemnity shall have neglected or refused to institute any
such action, suit or proceeding; it being understood and intended, and being
expressly covenanted by each Certificateholder with every other
Certificateholder and the Trustee, that no one or more Holders of Certificates
shall have any right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement to affect, disturb or prejudice
the rights of the Holders of any other of the Certificates, or to obtain or seek
to obtain priority over or preference to any other such Holder or to enforce any
right under this Agreement, except in the manner herein provided and for the
common benefit of all Certificateholders. For the protection and enforcement of
the provisions of this Section 11.8, each and every Certificateholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.

         SECTION 11.9 Inspection and Audit Rights.

         The Master Servicer agrees that, on reasonable prior notice, it will
permit and will cause each Subservicer to permit any representative of the
Depositor or the Trustee during the Master Servicer's normal business hours, to
examine all the books of account, records, reports and other papers of the
Master Servicer relating to the Mortgage Loans, to make copies and extracts
therefrom, to cause such

                                      -91-
<PAGE>

books to be audited by independent certified public accountants selected by
the Depositor or the Trustee and to discuss its affairs, finances and accounts
relating to the Mortgage Loans with its officers, employees and independent
public accountants (and by this provision the Master Servicer hereby authorizes
said accountants to discuss with such representative such affairs, finances and
accounts), all at such reasonable times and as often as may be reasonably
requested. Any out-of-pocket expense incident to the exercise by the Depositor
or the Trustee of any right under this Section 11.9 shall be borne by the party
requesting such inspection; all other such expenses shall be borne by the Master
Servicer or the related Subservicer.

         SECTION 11.10 Certificates Nonassessable and Fully Paid.

         It is the intention of the Depositor that Certificateholders shall not
be personally liable for obligations of the Trust Fund, that the interests in
the Trust Fund represented by the Certificates shall be nonassessable for any
reason whatsoever, and that the Certificates, upon due authentication thereof by
the Trustee pursuant to this Agreement, are and shall be deemed fully paid.

         SECTION 11.11 Limitations on Actions; No Proceedings.

         (a)    Other than pursuant to this Agreement, or in connection with or
incidental to the provisions or purposes of this Agreement, the trust created
 hereunder shall not (i) issue debt or otherwise borrow money, (ii) merge or
 consolidate with any other entity reorganize, liquidate or transfer all or
 substantially all of its assets to any other entity, or (iii) otherwise engage
 in any activity or exercise any power not provided for in this Agreement.

         (b)    Notwithstanding any prior termination of this Agreement, the
Trustee, the Master Servicer and the Depositor shall not, prior to the date
which is one year and one day after the termination of this Agreement,
acquiesce, petition or otherwise invoke or cause any Person to invoke the
process of any court or government authority for the purpose of commencing or
sustaining a case against the Depositor or the Trust Fund under any federal or
state bankruptcy, insolvency or other similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Depositor or the Trust Fund or any substantial part of their respective
property, or ordering the winding up or liquidation of the affairs of the
Depositor or the Trust Fund.

                                  * * * * * *

                                      -92-
<PAGE>

         IN WITNESS WHEREOF, the Depositor, the Trustee, the Purchaser, the
Seller and the Master Servicer have caused their names to be signed hereto by
their respective officers thereunto duly authorized as of the day and year first
above written.

                                FIRST HORIZON ASSET SECURITIES INC.,
                                  as Depositor

                                By: ____________________________________________
                                    Wade Walker
                                    Senior Vice President - Asset Securitization

                                THE BANK OF NEW YORK,
                                  not in its individual capacity, but
                                    solely as Trustee

                                By: ____________________________________________
                                    Diane Pickett Vice
                                    President

                                FIRST TENNESSEE BANK NATIONAL
                                ASSOCIATION, as Purchaser

                                By: ____________________________________________
                                    Wade Walker
                                    Senior Vice President

                                    FIRST HORIZON HOME LOAN CORPORATION,
                                      as Seller and Master Servicer

                                By: ____________________________________________
                                    Wade Walker
                                    Senior Vice President - Asset Securitization

Pooling and Servicing Agreement - Signature Page<PAGE>

                                                                     EXHIBIT 4.3

                        TIPPINGPOINT TECHNOLOGIES, INC.
                          SECOND AMENDED AND RESTATED
                  1999 STOCK OPTION AND RESTRICTED STOCK PLAN

       1.    Purpose.  The TippingPoint Technologies, Inc. Second Amended and
             -------
Restated 1999 Stock Option and Restricted Stock Plan (the "Plan") is intended to
advance the interests of TippingPoint Technologies, Inc., a Delaware corporation
(the "Company"), and its stockholders, by encouraging and enabling selected
officers, directors and employees, upon whose judgment, initiative and effort
the Company is largely dependent for the successful conduct of its business, to
acquire and retain a proprietary interest in the Company by ownership of its
stock. It is intended that options which may qualify for treatment as "incentive
stock options" under Section 422 of the Internal Revenue Code of 1986, as
amended, and applicable regulations and rulings promulgated thereunder
(collectively the "Code"), as well as options which may not so qualify, may be
granted under the Plan.

       2.    Definitions.
             -----------

             (a)  "Committee" means a Committee of the Board of Directors of the
       Company to whom the Board's authority has been delegated in accordance
       with Section 3 of this Plan.
            ---------

             (b)  "Common Stock" means the Company's Common Stock, $.01 par
       value per share.

             (c)  "Date of Grant" means the date on which an Option or
       Restricted Stock is granted under the Plan, which will be the date the
       Committee authorizes the Option or Restricted Stock unless the Committee
       specifies another date as the date the grant is to be effective.

             (d)  "Date of Exercise" means the date on which an Option is
       validly exercised pursuant to the Plan.

             (e)  "Disability" means any medically determinable physical or
       mental impairment that, in the opinion of the Committee, based upon
       medical reports and other evidence satisfactory to the Committee, can
       reasonably be expected to prevent an Optionee from performing
       substantially all of the Optionee's customary duties of employment for a
       continuous period of not less than 12 months so as to be disabled within
       the meaning of Section 22(a)(3) of the Code.

             (f)  "Exchange Act" means the Securities Exchange Act of 1934, as
       amended.

             (g)  "Fair Market Value" of the Company's Common Stock means the
       closing sale price (or the average of the quoted closing bid and asked
       prices if there is no closing sale price reported) on the last market
       trading day prior to the date of determination as reported by the
       principal national stock exchange on which the Common Stock is then
       listed. If there is no reported price information for the Common Stock,
       the Fair Market Value will be determined by the Committee, in its sole
       discretion. In making such

                                       1
<PAGE>

       determination, the Committee may, but shall not be obligated to,
       commission and rely upon an independent appraisal of the Common Stock.

             (h)  "Incentive Stock Option" means an option that qualifies as an
       incentive stock option under all of the requirements of the Code.

             (i)  "Incentive Stock Option Agreement" means the agreement between
       the Company and the Optionee, in such form as may from time to time be
       adopted by the Committee, under which the Optionee may purchase Common
       Stock pursuant to the terms of an Incentive Stock Option granted under
       the Plan.

             (j)  "Non-Employee Director" means a director of the Company who is
       not an employee of the Company or of any subsidiary or affiliate of the
       Company.

             (k)  "Non-Qualified Stock Option" means an option to purchase
       Common Stock granted pursuant to the provisions of the Plan that does not
       qualify as an Incentive Stock Option.

             (l)  "Non-Qualified Stock Option Agreement" means the agreement
       between the Company and the Optionee, in such form as may from time to
       time be adopted by the Committee, under which the Optionee may purchase
       Common Stock pursuant to the terms of a Non-Qualified Stock Option
       granted under the Plan.

             (m)  "Option" means an option granted under the Plan.

             (n)  "Optionee" means a person to whom an Option, which has not
       expired, has been granted under the Plan.

             (o)  "Participant" means any person who receives an Option or
       Restricted Stock pursuant to this Plan.

             (p)  "Restricted Stock" means Common Stock awarded to a person
       pursuant to Section 7 of this Plan.

             (q)  "Retirement" shall mean the termination of an Optionee's
       employment in accordance with the requirements of a written retirement
       plan, policy or rule of the Company which has been duly adopted by the
       Board of Directors of the Company.

             (r)  "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
       Act, as (and to the extent) such rule, or any successor thereto, may from
       time to time be in effect and including all interpretations thereunder.

             (s)  "Subsidiary" or "Subsidiaries" means a subsidiary corporation
       or corporations of the Company as defined in Section 424(f) of the Code.

             (t)  "Successor" means the legal representative of the estate of a
       deceased Optionee or the person or persons who acquire the right to
       exercise an Option by bequest or inheritance or by reason of the death of
       an Optionee.

                                       2
<PAGE>

       3.    Administration and Interpretation of Plan. The Plan shall be
             -----------------------------------------
administered by a Committee designated by the Board of Directors which shall
consist entirely of "Non-Employee Directors" in accordance with the provisions
of Rule 16b-3. The Committee shall have full and final authority in its
discretion, subject to the provisions of the Plan: (i) to determine the
individuals to whom, and the time or times at which, Options or Restricted Stock
shall be granted and the number of shares of Common Stock covered by each Option
or grant of Restricted Stock and to determine all other substantive provisions
of the terms of such Options; (ii) to construe and interpret the Plan; and (iii)
to make all other determinations and take all other actions deemed necessary or
advisable for the proper administration of the Plan. All such actions and
determinations by the Committee shall be final and conclusively binding for all
purposes and upon all persons.

       4.    Common Stock Subject to Options and Grants of Restricted Stock. The
             --------------------------------------------------------------
aggregate number of shares of the Company's Common Stock which may be issued
upon the exercise of Options or upon the grant of Restricted Stock under the
Plan shall not exceed one million thirty-three thousand three hundred and
thirty-three (1,033,333) shares of Common Stock, subject to adjustment as set
forth in Section 5 of this Plan. The shares of Common Stock to be issued upon
the exercise of Options or upon the grant of Restricted Stock may be authorized
but unissued shares, shares issued and reacquired by the Company or shares
bought on the open market for the purposes of the Plan. In the event any Option
shall, for any reason, terminate or expire or be canceled or surrendered without
having been exercised in full, or Restricted Stock should fail to vest and be
forfeited in whole or in part for any reason, the shares subject thereto shall,
unless the Plan has terminated, be available for the grant of additional Options
or Restricted Stock under this Plan, subject to the limitations set forth above.

       5.    (a)  Adjustments. In the event that the number of outstanding
                  -----------
       shares of Common Stock is changed by reason of a stock dividend, stock
       split, recapitalization or combination of shares, the number of shares of
       Common Stock subject to the Plan and to Options and Restricted Stock
       granted pursuant to the Plan shall be proportionately adjusted.

             (b)  Annual Increase. The annual increase in the number of shares
                  ---------------
       reserved for issuance as Incentive Stock Options shall be the least of
       the following: (1) a number of shares so that the shares reserved for
       issuance of Incentive Stock Options shall be equal to 15% of issued and
       outstanding shares as of the last day of the prior fiscal year; (2)
       1,033,333 shares; or (3) a smaller number as determined by the Board of
       Directors. The number of shares reserved for issuance under this Plan
       (including Incentive Stock Options, Non-Qualified Stock Options, and
       Restricted Stock) shall be increased so that the total number of shares
       that may be issued under this Plan equals 15% of the outstanding shares
       as of the final day of the prior fiscal year. Such annual increases shall
       occur automatically on the first trading day in January of each year.

       6.    Participants.  Incentive Stock Options may be granted under the
             ------------
Plan to any person who is an officer or other key employee (including officers
and employees who are also directors) of the Company or any of its Subsidiaries.
Non-Qualified Options and Restricted Stock may be granted under the Plan to any
person who is an officer, key employee, director or consultant of the Company;
provided, however, that no member of any Committee administering

                                       3
<PAGE>

this Plan shall be eligible to be granted an option hereunder except under
circumstances that may be permitted under Rule 16b-3 without adversely affecting
any requirement of such rule that this Plan be administered by Non-Employee
Directors.

       7.    Non-Employee Director Stock Options. Any Options granted to Non-
             -----------------------------------
Employee Directors under the Plan shall be Non-Qualified Stock Options. Such
Options granted to Non-Employee Directors may be granted pursuant to the pre-
established formula described in the next paragraph or may, in the sole
discretion of the entire Board of Directors, be granted as to such number of
shares and upon such terms and conditions as shall be determined by the Board of
Directors. Options granted to Non-Employee Directors under the Plan shall be
evidenced by a written agreement in such form as the Committee shall from time
to time approve, which agreements shall comply with and be subject to the terms
and conditions described below and in Section 8:
                                      ---------
             (a)   Formula-based Director Stock Options. For each calendar year,
                   ------------------------------------
       an Option to purchase 2,000 shares of Common Stock shall be granted
       automatically to each Non-Employee Director on the first day of each
       calendar year on which the Nasdaq National Market, or such other exchange
       or market on which the Company's Common Stock is then traded, is open for
       trading. The option price per share with respect to each Option granted
       to a Non-Employee Directors hereunder shall be 100% of the Fair Market
       Value of the Common Stock on the Date of the Grant of the Option. Options
       granted to Non-Employee Directors hereunder shall be exercisable in full
       upon the Date of Grant of the Option and shall remain exercisable for a
       term of ten years after such Date of Grant.

             (b)   Termination of Service. Upon an Optionee's termination of
                   ----------------------
       status as a Non-Employee Director with the Company for any reason, any
       vested Options held by such former Non-Employee Director which may be
       exercised during the thirty day period following such termination, and
       shall expire at the end of such thirty day period. Notwithstanding the
       foregoing sentence, if the Optionee's status as an Non-Employee Director
       terminates by reason of or within three months after a merger or other
       business combination resulting in a "Change of Control" as defined below,
       the Non-Employee Director's Options shall terminate upon the latest of
       (i) six months and one day after the merger or business combination, (ii)
       ten business days following the expiration of the period during which
       publication of financial results covering at least thirty days of post-
       merger combined operations has occurred, and (iii) the expiration of the
       stated term of such Non-Employee Director's Options.

             (c)   For purposes hereof, "Change of Control" means the occurrence
       of any of the following events, as a result of one transaction or a
       series of transactions: (i) any "person" (as that term is used in
       Sections 13(d) and 14(d) of the Exchange Act (as defined below), but
       excluding the Company, its affiliates and any qualified or non-qualified
       plan maintained by the Company or its affiliates) becomes the "beneficial
       owner" (as defined in Rule 13d-3 promulgated under such Act), directly or
       indirectly, of securities of the Company representing more than 50% of
       the combined voting power of the Company's then outstanding securities;
       (ii) individuals who constitute a majority of the Board of Directors of
       the Company immediately prior to a contested election for positions on
       the Board cease to constitute a majority as a result of such contested

                                       4
<PAGE>

       election; (iii) the Company is combined (by merger, share exchange,
       consolidation, or otherwise) with another corporation and as a result of
       such combination, less than 50% of the outstanding securities of the
       surviving or resulting corporation are owned in the aggregate by the
       former stockholders of the Company; (iv) the Company sells, leases, or
       otherwise transfers all or substantially all of its properties or assets
       to another person or entity; or (v) a dissolution or liquidation of the
       Company.

             (d)   Notwithstanding the foregoing, in no event shall any Non-
       Employee Director be entitled to any "excess parachute payment" as
       defined in Section 280G of the Code.

       8.    Terms and Conditions of Options. Any Option granted under the Plan
             -------------------------------
shall be evidenced by either an Incentive Stock Option Agreement or a Non-
Qualified Stock Option Agreement executed by the Company and the Optionee. Such
agreement shall be subject to the following limitations and conditions:

             (a)   Option Price.  The option price per share with respect to
                   ------------
       each Option shall be determined by the Committee but in no instance shall
       the option price for an Option which is intended to qualify as an
       Incentive Stock Option be less than 100% of the Fair Market Value of a
       share of the Common Stock on the Date of Grant.

             (b)   Payment of Option Price.
                   -----------------------

                   (i)   Full payment for shares purchased upon exercising an
       Option shall be made in cash or by check, or by delivery of shares of
       Common Stock, or partly in cash or by check and partly in Common Stock.
       The value of shares of Common Stock delivered in connection with the
       payment of the option price shall be the Fair Market Value of such shares
       on the Date of Exercise of the Option. Any shares of Common Stock to be
       used as payment must, if originally acquired from the Company pursuant to
       the exercise of an Incentive Stock Option, have been held for at least
       two years after the Date of Grant and one year after the Date of
       Exercise.

                   (ii)  If the shares of Common Stock to be purchased are
       covered by an effective registration statement under the Securities Act
       of 1933, as amended, any Option granted under the Plan may be exercised
       by a broker-dealer acting on behalf of an Optionee if (a) the broker-
       dealer has received from the Optionee or the Company a fully and duly
       endorsed agreement evidencing such Option, together with instructions
       signed by the Optionee requesting the Company to deliver the shares of
       Common Stock subject to such Option to the broker-dealer on behalf of the
       Optionee and specifying the account into which such shares should be
       deposited, (b) adequate provision has been made with respect to the
       payment of any withholding taxes due upon such exercise, and (c) the
       broker-dealer and the Optionee have otherwise complied with Section
       220.3(e)(4) of Regulation T, 12 CFR Part 220, or any successor provision.

                                       5
<PAGE>

             (c)   Term of Option.  The expiration date of each Incentive Stock
                   --------------
       Option and each Non-Qualified Option shall not be more than ten (10)
       years from the Date of Grant.

             (d)   Vesting of Stockholder Rights.  Neither an Optionee nor his
                   -----------------------------
       Successor shall have any of the rights of a stockholder of the Company
       until the certificate or certificates evidencing the shares purchased
       pursuant to the exercise of an Option are properly delivered to such
       Optionee or his Successor.

             (e)   Exercise of an Option. Each Option shall be exercisable at
                   ---------------------
       any time, and from time to time, and in no particular order if the
       Optionee holds more than one Option, throughout a period commencing on or
       after the Date of Grant, as specified by the Committee and reflected in
       the Incentive Stock Option Agreement or Non-Qualified Stock Option
       Agreement, as the case may be, and ending upon the earliest of the
       expiration, cancellation, surrender or termination of the Option;
       provided, however, that no Option shall be exercisable in whole or in
       part prior to the date of stockholder approval of the Plan. Furthermore,
       the exercise of each Option shall be subject to the condition that if at
       any time the Company shall determine in its discretion that the
       satisfaction of withholding tax or other withholding liabilities, or that
       the listing, registration or qualification of any share otherwise
       deliverable upon such exercise upon any securities exchange or under any
       state or federal law, or that the report to, or consent or approval of
       any regulatory body, is necessary or desirable as a condition of, or in
       connection with, such exercise or the delivery or purchase of shares
       pursuant thereto, then in any such event, such exercise shall not be
       effective unless such withholding, listing, registration, qualification,
       report, consent or approval shall have been effected or obtained free of
       any conditions not acceptable to the Company.

             (f)   Company Loans. The Company may make stock purchase loans in
                   -------------
       connection with Option exercises upon the following terms and conditions:

                   (i)    Upon the exercise by an Optionee of his Option, or any
       part thereof, and the Optionee's request for a loan pursuant hereto, the
       Company, upon approval by the Committee, may loan said Optionee, for the
       sole purpose of purchasing Common Stock from the Company pursuant to the
       exercise of such Option, an amount up to the exercise price of the
       Option; provided, however, that the Optionee shall execute concurrently a
       promissory note in form satisfactory to the Committee for such amount
       payable to the order of the Company;

                   (ii)   The Company shall have no obligation to make any loan
       to any Optionee at any time;

                   (iii)  The promissory note referenced above shall provide for
       interest to be payable upon the outstanding principal balance thereof at
       such rate and times as the Committee may determine. Interest shall be
       payable at least annually and shall be charged at the minimum rate
       necessary to avoid the treatment as interest under any applicable
       provision of the Code, of any amounts other than amounts stated to be
       interest under such note. Such note shall also provide that the Committee
       may require the Optionee to secure the payment thereof at any time

                                       6
<PAGE>

     with collateral deemed adequate by the Committee in its sole discretion.
     Such note shall mature, and all outstanding principal and interest shall
     become immediately due and payable in installments or in lump sum at such
     time or times as the Committee shall provide. The note will provide for
     prepayment of principal and accrued interest in whole or in part from time
     to time without premium or penalty and may be extended or modified, from
     time to time, at the Committee's discretion. The note shall provide for
     acceleration of maturity by the Company upon the happening of any events
     determined appropriate by the Committee, including, without limitation, any
     of the following events:

               (1)  failure of the Optionee to pay or perform any term or
          provision thereof;

               (2)  termination of the Optionee's employment with the Company or
          a Subsidiary for any reason, whether voluntary or involuntary, except
          Retirement, Disability or death;

               (3)  if the Optionee shall execute an assignment for the benefit
          of creditors, or admit in writing his inability to pay his debts
          generally as they become due, or voluntarily seek the benefit of, or
          have a petition filed against him seeking the benefit of, a judgment,
          order or decree filed against him pursuant to any bankruptcy,
          insolvency, reorganization, or similar debtor relief law affecting the
          rights of creditors generally;

               (4)  failure of the Optionee to have discharged within a period
          of thirty (30) days after the commencement thereof any attachment,
          sequestration or similar proceeding against any of the assets of the
          Optionee;

               (5)  failure of the Optionee to pay any money judgment against
          him at least thirty (30) days prior to the date on which any of his
          assets may be lawfully sold to satisfy such judgment;

               (6)  failure or refusal of the Optionee to comply with any of the
          terms and conditions of his stock option agreement or any other oral
          or written agreement with the Company;

               (7)  failure or refusal of the Optionee to provide adequate
          security for payment of the promissory note immediately upon request
          for collateral by the Committee; or

               (8)  the divorce of the Optionee, unless arrangement satisfactory
          to the Committee are agreed to prior to the entry of the divorce
          decree.

     (g)  Nontransferability of Option. No Option shall be transferable or
          -----------------------------
assignable by an Optionee, voluntarily or by operation of law, other than by
will or the laws of descent and distribution. Each Option shall be exercisable,
during the Optionee's

                                       7
<PAGE>

lifetime, only by such Optionee. No Option or the shares covered thereby shall
be pledged or hypothecated in any way and no Option or the shares covered
thereby shall be subject to execution, attachment or similar process.

     (h)  Termination of Employment. Unless otherwise provided in the terms of
          -------------------------
an Incentive Stock Option Agreement or a Non-Qualified Agreement, as the case
may be, pursuant to Section 7(k), upon termination of an Optionee's employment
with the Company or with any of its Subsidiaries for any reason other than death
or Disability, any and all outstanding Options of such Optionee shall expire,
and shall not be exercisable with respect to any vested portion as to which such
Options have not been exercised on a date thirty days after such date of
termination. Any and all Outstanding Options shall be null and void, and shall
not be exercisable with respect to any unvested portion of such Options
immediately upon the termination of the Optionee's employment with the Company
for any reason, including death or Disability. The right of the Optionee to
receive any benefits from the Company or any of its Subsidiaries after
termination of employment with the Company or any of its Subsidiaries by reason
of employment contract, severance arrangement or otherwise shall not affect the
determination that an Optionee's employment has been terminated with the Company
or any of its Subsidiaries for purposes of the Plan. Neither the adoption of
this Plan nor the grant of an Option to an eligible person shall alter in any
way the Company's or the relevant Subsidiary's rights to terminate such person's
employment or directorship at any time with or without cause nor does it confer
upon such person any rights or privileges to continued employment, or any other
rights and privileges, except as specifically provided in the Plan.

     (i)  Disability or Death of Optionee. If an Optionee dies or suffers a
          -------------------------------
Disability while in the employ of the Company, but prior to termination of his
right to exercise an Option in accordance with the provisions of his stock
option agreement, without having totally exercised the Option, the Option may be
exercised, to the extent of the shares with respect to which the Option could
have been exercised by the Optionee on the date of the Optionee's death or
Disability, by (i) the Optionee's estate or by the person who acquired the right
to exercise the Option by bequest or inheritance or by reason of the death of
the Optionee in the event of the Optionee's death, or (ii) the Optionee or his
personal representative in the event of the Optionee's Disability, provided the
Option is exercised prior to the date of its expiration or not more than one
year from the date of the Optionee's death or Disability, whichever first
occurs. The date of Disability of an Optionee shall be determined by the
Company.

     (j)  Ten Percent Stockholders. Notwithstanding anything herein to the
          ------------------------
contrary, an Option which is intended to qualify as an Incentive Stock Option
shall be granted hereunder to any Optionee who, immediately before such Option
is granted, beneficially owns, directly or indirectly, more than 10% of the
total combined voting power of all classes of stock of the Company only if both
of the following conditions are met:

          (i)  The option price per share shall be no less than 110% of the Fair
     Market Value of a share of Common Stock on the Date of Grant; and

                                       8
<PAGE>

               (ii)  The expiration date of the Option shall be not more than
          five (5) years from the Date of Grant.

          (k)  Other Terms. Each Incentive Stock Option Agreement or Non-
               -----------
     Qualified Stock Option Agreement, as the case may be, may contain such
     other provisions (not inconsistent herewith) as the Committee in its
     discretion may determine, including, without limitation:

               (i)   any provision which shall condition the exercise of all or
          part of an Option upon such matters as the Committee may deem
          appropriate (if any) such as the passage of time, or the attainment of
          certain performance goals, appropriate to reflect the contribution of
          the Optionee to the performance of the Company;

               (ii)  any provision which would accelerate the exercisability of
          an Option in spite of any provision contained in an Option, under such
          circumstances as the Committee may deem appropriate, including a
          Change of Control;

               (iii) the manner in which an Option is to be exercised.

               In the event the Committee includes a provision for acceleration
          on a Change of Control, the Committee shall also include in such
          agreement a provision addressing whether "excess parachute payments"
          as defined in Section 280G of the Code are permitted, and if
          permitted, whether compensation for the parachute excise tax is to be
          paid by the Company to the Optionee.

     9.   Restricted Stock. The Committee shall determine the number of shares
          ----------------
of Common Stock to be granted as Restricted Stock from time to time under the
Plan. The grant of Restricted Stock shall be evidenced by Restricted Stock
agreements containing such terms and provisions, including provisions concerning
vesting and transferability, as are approved by the Committee, and executed on
behalf of the Corporation by an appropriate officer. The Committee in its
discretion may award shares of Restricted Stock under the Plan without requiring
the payment of cash consideration for such shares by the Participant.

     10.  Allotment of Shares. The grant of an Option or Restricted Stock shall
          -------------------
not be deemed either to entitle the Participant to, or disqualify the
Participant from, participation in any other grant of options or restricted
stock under this Plan or any other stock option plan of the Company. The number
of shares allotted to each Participant shall be determined by the Committee, in
its discretion; provided, that the aggregate Fair Market Value (determined as of
the time the option is granted) of the Common Stock with respect to which
Options which are intended to qualify as Incentive Stock Options are exercisable
for the first time by such Optionee during any calendar year (under all such
plans of the Optionee's employer corporation and its parent and subsidiary
corporations) shall not exceed $100,000.

     11.  Additional Restrictions. No employee shall be eligible to receive
          -----------------------
Incentive Stock Options (under the Plan and all other option plans of the
Company, its parent and subsidiary corporations) that are exercisable for the
first time in any calendar year with respect to stock with an aggregate Fair
Market Value (determined at the Date of Grant) in excess of $100,000, or such
other limits as may be imposed by the applicable laws and regulations under the
Code in effect

                                       9
<PAGE>

on the Date of Grant. In the event the Participant's total Incentive Stock
Options exceed the $100,000 limit in any calendar year (whether due to
acceleration of exercisability, miscalculation, error or otherwise) the amount
of Participant's Incentive Stock Options that exceed such limit shall be treated
as Non-Qualified Stock Options. The Incentive Stock Options granted earliest
(whether under this Plan or any other agreement or plan) shall be applied first
to the $100,000 limit. In the event that only a portion of the Incentive Stock
Options granted at the same time can be applied to the $100,000 limit, the
company shall issue separate share certificates for such number of shares as
does not exceed the $100,000 limit, and shall designate such shares as Incentive
Stock Options stock in its share transfer records.

     12.  Designation of Incentive Stock Options. The Committee shall cause each
          --------------------------------------
Option granted hereunder to be clearly designated in the agreement evidencing
such Option, at the time of grant, as to whether or not it is intended to
qualify as an Incentive Stock Option.

     13.  Notices. Whenever any notice is required or permitted hereunder, such
          -------
notice must be in writing and personally delivered or sent by mail. Any notice
required or permitted to be delivered hereunder shall be deemed to be delivered
on the date which it is personally delivered, or, whether actually received or
not, on the third business day after it is deposited in the United States mail,
certified or registered, postage prepaid, addressed to the person who is to
receive it at the address which such person has theretofore specified by written
notice delivered in accordance herewith. The Company or a Participant may
change, at any time and from time to time, by written notice to the other, the
address which it or he had theretofore specified for receiving notices. Until
changed in accordance herewith, the Company and each Participant shall specify
as its and his address for receiving notices the address set forth in the option
agreement pertaining to the shares to which such notice relate.

     14.  Amendment or Discontinuance. The Plan and any Option or Restricted
          ---------------------------
Stock outstanding hereunder may be amended or discontinued by the Committee
without the approval of the stockholders of the Company, except that the
Committee may not, except as expressly provided in the Plan, increase the
aggregate number of shares which may be issued under Options or Restricted Stock
granted pursuant to the Plan, materially amend the eligibility requirements of
the Plan or materially increase the benefits which may accrue to participants
under the Plan, without such approval (if any) as may be required pursuant to
the provisions of Rule 16b-3, or applicable law (including the Code) or the
requirements of any national stock exchange upon which the Company's Common
Stock is traded.

     15.  Effect of the Plan. Neither the adoption of this Plan nor any action
          ------------------
of the Committee shall be deemed to give any officer or employee any right to be
granted an option to purchase Common Stock or restricted stock of the Company or
any of its Subsidiaries, or any other rights except as may be evidenced by a
stock option or restricted stock agreement, or any amendment thereto, duly
authorized by the Committee and executed on behalf of the Company and then only
to the extent and on the terms and conditions expressly set forth therein.

     16.  Grant of Incentive Stock Options. No Incentive Stock Options shall be
          --------------------------------
granted pursuant to this Plan after the expiration of ten (10) years from the
date of the earlier of: (i) the date the Plan is adopted, or (ii) the date the
Plan is approved by the stockholders of the Company.

                                       10
<PAGE>

     17.  Shares Not Transferable. As a condition to the transfer of the shares
          -----------------------
of Common Stock issued under this Plan, the Company may require an opinion of
counsel, satisfactory to the Company, to the effect that such transfer will not
be in violation of the Securities Act of 1933, as amended, or any other
applicable securities laws or that such transfer has been registered under
federal and all applicable state securities laws. The Board may impose such
additional restrictions on the ownership and transfer of shares of Common Stock
issued pursuant to the Plan as it deems desirable; any such restrictions shall
be set forth in any Option or Restricted Stock agreement entered into hereunder.
Further, the Company shall be authorized to refrain from delivering or
transferring shares of Common Stock issued under this Plan until the Committee
has determined that the Participant has tendered to the Company any federal,
state or local tax owed by the Participant as a result of exercising the Option,
receiving a grant of Restricted Stock or disposing of any Common Stock, when the
Company has a legal liability to satisfy such tax. The Company shall not be
liable to any party for damages due to a delay in the delivery or issuance of
any stock certificate for any reason whatsoever.

     18.  Reservation of Shares. During the term of the Plan, the Company will
          ---------------------
at all times reserve and keep available, and will seek or obtain from any
regulatory body having jurisdiction any requisite authority in order to issue
and sell such number of shares of Common Stock as shall be sufficient to satisfy
the requirements of the Plan. The inability of the Company to obtain the
authority from any regulatory body having jurisdiction which is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any shares
of Common Stock hereunder shall relieve the Company of any liability in respect
of the nonissuance or sale of such Common Stock as to which such requisite
authority shall not have been obtained.

     19.  Approval of Plan. The Plan was originally adopted by the Board of
          ----------------
Directors and approved by the stockholders on January 18, 1999. Any amendments
to the Plan which require stockholder approval shall be by a majority of the
votes cast on the issue, including abstentions. The amendments to the Plan
included in this amendment and restatement were approved by the Board of
Directors on August 9, 2001, subject to stockholder approval. The amendments to
the Plan included in this amendment and restatement and any benefits granted
based upon such amendments will be null and void if stockholder approval is not
obtained at the next meeting of stockholders. No Options granted based upon the
amendments to the Plan included in this amendment and restatement shall be
exercised unless and until such amendments have been approved by the
stockholders of the Company as specified above.

     20.  Conformity with the Code. The Incentive Stock Options authorized
          ------------------------
pursuant to the Plan are intended to satisfy all requirements for the Incentive
Stock Options under the Code and, notwithstanding any provision of the Plan or
any Incentive Stock Option Agreement, the Plan and all Incentive Stock Options
granted pursuant hereto shall be so construed and all contrary provisions shall
be so limited in scope and effect and to the extent they cannot be so limited,
they shall be void.

     21.  Liability of the Company. Neither the Company, its directors, officers
          ------------------------
or employees, nor any Subsidiary which is in existence or hereafter comes into
existence, shall be liable to any Participant or other person (a) if it is
determined for any reason by the Internal Revenue Service or any court having
jurisdiction that any incentive stock option granted hereunder does not qualify
for tax treatment as an incentive stock option under Section 422 of

                                       11
<PAGE>

the Code, or (b) for refusing to sell or issue any shares covered by any Option
or for refusing to issue Restricted Stock if the Company cannot obtain authority
from the appropriate regulatory bodies deemed by the Company to be necessary to
sell or issue such shares in compliance with all applicable federal and state
securities laws and the requirements of any national exchange or trading system
on which the Common Stock is then listed or traded. In addition, the Company
shall have no obligation to any Participant, express or implied, to list,
register or otherwise qualify the shares of Common Stock covered by any Option
or Restricted Stock.

     22.  Governing Law. The Plan shall be governed by and construed in
          -------------
accordance with the laws of the State of Delaware and the United States, as
applicable, without reference to the conflict of laws provisions thereof.

     23.  Severability of Provisions. If any provision of this Plan is
          --------------------------
determined to be invalid, illegal or unenforceable, such invalidity, illegality
or unenforceability shall not affect the remaining provisions of the Plan, but
such invalid, illegal or unenforceable provision shall be fully severable, and
the Plan shall be construed and enforced as if such provision had never been
inserted herein.

                                       12

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