Document:

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                                                                   EXHIBIT 10.99

                                                                  EXECUTION COPY

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                       MASTER LOAN AND SECURITY AGREEMENT

                           ---------------------------

                          Dated as of December 30, 1999

                           ---------------------------

                           DORAL FINANCIAL CORPORATION
                                   as Borrower

                                       and

                      MORGAN STANLEY MORTGAGE CAPITAL INC.
                                    as Lender

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                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

Section 1. Definitions and Accounting Matters.
      1.01    Certain Defined Terms............................................1
      1.02    Accounting Terms and Determinations.............................13

Section 2. Loans, Note and Prepayments.
      2.01    Loans...........................................................14
      2.02    Notes...........................................................14
      2.03    Procedure for Borrowing.........................................14
      2.04    Limitation on Types of Loans; Illegality........................15
      2.05    Repayment of Loans; Interest....................................16
      2.06    Mandatory Prepayments or Pledge.................................16
      2.07    Takeout Commitments.............................................16
      2.08    Extension of Termination Date...................................17

Section 3. Payments; Computations; Etc.
      3.01    Payments........................................................17
      3.02    Computations....................................................18
      3.03    Requirements of Law.............................................18
      3.04    Facility Fee....................................................19

Section 4. Collateral Security.
      4.01    Collateral; Security Interest...................................19
      4.02    Further Documentation...........................................20
      4.03    Changes in Locations, Name, etc.................................20
      4.04    Lender's Appointment as Attorney-in-Fact........................20
      4.05    Performance by Lender of Borrower's Obligations.................22
      4.06    Proceeds........................................................22
      4.07    Remedies........................................................22
      4.08    Limitation on Duties Regarding Preservation of Collateral.......23
      4.09    Powers Coupled with an Interest.................................23
      4.10    Release of Security Interest....................................24

Section 5. Conditions Precedent.
      5.01    Initial Loan....................................................24
      5.02    Initial and Subsequent Loans....................................24

Section 6. Representations and Warranties.
      6.01    Existence.......................................................26
      6.02    Financial Condition.............................................26
      6.03    Litigation......................................................27
      6.04    No Breach.......................................................27

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      6.05    Action..........................................................27
      6.06    Approvals.......................................................27
      6.07    Margin Regulations..............................................28
      6.08    Taxes...........................................................28
      6.09    Investment Company Act..........................................28
      6.10    Collateral; Collateral Security.................................28
      6.11    Chief Executive Office/Jurisdiction of Organization.............29
      6.12    Location of Books and Records...................................29
      6.13    Hedging.........................................................29
      6.14    True and Complete Disclosure....................................29
      6.15    ERISA...........................................................29
      6.16    Takeout Commitments.............................................30
      6.17    Delivery of Mortgage Loans......................................30
      6.18    Well-Capitalized................................................30

Section 7. Covenants of the Borrower.
      7.01    Financial Statements............................................30
      7.02    Litigation......................................................32
      7.03    Existence, etc..................................................32
      7.04    Prohibition of Fundamental Changes..............................33
      7.05    Borrowing Base Deficiency.......................................33
      7.06    Notices.........................................................33
      7.07    Hedging; Takeout Commitments....................................33
      7.08    Reports.........................................................34
      7.09    Underwriting Guidelines.........................................34
      7.10    Transactions with Affiliates....................................34
      7.11    Limitation on Liens.............................................34
      7.12    Limitation on Distributions.....................................34
      7.13    Maintenance of Profitability....................................35
      7.14    Servicer; Servicing Tape........................................35
      7.15    Required Filings................................................35
      7.16    No Adverse Selection............................................35
      7.17    Computer Systems................................................35
      7.18    Approvals; Servicing............................................35
      7.19    Downgrade Trigger; Blocked Account..............................35
      7.20    Well-Capitalized................................................36

Section 8. Events of Default.

Section 9. Remedies Upon Default.

Section 10. No Duty of Lender.

Section 11. Miscellaneous.
      11.01   Waiver..........................................................39
      11.02   Notices.........................................................39

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      11.03   Indemnification and Expenses....................................39
      11.04   Amendments......................................................40
      11.05   Successors and Assigns..........................................40
      11.06   Survival........................................................40
      11.07   Captions........................................................41
      11.08   Counterparts....................................................41
      11.09   Loan Agreement Constitutes Security Agreement; Governing Law....41
      11.10   Submission To Jurisdiction; Waivers.............................41
      11.11   WAIVER OF JURY TRIAL............................................41
      11.12   Acknowledgments.................................................42
      11.13   Hypothecation or Pledge of Loans................................42
      11.14   Servicing.......................................................42
      11.15   Periodic Due Diligence Review...................................43
      11.16   Set-Off.........................................................44
      11.17   Intent..........................................................44

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SCHEDULES
      SCHEDULE 1        Representations and Warranties re: Mortgage Loans
      SCHEDULE 2        Filing Jurisdictions and Offices

EXHIBITS
      EXHIBIT A         Form of Promissory Note
      EXHIBIT B         Form of Custodial Agreement
      EXHIBIT C         Form of Opinion of Counsel to Borrower
      EXHIBIT D         Form of Request for Borrowing
      EXHIBIT E-1       Form of Borrower's Release Letter
      EXHIBIT E-2       Form of Warehouse Lender's Release Letter
      EXHIBIT F         Underwriting Guidelines
      EXHIBIT G         Form of Blocked Account Agreement
      EXHIBIT H         Form of Servicer Notice
      EXHIBIT I         Form of Confirmation of Receipt of Funds
      EXHIBIT J         Form of True Sale Certification

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                       MASTER LOAN AND SECURITY AGREEMENT

            MASTER LOAN AND SECURITY AGREEMENT, dated as of December 30, 1999,
between DORAL FINANCIAL CORPORATION, a Commonwealth of Puerto Rico corporation
(the "Borrower"), and MORGAN STANLEY MORTGAGE CAPITAL INC., a New York
corporation (the "Lender").

                                    RECITALS

            The Borrower has requested that the Lender from time to time make
revolving credit loans to them to finance certain residential mortgage loans
owned by the Borrower, and the Lender is prepared to make such loans upon the
terms and conditions hereof. Accordingly, the parties hereto agree as follows:

            Section 1. Definitions and Accounting Matters.

            1.01 Certain Defined Terms. As used herein, the following terms
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Loan Agreement in the singular to have the same
meanings when used in the plural and vice versa):

            "Accepted Servicing Practices" shall mean with respect to each
Mortgage Loan, those mortgage servicing practices of prudent mortgage lending
institutions that service mortgage loans of the same type as such Mortgage Loan
in the jurisdiction where the related Mortgaged Property is located, but in no
event shall such standards or practices be lower than the standards of the
Borrower with respect to its own portfolio of similar mortgage loans; and in all
events such standards shall comply with the applicable standards and
requirements under the applicable Agency Program and related provisions of the
applicable Agency Guide.

            "Affiliate" shall mean with respect to any Person, any "affiliate"
of such Person, as such term is defined in the Bankruptcy Code.

            "Agency" shall mean the Government National Mortgage Association
("GNMA"), Fannie Mae, or Freddie Mac or any successors thereto.

            "Agency Eligible Mortgage Loan" shall mean a Mortgage Loan that is a
First Lien Mortgage Loan that is in strict compliance with the eligibility
requirements for swap or purchase by the designated Agency, under the applicable
Agency Guide and/or designated Agency Program.

            "Agency Guide" shall mean the GNMA Mortgage-Backed Securities Guide,
the Fannie Mae Selling Guide and the Fannie Mae Servicing Guide or the Freddie
Mac Sellers' and Servicers' Guide; as applicable, in each case including all
exhibits thereto, as such Guide may be amended, supplemented or otherwise
modified from time to time.

            "Agency MBS" shall mean a mortgage-backed certificate guaranteed by
GNMA, a guaranteed mortgage pass-through certificate issued by Fannie Mae, or a
mortgage
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participation certificate issued by Freddie Mac, in each case representing or
backed by Mortgage Loans which are pledged to the Lender in exchange for one or
more Loans.

            "Agency MBS Submission Package" shall mean the Mortgage Loan
Documents and other documents required by the relevant Agency for each pool of
Mortgage Loans to back an Agency MBS as further defined in Section 2(III) of the
Custodial Agreement.

            "Agency Program" shall mean a specific mortgage-backed securities
swap or purchase program under the relevant Agency Guide or as otherwise
approved by the Agency with respect to Mortgage Loans originated pursuant to the
Agency Guide.

            "Agency Purchase Documents" shall mean the documents listed in the
Custodial Agreement (other than the Mortgage Loan Documents) and any other forms
or documents now or hereafter required by the relevant Agency and Agency Program
in order to permit the respective Agency to purchase the applicable Mortgage
Loans.

            "Agency Purchase Submission Package" shall mean the Mortgage Loan
Documents and other documents required for each Mortgage Loan intended to be
sold as part of a Whole Loan Transfer to an Agency as set forth in Section 2(II)
of the Custodial Agreement.

            "Anticipated Settlement Date" shall mean, with respect to each
Mortgage Loan, that date specified in the related Takeout Commitment as the
expiration date for such Takeout Commitment with respect to each Agency MBS or
Whole Loan Transfer to an Agency.

            "Applicable Collateral Percentage" shall mean:

            (A) prior to the occurrence of a Downgrade Trigger, (i) with respect
to Agency Eligible Mortgage Loans, 98%, (ii) with respect to Non-Agency Mortgage
Loans which are First Lien Mortgage Loans, 97%, (iii) with respect to Non-Agency
Mortgage Loans which are Second Lien Mortgage Loans, 90%, and (iv) with respect
to Delinquent Mortgage Loans, 85%; and

            (B) on or after the occurrence of a Downgrade Trigger, (i) with
respect to Agency Eligible Mortgage Loans, 96%, (ii) with respect to Non-Agency
Mortgage Loans which are First Lien Mortgage Loans, 94%, (iii) with respect to
Non-Agency Mortgage Loans which are Second Lien Mortgage Loans, 85%, and (iv)
with respect to Delinquent Mortgage Loans, 75%.

            "Applicable Margin" shall mean:

            (A) prior to the occurrence of a Downgrade Trigger, the sum of the
weighted average of the applicable rates per annum set forth below for each type
of Eligible Mortgage Loan for each day that Loans shall be secured by such
Eligible Mortgage Loans:

            (i) Agency Eligible Mortgage Loans. The product of (a) a fraction
equal to the Collateral Value of all Agency Eligible Mortgage Loans divided by
the Collateral Value of all Eligible Mortgage Loans, multiplied by (b) 95 basis
points;

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            (ii) Non-Agency Mortgage Loans. The product of (a) a fraction equal
to the Collateral Value of all Non-Agency Mortgage Loans divided by the
Collateral Value of all Eligible Mortgage Loans, multiplied by (b) 115 basis
points.

            (iii) Delinquent Mortgage Loans. The product of (a) a fraction equal
to the Collateral Value of all Delinquent Mortgage Loans divided by the
Collateral Value of all Eligible Mortgage Loans, multiplied by (b) 150 basis
points; or

            (B) on or after the occurrence of a Downgrade Trigger, the sum of
the weighted average of the applicable rates per annum set forth below for each
type of Eligible Mortgage Loan for each day that Loans shall be secured by such
Eligible Mortgage Loans:

            (i) Agency Eligible Mortgage Loans. The product of (a) a fraction
equal to the Collateral Value of all Agency Eligible Mortgage Loans divided by
the Collateral Value of all Eligible Mortgage Loans, multiplied by (b) 110 basis
points;

            (ii) Non-Agency Mortgage Loans. The product of (a) a fraction equal
to the Collateral Value of all Non-Agency Mortgage Loans divided by the
Collateral Value of all Eligible Mortgage Loans, multiplied by (b) 130 basis
points.

            (iii) Delinquent Mortgage Loans. The product of (a) a fraction equal
to the Collateral Value of all Delinquent Mortgage Loans divided by the
Collateral Value of all Eligible Mortgage Loans, multiplied by (b) 175 basis
points.

            "Appropriate Federal Banking Agency" shall have the meaning ascribed
to it by Section 1813(q) of Title 12 of the United States Code, as amended from
time to time.

            "Approvals" shall mean approval by each of the Agencies as an
approved issuer in good standing, and approvals by HUD and the VA, respectively,
all as more particularly described in Section 6.06(b) hereof.

            "Approved Purchaser" shall mean any Person approved by the Lender as
the provider of a Takeout Commitment.

            "Available Loan Amount" shall mean the Maximum Credit, minus the
aggregate amount of Transactions outstanding under the Repurchase Agreement.

            "Bank Holding Company" shall have the meaning ascribed to such term
by the Bank Holding Company Act of 1956, as amended from time to time.

            "Bankruptcy Code" shall mean the United States Bankruptcy Code of
1978, as amended from time to time.

            "Blocked Account Agreement" shall mean an agreement between the
Servicer, the Borrower, and the Lender, substantially in the form of Exhibit G
hereto, as the same may be amended, supplemented or otherwise modified from time
to time, in which the Servicer acknowledges the Lender's lien on the Collection
Account, and agrees that, in the event that it receives notice that an Event of
Default hereunder has occurred and until such notice is rescinded

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by the Lender, the Servicer shall only withdraw funds from the Collection
Account on instruction from the Lender.

            "Borrower" shall have the meaning provided in the heading hereof.

            "Borrowing Base" shall mean the aggregate Collateral Value of all
Eligible Mortgage Loans.

            "Borrowing Base Deficiency" shall have the meaning provided in
Section 2.06 hereof.

            "Business Day" shall mean any day other than (i) a Saturday or
Sunday, (ii) a day on which the New York Stock Exchange, the Federal Reserve
Bank of New York or the Custodian is authorized or obligated by law or executive
order to be closed, or (iii) a day on which commercial banks are generally not
open for business in the Commonwealth of Puerto Rico.

            "Capital Lease Obligations" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this Loan
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.

            "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.

            "Collateral" shall have the meaning provided in Section 4.01(b)
hereof.

            "Collateral Value" shall mean, with respect to each Eligible
Mortgage Loan, the lesser of (a) the Applicable Collateral Percentage of the
Market Value of such Mortgage Loan, and (b) 99% of the outstanding principal
balance of such Mortgage Loan; provided, that, the following additional
limitations on Collateral Value shall apply:

            (i) the aggregate Collateral Value of Delinquent Mortgage Loans may
not exceed 2% of the aggregate principal amount of all Loans outstanding;

            (ii) the aggregate Collateral Value of Second Lien Mortgage Loans
may not exceed 5% of the Maximum Credit;

            (iii) Collateral Value shall be deemed to be zero with respect to
each Mortgage Loan (1) in respect of which there is a breach of a representation
and warranty set forth on Schedule 1 (assuming each representation and warranty
is made as of the date Collateral Value is determined), (2) in respect of which
there is a delinquency in the payment of principal and/or interest which
continues for a period in excess of 60 days (without regard to any applicable
grace periods), (3) which remains pledged to the Lender hereunder (A) later than
90 days after the date on which it is first included

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in the Collateral for Non-Agency Mortgage Loans, and for Delinquent Mortgage
Loans, and (B) later than 60 days after the date on which it is first included
in the Collateral for Agency Eligible Mortgage Loans, (4) which has been
released from the possession of the Custodian under the Custodial Agreement to
the Borrower for a period in excess of 10 days, (5) which exceed the limitations
on Collateral Value set forth in (i) above, or (6) in respect of which the
related Agency MBS has been issued by the Agency.

            "Collection Account" shall mean one or more accounts established by
the Servicer which may become subject to a security interest in favor of the
Lender and to the Blocked Account Agreement, into which all Collections shall be
deposited by the Servicer.

            "Collections" shall mean, collectively, all collections and proceeds
on or in respect of the Mortgage Loans, excluding collections required to be
paid to the Servicer or a mortgagor on the Mortgage Loans.

            "Custodial Agreement" shall mean the Custodial Agreement, dated as
of the date hereof, among the Borrower, the Custodian and the Lender,
substantially in the form of Exhibit B hereto, as the same shall be modified and
supplemented and in effect from time to time.

            "Custodian" shall mean Banco Popular de Puerto Rico, as custodian
under the Custodial Agreement, and its successors and permitted assigns
thereunder.

            "Cut-Off Date" shall mean the first calendar day of the month in
which the Settlement Date is to occur.

            "Default" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.

            "Delinquent Mortgage Loan" shall mean a Non-Agency Mortgage Loan
that is a First Lien Mortgage Loan that is at least 30 days past due and less
than or equal to 59 days past due.

            "Dollars" and "$" shall mean lawful money of the United States of
America.

            "Downgrade Trigger" shall mean that the Borrower's corporate senior
bond rating has been lowered or downgraded to a rating below BB+ as indicated by
S&P or below Ba1 as indicated by Moody's.

            "Due Diligence Fee" shall have the meaning provided in Section 11.15
hereof.

            "Due Diligence Review" shall mean the performance by the Lender of
any or all of the reviews permitted under Section 11.15 hereof with respect to
any or all of the Mortgage Loans, as desired by the Lender from time to time.

            "Effective Date" shall mean the date upon which the conditions
precedent set forth in Section 5.01 shall have been satisfied.

            "Eligible Mortgage Loan" shall mean a Mortgage Loan secured by a
first or second mortgage lien on a one to four family residential property, as
to which the representations and warranties in Section 6.10 and Part I of
Schedule 1 hereof are correct and which is an

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Agency Eligible Mortgage Loan, a Non-Agency Mortgage Loan or a Delinquent
Mortgage Loan; provided that, in no event shall any Eligible Mortgage Loan be a
security for purposes of any securities or blue-sky laws.

            "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.

            "ERISA Affiliate" shall mean any corporation or trade or business
that is a member of any group of organizations (i) described in Section 414(b)
or (c) of the Code of which the Borrower is a member and (ii) solely for
purposes of potential liability under Section 302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and
Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of
which the Borrower is a member.

            "Eurodollar Rate" shall mean, with respect to each day a Loan is
outstanding, the rate per annum equal to the rate appearing at page 5 of the
Telerate Screen as one-month LIBOR on such date (and if such date is not a
Business Day, the Eurodollar Rate in effect on the Business Day immediately
preceding such date), and if such rate shall not be so quoted, the rate per
annum at which the Lender is offered Dollar deposits at or about 10:00 A.M., New
York City time, on such date by prime banks in the interbank eurodollar market
where the eurodollar and foreign currency exchange operations in respect of its
Loans are then being conducted for delivery on such day for a period of 30 days
and in an amount comparable to the amount of the Loans to be outstanding on such
day.

            "Event of Default" shall have the meaning provided in Section 8
hereof.

            "Fannie Mae" shall mean Fannie Mae, or any successor thereto.

            "Federal Funds Margin" shall mean 25 basis points (0.25%).

            "Federal Funds Rate" shall mean, with respect to each day a Loan is
outstanding, the rate per annum equal to the rate appearing at page 5 of the
Telerate Screen at 8:30 a.m., New York City Time, as "Opening Federal Funds
Rate" on such date (and if such date is not a Business Day, the Federal Funds
Rate in effect on the Business Day immediately preceding such date), or, if such
rate is not so available for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Lender from three
federal funds brokers of recognized standing selected by it.

            "FHA" shall mean the Federal Housing Administration, an agency
within the United States Department of Housing and Urban Development, or any
successor thereto and including the Federal Housing Commissioner and the
Secretary of Housing and Urban Development where appropriate under the FHA
regulations.

            "First Lien Mortgage Loan" shall mean an Mortgage Loan secured by a
lien on the Mortgaged Property, subject to no prior liens, other than Permitted
Liens, on such Mortgaged Property.

            "Freddie Mac" shall mean Freddie Mac, or any successor thereto.

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            "Funding Date" shall mean the date on which a Loan is made
hereunder.

            "GAAP" shall mean generally accepted accounting principles as in
effect from time to time in the United States.

            "GNMA" shall mean the Government National Mortgage Association, or
any successor thereto.

            "Good Delivery" shall mean, with respect to an Agency MBS, the
meaning ascribed to such term in the PSA Guide in connection with the standard
requirements for the delivery and settlement of an Agency MBS, and with respect
to a Whole Loan Transfer, the requirements for delivery as set forth in the
applicable Takeout.

            "Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any court or arbitrator having jurisdiction over the Borrower,
any of its Subsidiaries or any of its properties.

            "Guarantee" shall mean, as to any Person, any obligation of such
Person directly or indirectly guaranteeing any Indebtedness of any other Person
or in any manner providing for the payment of any Indebtedness of any other
Person or otherwise protecting the holder of such Indebtedness against loss
(whether by virtue of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, or to take-or-pay or otherwise);
provided that the term "Guarantee" shall not include (i) endorsements for
collection or deposit in the ordinary course of business, or (ii) obligations to
make servicing advances for delinquent taxes and insurance or other obligations
in respect of a Mortgaged Property, to the extent required by the Lender. The
amount of any Guarantee of a Person shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Guarantee is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith. The terms "Guarantee" and "Guaranteed" used as verbs shall have
correlative meanings.

            "HUD" shall mean the Department of Housing and Urban Development, or
any federal agency or official thereof which may from time to time succeed to
the functions thereof with regard to FHA insurance. The term "HUD," for the
purposes of this Loan Agreement, is also deemed to include subdivisions thereof
such as the FHA.

            "Indebtedness" shall mean, for any Person: (a) obligations created,
issued or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of Property to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such Property from such Person); (b) obligations of such Person to pay the
deferred purchase or acquisition price of Property or services, other than trade
accounts payable (other than for borrowed money) arising, and accrued expenses
incurred, in the ordinary course of business so long as such trade accounts
payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the Property of such Person, whether or not the respective
Indebtedness so secured has been assumed by such Person; (d) obligations
(contingent

                                      -7-
<PAGE>   13

or otherwise) of such Person in respect of letters of credit or similar
instruments issued or accepted by banks and other financial institutions for
account of such Person; (e) Capital Lease Obligations of such Person; (f)
obligations of such Person under repurchase agreements, sale/buy-back agreements
or like arrangements; (g) Indebtedness of others Guaranteed by such Person; (h)
all obligations of such Person incurred in connection with the acquisition or
carrying of fixed assets by such Person; and (i) Indebtedness of general
partnerships of which such Person is a general partner.

            "Individual Takeout Amount" shall mean the principal amount of a
Whole Loan Transfer or an Agency MBS, covered by a particular Takeout
Commitment, determined in accordance with Good Delivery requirements.

            "Initial Mortgage Loan Balance" shall mean the aggregate principal
balance of the applicable Mortgage Loan as of the Cut-Off Date, after
application of scheduled payments of principal due on or before such Cut-Off
Date, whether or not collected, but without application of payments of scheduled
principal prepaid for a due date beyond the Cut-Off Date.

            "Insured Depository Institution" shall have the meaning ascribed to
such term by Section 1813(c)(2) of Title 12 of the United States Code, as
amended from time to time, and shall include a Bank Holding Company.

            "Interest Rate Protection Agreement" shall mean, with respect to any
or all of the Mortgage Loans, any short sale of US Treasury Security, or futures
contract, or mortgage related security, or Eurodollar futures contract, or
options related contract, or interest rate swap, cap or collar agreement or
similar arrangements providing for protection against fluctuations in interest
rates or the exchange of nominal interest obligations, either generally or under
specific contingencies, [entered into by the Borrower and an Affiliate of the
Lender,] and acceptable to the Lender.

            "Investor Requirements" shall mean the underwriting standards or
guidelines of the Takeout Investor, with respect to the related Mortgage Loans
and the delivery and servicing thereof.

            "Lender" shall have the meaning provided in the heading hereto.

            "Lien" shall mean any mortgage, lien, pledge, charge, security
interest or similar encumbrance.

            "Loan" shall have the meaning provided in Section 2.01(a) hereof.

            "Loan Agreement" shall mean this Master Loan and Security Agreement,
as the same may be amended, supplemented or otherwise modified from time to
time.

            "Loan Documents" shall mean, collectively, this Loan Agreement, the
Note, the Custodial Agreement, and the Blocked Account Agreement.

            "Market Value" shall mean, as of any date in respect of an Eligible
Mortgage Loan, the price at which such Eligible Mortgage Loan could readily be
sold as determined in

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<PAGE>   14

good faith by the Lender, which price may be determined to be zero. The Lender's
determination of Market Value shall be conclusive upon the parties absent
manifest error on the part of the Lender.

            "Material Adverse Effect" shall mean a material adverse effect on
(a) the Property, business, operations, financial condition or prospects of the
Borrower, (b) the ability of the Borrower to perform its obligations under any
of the Loan Documents to which it is a party, (c) the validity or enforceability
of any of the Loan Documents, (d) the rights and remedies of the Lender under
any of the Loan Documents, (e) the timely payment of the principal of or
interest on the Loans or other amounts payable in connection therewith or (f)
the Collateral.

            "Maximum Credit" shall mean $400,000,000.

            "Moody's" shall mean Moody's Investors Service, Inc., or any
successor thereto.

            "Mortgage" shall mean the mortgage, deed of trust or other
instrument securing a Mortgage Note, which creates a first lien or second lien
on the fee in real property securing the Mortgage Note.

            "Mortgage File" shall have the meaning assigned thereto in the
Custodial Agreement.

            "Mortgage Loan" shall mean a mortgage loan which the Custodian has
been instructed to hold for the Lender pursuant to the Custodial Agreement, and
which Mortgage Loan includes, without limitation, a Mortgage Note and related
Mortgage.

            "Mortgage Loan Documents" shall mean, with respect to a Mortgage
Loan, the documents comprising the Mortgage File for such Mortgage Loan.

            "Mortgage Loan Schedule" shall have the meaning assigned thereto in
the Custodial Agreement.

            "Mortgage Loan Schedule and Exception Report" shall mean the
mortgage loan schedule and exception report prepared by the Custodian pursuant
to the Custodial Agreement.

            "Mortgage Loan Tape" shall mean a computer-readable file containing
information with respect to each Mortgage Loan, to be delivered by the Borrower
to the Lender pursuant to Section 2.03(a) hereof which tape fields are
identified on Annex I to the Custodial Agreement.

            "Mortgage Note" shall mean the original executed promissory note or
other evidence of the indebtedness of a mortgagor/borrower with respect to a
Mortgage Loan.

            "Mortgaged Property" shall mean the real property (including all
improvements, buildings, fixtures, building equipment and personal property
thereon and all additions, alterations and replacements made at any time with
respect to the foregoing) and all other collateral securing repayment of the
debt evidenced by a Mortgage Note.

                                      -9-
<PAGE>   15

            "Mortgagor" shall mean the obligor on a Mortgage Note.

            "MS & Co." shall mean Morgan Stanley & Co. Incorporated, a
registered broker-dealer.

            "MS Indebtedness" shall mean any indebtedness of the Borrower
hereunder and under any other arrangement between the Borrower on the one hand
and the Lender or an Affiliate of the Lender on the other hand, including
without limitation the obligations of the Borrower under the Repurchase
Agreement.

            "Multiemployer Plan" shall mean a multiemployer plan defined as such
in Section 3(37) of ERISA to which contributions have been or are required to be
made by the Borrower or any ERISA Affiliate and that is covered by Title IV of
ERISA.

            "Net Income" shall mean, for the Borrower, for any period, the
consolidated net income of the Borrower and its consolidated Subsidiaries for
such period as determined in accordance with GAAP.

            "1934 Act" shall mean the Securities and Exchange Act of 1934, as
amended.

            "Non-Agency Mortgage Loan" shall mean a Mortgage Loan which is
either a First Lien Mortgage Loan or a Second Lien Mortgage Loan made by the
Borrower to a Mortgagor with an `A' credit history which is underwritten in
accordance with the Borrower's Underwriting Guidelines for `A' credit Mortgage
Loans.

            "Note" shall have the meaning provided in Section 2.02(a) hereof.

            "PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.

            "Permitted Liens" shall have the meaning provided in Schedule 1,
Part I, (j).

            "Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, limited liability company, trust,
unincorporated association or government (or any agency, instrumentality or
political subdivision thereof).

            "Plan" shall mean an employee benefit or other plan established or
maintained by the Borrower or any ERISA Affiliate and covered by Title IV of
ERISA, other than a Multiemployer Plan.

            "Post-Default Rate" shall mean, in respect of any principal of any
Loan or any other amount under this Loan Agreement, the Note or any other Loan
Document that is not paid when due to the Lender (whether at stated maturity, by
acceleration, by mandatory prepayment or otherwise), a rate per annum during the
period from and including the due date to but excluding the date on which such
amount is paid in full equal to 4% per annum plus the Prime Rate.

                                      -10-
<PAGE>   16

            "Prime Rate" shall mean the prime rate announced to be in effect
from time to time, as published as the average rate in The Wall Street Journal.

            "Property" shall mean any right or interest in or to property of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.

            "PSA Guide" shall mean the Uniform Practices for the Clearance and
Settlement of Mortgage-Backed Securities and Other related Securities, published
(and periodically updated and supplemented) by the Public Securities Association
("PSA").

            "Regulations T, U and X" shall mean Regulations T, U and X of the
Board of Governors of the Federal Reserve System (or any successor), as the same
may be modified and supplemented and in effect from time to time.

            "Repurchase Agreement" shall mean that certain Master Repurchase
Agreement for purchases of mortgage loans to be entered into between Doral
Financial Corporation and Morgan Stanley & Co. International Limited, as the
same may be amended, supplemented or otherwise modified from time to time.

            "Requirement of Law" shall mean as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.

            "Responsible Officer" shall mean, as to any Person, the chief
executive officer, chief operating officer, or any executive vice president or,
with respect to financial matters, the chief financial officer, treasurer or
chief accounting officer of such Person.

            "S&P" shall mean Standard and Poor's Ratings Services, or any
successor thereto.

            "Second Lien Mortgage Loan" shall mean a Mortgage Loan secured by
the lien on the Mortgaged Property, subject to one prior lien on such Mortgaged
Property.

            "Secured Obligations" shall have the meaning provided in Section
4.01(c) hereof.

            "Servicer" shall have the meaning provided in Section 11.14(c)
hereof.

            "Servicing Agreement" shall have the meaning provided in Section
11.14(c) hereof.

            "Servicing Records" shall have the meaning provided in Section
11.14(b) hereof.

            "Settlement Date" shall mean, with respect to each Mortgage Loan,
the actual date on which the Takeout Price is received by the Lender.

                                      -11-
<PAGE>   17

            "Standard Agency Mortgage Loan Representations" shall mean all of
the representations and warranties made or deemed made respecting the Mortgage
Loans contained in (or incorporated by reference in) the relevant Agency Guide
provisions and Agency Program.

            "Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.

            "System" shall mean all hardware or software, or any system
consisting of one or more thereof, including, without limitation, any and all
enhancements, upgrades, customizations, modifications, maintenance and the like
utilized by any Person for the benefit of such Person to perform its obligations
and to administer and track, store, process, provide, and where appropriate,
insert, true and accurate dates and calculations for dates and spans with
respect to the Mortgage Loans.

            "Takeout Amount" shall mean the aggregate of the Individual Takeout
Amounts respecting a Whole Loan Transfer or an Agency MBS to be sold, issued or
swapped, as applicable, in connection with a given Transaction, which Takeout
Amount shall be required to equal the Whole Loan Amount or Agency MBS.

            "Takeout Commitment" shall mean the collective reference to (i) with
respect to an Agency MBS, a trade confirmation from the Agency to swap for the
principal amount of one or more Mortgage Loans an Agency MBS as more
particularly described therein, (ii) with respect to a Whole Loan Transfer
pursuant to which an Agency is the Takeout Investor, a trade confirmation from
such Agency to the Borrower confirming the details of a forward trade between
the Takeout Investor (as buyer) and the Borrower (as seller) constituting a
valid binding and enforceable mandatory delivery commitment by such Agency to
purchaser on the Anticipated Settlement Date and at a given Takeout Price the
Whole Loan Amount described therein and (iii) with respect to each Agency MBS
and each Whole Loan Transfer (other than those in which the Takeout Investor is
an Agency), a trade confirmation from the Takeout Investor to the Borrower
confirming the details of a forward trade between the Takeout Investor (as
buyer) and the Borrower (as seller) constituting a valid, binding and
enforceable mandatory delivery commitment by a Takeout Investor to purchase on
the Anticipated Settlement Date and at a given Takeout Price the principal
amount of the Agency MBS or Whole Loan Amount described therein.

            "Takeout Investor" shall mean a securities broker-dealer, Agency or
other institution, acceptable to the Lender, which has made a Takeout
Commitment.

            "Takeout Price" shall mean as to each Takeout Commitment the
purchase price (expressed as a percentage of par) set forth therein.

                                      -12-
<PAGE>   18

            "Takeout Proceeds" shall mean as to each Settlement Date, the actual
amount of proceeds delivered to the Lender by the applicable Takeout Investor
for the purchase of Mortgage Loans or Agency MBS on such Settlement Date.

            "Termination Date" shall mean December 29, 2000 or such earlier date
on which this Loan Agreement shall terminate in accordance with the provisions
hereof or by operation of law.

            "Test Period" shall have the meaning provided in Section 7.13
hereof.

            "True Sale Certification" shall mean the form of true sale
certification attached as Exhibit J hereto.

            "Underwriting Guidelines" shall mean the underwriting guidelines
attached as Exhibit E hereto.

            "Uniform Commercial Code" shall mean the Uniform Commercial Code as
in effect on the date hereof in the State of New York; provided that if by
reason of mandatory provisions of law, the perfection or the effect of
perfection or non-perfection of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than New York, "Uniform Commercial Code" shall, in the case of Puerto Rico, mean
the Puerto Rico Commercial Transactions Act (or any successor statute thereto)
or in the case of any other jurisdiction it shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such perfection or effect of perfection or non-perfection.

            "VA" shall mean the United States Department of Veterans Affairs.

            "Well Capitalized" shall mean, with respect to any Insured
Depository Institution, the maintenance by such Insured Depository Institution
of capital ratios at or above the required minimum levels for such capital
category under the regulations promulgated pursuant to Section 1831(o) ("Prompt
Corrective Action") of the United States Code, as amended from time to time, or
with respect to Bank Holding Companies, the definition of such term contained in
Regulation Y of the Board of Governors of the Federal Reserve System, as amended
from time to time.

            "Whole Loan Amount" shall mean the Initial Mortgage Loan Balance of
the Mortgage Loans sold to the Takeout Investor pursuant to a Whole Loan
Transfer.

            "Whole Loan Transfer" shall mean the sale or transfer of some or all
of the Mortgage Loans to a Takeout Investor in a whole loan transaction.

            "Year 2000 Compliant" shall mean the ability of a System to continue
its normal functions including and following December 1, 1999 and the ability of
such System to support its continued normal usage such that neither the
performance nor the correct functioning of such System will be affected by the
approach, and passing into, the year 2000.

            1.02 Accounting Terms and Determinations. Except as otherwise
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial

                                      -13-
<PAGE>   19

statements and certificates and reports as to financial matters required to be
delivered to the Lender hereunder shall be prepared, in accordance with GAAP.

            Section 2. Loans, Note and Prepayments.

            2.01 Loans.

            (a) The Lender agrees from time to time, on the terms and conditions
of this Loan Agreement, to make loans (individually, a "Loan" and, collectively,
the "Loans") to the Borrower in Dollars, from and including the Effective Date
to and including the Termination Date in an aggregate principal amount at any
one time outstanding up to but not exceeding the Available Loan Amount as in
effect from time to time.

            (b) Subject to the terms and conditions of this Loan Agreement,
during such period the Borrower may borrow, repay and reborrow hereunder;
provided that, notwithstanding the foregoing, the Lender shall have no
obligation to make Loans to the Borrower in excess of the then current Available
Loan Amount and, in the event the obligation of the Lender to make Loans to the
Borrower is terminated as permitted hereunder, the Lender shall have no further
obligation to make additional Loans hereunder.

            (c) In no event shall a Loan be made when any Default or Event of
Default has occurred and is continuing.

            2.02 Notes.

            (a) The Loans made by the Lender shall be evidenced by a single
promissory note of the Borrower substantially in the form of Exhibit A hereto
(the "Note"), dated the date hereof, payable to the Lender in a principal amount
equal to the amount of the Maximum Credit as originally in effect and otherwise
duly completed. The Lender shall have the right to have its Note subdivided, by
exchange for promissory notes of lesser denominations or otherwise.

            (b) The date, amount and interest rate of each Loan made by the
Lender to the Borrower, and each payment made on account of the principal
thereof, shall be recorded by the Lender on its books and, prior to any transfer
of the Note, endorsed by the Lender on the schedule attached to the Note or any
continuation thereof; provided that the failure of the Lender to make any such
recordation or endorsement shall not affect the obligations of the Borrower to
make a payment when due of any amount owing hereunder or under the Note in
respect of the Loans.

            2.03 Procedure for Borrowing.

            (a) The Borrower may request a borrowing hereunder, on any Business
Day during the period from and including the Effective Date to and including the
Termination Date, by delivering to the Lender, with a copy to the Custodian, a
written request for borrowing, substantially in the form of Exhibit D attached
hereto, which request must be received by the Lender prior to 11:00 a.m., New
York City time, one (l) Business Day prior to the requested Funding Date. Such
request for borrowing shall (i) attach a schedule identifying the Eligible
Mortgage Loans that the Borrower propose to pledge to the Lender and to be
included in the

                                      -14-
<PAGE>   20

Borrowing Base in connection with such borrowing, (ii) specify the requested
Funding Date, (iii) include a Mortgage Loan Tape containing information with
respect to the Eligible Mortgage Loans that the Borrower proposes to pledge to
the Lender and to be included in the Borrowing Base in connection with such
borrowing, and (iv) attach an officer's certificate signed by a Responsible
Officer of the Borrower as required by Section 5.02(b) hereof.

            (b) Upon the Borrower's request for a borrowing pursuant to Section
2.03(a), the Lender shall, assuming all conditions precedent set forth in
Section 5.01 and 5.02 have been met and provided no Default shall have occurred
and be continuing, make a Loan to the Borrower on the requested Funding Date, in
the amount so requested provided that the aggregate principal balance of Loans
outstanding after giving effect to the Loan requested shall not exceed the
Available Loan Amount as then in effect.

            (c) The Borrower shall release to the Custodian no later than [12:00
p.m.,] New York City time, on the requested Funding Date, the Mortgage File
pertaining to each Eligible Mortgage Loan to be pledged to the Lender and
included in the Borrowing Base on such requested Funding Date, in accordance
with the terms and conditions of the Custodial Agreement.

            (d) Pursuant to the Custodial Agreement, the Custodian shall deliver
to the Lender and the Borrower, no later than 1:00 p.m. on a Funding Date, a
Trust Receipt (as defined in the Custodial Agreement) in respect of all Mortgage
Loans pledged to the Lender on such Funding Date, and a Mortgage Loan Schedule
and Exception Report. Subject to Section 5 hereof, such borrowing will then be
made available to the Borrower by the Lender transferring, via wire transfer, to
the following account: Federal Reserve Bank of New York, ABA# 221572838, for the
A/C of Doral Bank for further credit to HF Mortgage Bankers Account #
2-4000011-2, in the aggregate amount of such borrowing in funds immediately
available to the Borrower.

            2.04 Limitation on Types of Loans; Illegality. Anything herein to
the contrary notwithstanding, if, on or prior to the determination of any
Eurodollar Rate:

            (a) the Lender determines, which determination shall be conclusive,
that quotations of interest rates for the relevant deposits referred to in the
definition of "Eurodollar Rate" in Section 1.01 hereof are not being provided in
the relevant amounts or for the relevant maturities for purposes of determining
rates of interest for Loans as provided herein; or

            (b) the Lender determines, which determination shall be conclusive,
that the relevant rate of interest referred to in the definition of "Eurodollar
Rate" in Section 1.01 hereof upon the basis of which the rate of interest for
Loans is to be determined is not likely adequately to cover the cost to the
Lender of making or maintaining Loans; or

            (c) it becomes unlawful for the Lender to honor its obligation to
make or maintain Loans hereunder using a Eurodollar Rate;

            then the Lender shall give the Borrower prompt notice thereof and,
so long as such condition remains in effect, the Lender shall be under no
obligation to make additional Loans, and the Borrower shall, either prepay all
such Loans as may be outstanding or pay interest

                                      -15-
<PAGE>   21

on such Loans at a rate per annum equal to the Federal Funds Rate plus the
Applicable Margin plus the Federal Funds Margin.

            2.05 Repayment of Loans; Interest.

            (a) The Borrower hereby promises to repay in full on the Termination
Date the then aggregate outstanding principal amount of the Loans.

            (b) The Borrower hereby promises to pay to the Lender interest on
the unpaid principal amount of each Loan for the period from and including the
date of such Loan to but excluding the date such Loan shall be paid in full, at
a rate per annum equal to (i) with respect to the period prior to December 31,
1999, the applicable Eurodollar Rate plus the Applicable Margin, (ii) with
respect to the period from and including December 31, 1999 to and including
January 3, 2000, the Federal Funds Rate plus the Federal Funds Margin plus the
Applicable Margin, and (iii) with respect to the period on or after January 4,
2000, the applicable Eurodollar Rate plus the Applicable Margin. Notwithstanding
the foregoing, the Borrower hereby promises to pay to the Lender interest at the
applicable Post-Default Rate on any principal of any Loan and on any other
amount payable by the Borrower hereunder or under the Note that shall not be
paid in full when due (whether at stated maturity, by acceleration or by
mandatory prepayment or otherwise) for the period from and including the due
date thereof to but excluding the date the same is paid in full. Accrued
interest on each Loan shall be payable monthly on the first Business Day of each
month and for the last month of the Loan Agreement on the first Business Day of
such last month and on the Termination Date; provided, that, the Lender may, in
its sole discretion, require accrued interest to be paid simultaneously with any
prepayment of principal made by the Borrower on account of any of the Loans
outstanding. Interest payable at the Post-Default Rate shall accrue daily and
shall be payable upon such accrual.

            (c) It is understood and agreed that, unless and until a Default
shall have occurred and be continuing, the Borrower shall be entitled to the
proceeds of the Mortgage Loans pledged to the Lender hereunder.

            2.06 Mandatory Prepayments or Pledge.

            If at any time the aggregate outstanding principal amount of Loans
exceeds the Borrowing Base (a "Borrowing Base Deficiency"), as determined by the
Lender and notified to the Borrower on any Business Day, the Borrower shall no
later than one Business Day after receipt of such notice, either prepay the
Loans in part or in whole or pledge additional Eligible Mortgage Loans (which
Collateral shall be in all respects acceptable to the Lender) to the Lender,
such that after giving effect to such prepayment or pledge the aggregate
outstanding principal amount of the Loans does not exceed the Borrowing Base.

            2.07 Takeout Commitments.

            The Borrower shall (a) instruct each Takeout Investor to remit
Purchase Proceeds in connection with each Takeout Commitment directly to the
Lender to the account set forth in Section 3.01(a) hereof, or (b) in the event
the Borrower repays the outstanding Loans related to each Takeout Commitment,
and provided that no Default shall have occurred and be continuing, the Borrower
may instruct the Lender as to where to deliver and release the related
Collateral;

                                      -16-
<PAGE>   22

provided that any such release would not result in a Borrowing Base Deficiency.
In the event that the Borrower elects to proceed as described in clause (a) of
the preceding sentence, subject to the following sentence, on the Settlement
Date, the Lender shall apply the Takeout Proceeds received by the Lender to
amounts due to the Lender or any of its Affiliates from the Borrower as provided
herein; to the extent that no Default shall have occurred and be continuing, the
Lender shall remit any excess Takeout Proceeds to the Borrower provided that the
Lender receives, prior to 3:00 p.m., New York City time on such Settlement Date,
from (i) the Borrower via facsimile or electronically a confirmation of receipt
of funds from the Borrower, in the form of Exhibit I attached hereto (the
"Confirmation of Receipt of Funds") stating among other things that the Takeout
Investor has purchased the Mortgage Loans or Agency MBS from the Borrower and
the Takeout Proceeds paid by the Takeout Investor for such Mortgage Loans and
from (ii) the applicable Takeout Investor, the Takeout Proceeds by wire transfer
in immediately available funds to the depository account designated by the
Lender. In the event the Lender receives the Confirmation of Receipt of Funds
from the Borrower or the Takeout Proceeds from the Takeout Investor after 3:00
p.m., New York City time on the related Settlement Date, the Lender shall remit
any excess referred to in the first sentence of this paragraph, to the Borrower
on the Business Day following such Settlement Date and the Borrower shall not be
entitled to any interest thereon.

            2.08 Extension of Termination Date.

            At the request of the Borrower made at least thirty (30) days, but
in no event earlier than ninety (90) days, prior to the then current Termination
Date, the Lender may in its sole discretion extend the Termination Date for a
period to be determined by Lender in its sole discretion by giving written
notice of such extension to the Borrower no later than twenty (20) days, but in
no event earlier than thirty (30) days, prior to the then current Termination
Date. Any failure by the Lender to deliver such notice of extension shall be
deemed to be the Lender's determination not to extend the then current
Termination Date.

            Section 3. Payments; Computations; Etc.

            3.01 Payments.

            (a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Borrower under this Loan
Agreement and the Note, shall be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to the Lender at the
following account maintained by the Lender: Account No. 40615114, for the
account of MSMCI, Citibank, N.A., ABA No. 021000089, Attn: Whole Loan
Operations, not later than 1:00 p.m., New York City time, on the date on which
such payment shall become due (and each such payment made after such time on
such due date shall be deemed to have been made on the next succeeding Business
Day). The Borrower acknowledges that it has no rights of withdrawal from the
foregoing account.

            (b) Except to the extent otherwise expressly provided herein, if the
due date of any payment under this Loan Agreement or the Note would otherwise
fall on a day that is not a Business Day, such date shall be extended to the
next succeeding Business Day, and interest shall be payable for any principal so
extended for the period of such extension.

                                      -17-
<PAGE>   23

            3.02 Computations. Interest on the Loans shall be computed on the
basis of a 360-day year for the actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.

            3.03 Requirements of Law.

            (a) If any Requirement of Law (other than with respect to any
amendment made to the Lender's certificate of incorporation and by-laws or other
organizational or governing documents) or any change in the interpretation or
application thereof or compliance by the Lender with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority made subsequent to the date hereof:

            (i) shall subject the Lender to any tax of any kind whatsoever with
      respect to this Loan Agreement, the Note or any Loan made by it (excluding
      net income taxes) or change the basis of taxation of payments to the
      Lender in respect thereof;

            (ii) shall impose, modify or hold applicable any reserve, special
      deposit, compulsory Loan or similar requirement against assets held by,
      deposits or other liabilities in or for the account of, advances, Loans or
      other extensions of credit by, or any other acquisition of funds by, any
      office of the Lender which is not otherwise included in the determination
      of the Eurodollar Rate hereunder;

            (iii) shall impose on the Lender any other condition;

and the result of any of the foregoing is to increase the cost to the Lender, by
an amount which the Lender deems to be material, of making, continuing or
maintaining any Loan or to reduce any amount due or owing hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay the Lender such
additional amount or amounts as will compensate the Lender for such increased
cost or reduced amount receivable.

            (b) If the Lender shall have determined that the adoption of or any
change in any Requirement of Law (other than with respect to any amendment made
to the Lender's certificate of incorporation and by-laws or other organizational
or governing documents) regarding capital adequacy or in the interpretation or
application thereof or compliance by the Lender or any corporation controlling
the Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) from any Governmental Authority made subsequent to
the date hereof shall have the effect of reducing the rate of return on the
Lender's or such corporation's capital as a consequence of its obligations
hereunder to a level below that which the Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
the Lender's or such corporation's policies with respect to capital adequacy) by
an amount deemed by the Lender to be material, then from time to time, the
Borrower shall promptly pay to the Lender such additional amount or amounts as
will compensate the Lender for such reduction.

            (c) If the Lender becomes entitled to claim any additional amounts
pursuant to this Section, it shall promptly notify the Borrower of the event by
reason of which it has become so entitled. A certificate as to any additional
amounts payable pursuant to this Section submitted by the Lender to the Borrower
shall be conclusive in the absence of manifest error.

                                      -18-
<PAGE>   24

            3.04 Facility Fee.

            (a) The Borrower agrees to pay to the Lender on or prior to the
Effective Date a facility fee equal to 8.75 basis points (.0875%) of the Maximum
Credit ($350,000), such payment to be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to the Lender at the account
set forth in Section 3.01(a) hereof. In the event that the Lender fails to make
a Loan to the Borrower due solely to any of the circumstances set forth in
Section 5.02(k) hereof, then, upon request of the Borrower, the Lender shall
refund to the Borrower that portion of the facility fee paid pursuant to this
Section 3.04, pro-rated over the number of days (notwithstanding any extension
of the Termination Date pursuant to Section 2.08, such amount shall be
calculated based upon the original term of this Loan Agreement) during which the
Lender fails to make Loans requested by the Borrower solely because of the
circumstances set forth in Section 5.02(k) hereof.

            Section 4. Collateral Security. 4.01 Collateral; Security Interest.

            (a) Pursuant to the Custodial Agreement, the Custodian shall hold
the Mortgage Loan Documents as exclusive bailee and agent for the Lender
pursuant to terms of the Custodial Agreement and shall deliver to the Lender
Trust Receipts (as defined in the Custodial Agreement) each to the effect that
it has reviewed such Mortgage Loan Documents in the manner and to the extent
required by the Custodial Agreement and identifying any deficiencies in such
Mortgage Loan Documents as so reviewed.

            (b) All of the Borrower's right, title and interest in, to and under
each of the following items of property, whether now owned or hereafter
acquired, now existing or hereafter created and wherever located, is hereinafter
referred to as the "Collateral":

            (i) all Mortgage Loans;

            (ii) all Mortgage Loan Documents, including without limitation all
      promissory notes, and all Servicing Records (as defined in Section
      11.14(b) below), servicing agreements and any other collateral pledged or
      otherwise relating to such Mortgage Loans, together with all files,
      documents, instruments, surveys, certificates, correspondence, appraisals,
      computer programs, computer storage media, accounting records and other
      books and records relating thereto;

            (iii) all mortgage guaranties and insurance (issued by governmental
      agencies or otherwise) and any mortgage insurance certificate or other
      document evidencing such mortgage guaranties or insurance relating to any
      Mortgage Loan and all claims and payments thereunder;

            (iv) all other insurance policies and insurance proceeds relating to
      any Mortgage Loan or the related Mortgaged Property, including but not
      limited to any payments or proceeds under any related primary insurance,
      hazard insurance and FHA Mortgage insurance policies and VA guarantees (if
      any);

                                      -19-
<PAGE>   25

            (v) all Takeout Commitments now existing or hereafter arising,
      covering any part of the foregoing Collateral, all rights to deliver such
      Mortgage Loans to Takeout Investors or to permanent investors and other
      purchasers pursuant thereto and all proceeds resulting from the
      disposition of such Collateral pursuant thereto, including the Borrower's
      right and entitlement to receive the entire Takeout Price specified in
      each Takeout Commitment;

            (vi) any Agency MBS issued pursuant to a Takeout Commitment; (vii)
      the Collection Account and all monies from time to time on deposit
      therein;

            (viii) all "general intangibles", "accounts" and "chattel paper" as
      defined in the Uniform Commercial Code relating to or constituting any and
      all of the foregoing; and

            (ix) any and all replacements, substitutions, distributions on or
      proceeds of any and all of the foregoing.

            (c) The Borrower hereby assigns, pledges and grants a security
interest in all of its right, title and interest in, to and under the Collateral
to the Lender to secure the MS Indebtedness including without limitation the
repayment of principal of and interest on all Loans and all other amounts owing
to the Lender hereunder, under the Note and under the other Loan Documents and
the Transactions entered into under the Repurchase Agreement (collectively, the
"Secured Obligations"). The Borrower agrees to mark its computer records and
tapes to evidence the interests granted to the Lender hereunder. The Borrower
hereby irrevocably and absolutely assigns and sets over to MS & Co., as the
Lender's designee, all of the Borrower's rights and obligations in and to each
Takeout Commitment.

            4.02 Further Documentation. At any time and from time to time, upon
the written request of the Lender, and at the sole expense of the Borrower, the
Borrower will promptly and duly execute and deliver, or will promptly cause to
be executed and delivered, such further instruments and documents and take such
further action as the Lender may reasonably request for the purpose of obtaining
or preserving the full benefits of this Loan Agreement and of the rights and
powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in effect
in any jurisdiction with respect to the Liens created hereby. The Borrower also
hereby authorizes the Lender to file any such financing or continuation
statement without the signature of the Borrower to the extent permitted by
applicable law.

            4.03 Changes in Locations, Name, etc. The Borrower shall not (i)
change the location of its chief executive office/chief place of business from
that specified in Section 6.11 hereof or (ii) change its name, identity or
corporate structure (or the equivalent) or (iii) unless it shall have given the
Lender at least 30 days prior written notice thereof and shall have delivered to
the Lender all Uniform Commercial Code financing statements and amendments
thereto as the Lender shall request and taken all other actions deemed necessary
by the Lender to continue its perfected status in the Collateral with the same
or better priority.

            4.04 Lender's Appointment as Attorney-in-Fact.

                                      -20-
<PAGE>   26

            (a) The Borrower hereby irrevocably constitutes and appoints the
Lender and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of the Borrower and in the name of the Borrower or in its
own name, from time to time in the Lender's discretion, for the purpose of
carrying out the terms of this Loan Agreement, to take any and all appropriate
action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Loan Agreement, and,
without limiting the generality of the foregoing, the Borrower hereby gives the
Lender the power and right, on behalf of the Borrower, without assent by, but
with notice to, the Borrower, if an Event of Default shall have occurred and be
continuing, to do the following:

            (i) in the name of the Borrower or its own name, or otherwise, to
      take possession of and endorse and collect any checks, drafts, notes,
      acceptances or other instruments for the payment of moneys due under any
      mortgage insurance or with respect to any other Collateral and to file any
      claim or to take any other action or proceeding in any court of law or
      equity or otherwise deemed appropriate by the Lender for the purpose of
      collecting any and all such moneys due under any such mortgage insurance
      or with respect to any other Collateral whenever payable;

            (ii) to pay or discharge taxes and Liens levied or placed on or
      threatened against the Collateral; and

            (iii) (A) to direct any party liable for any payment under any
      Collateral to make payment of any and all moneys due or to become due
      thereunder directly to the Lender or as the Lender shall direct; (B) to
      ask or demand for, collect, receive payment of and receipt for, any and
      all moneys, claims and other amounts due or to become due at any time in
      respect of or arising out of any Collateral; (C) to sign and endorse any
      invoices, assignments, verifications, notices and other documents in
      connection with any of the Collateral; (D) to commence and prosecute any
      suits, actions or proceedings at law or in equity in any court of
      competent jurisdiction to collect the Collateral or any portion thereof
      and to enforce any other right in respect of any Collateral; (E) to defend
      any suit, action or proceeding brought against the Borrower with respect
      to any Collateral; (F) to settle, compromise or adjust any suit, action or
      proceeding described in clause (E) above and, in connection therewith, to
      give such discharges or releases as the Lender may deem appropriate; and
      (G) generally, to sell, transfer, pledge and make any agreement with
      respect to or otherwise deal with any of the Collateral as fully and
      completely as though the Lender were the absolute owner thereof for all
      purposes, and to do, at the Lender's option and at the Borrower's expense,
      at any time, and from time to time, all acts and things which the Lender
      deems necessary to protect, preserve or realize upon the Collateral and
      the Lender's Liens thereon and to effect the intent of this Loan
      Agreement, all as fully and effectively as the Borrower might do.

The Borrower hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.

                                      -21-
<PAGE>   27

            (b) The Borrower also authorizes the Lender, at any time and from
time to time, to execute, in connection with any sale provided for in Section
4.07 hereof, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.

            (c) The powers conferred on the Lender are solely to protect the
Lender's interests in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. The Lender shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither the Lender nor any of its officers, directors, or employees shall be
responsible to the Borrower for any act or failure to act hereunder, except for
its own gross negligence or willful misconduct. 4.05 Performance by Lender of
Borrower's Obligations. If the Borrower fails to perform or comply with any of
their agreements contained in the Loan Documents and the Lender may itself
perform or comply, or otherwise cause performance or compliance, with such
agreement, the expenses of the Lender incurred in connection with such
performance or compliance, together with interest thereon at a rate per annum
equal to the Post-Default Rate, shall be payable by the Borrower to the Lender
on demand and shall constitute Secured Obligations.

            4.06 Proceeds. If an Event of Default shall occur and be continuing,
(a) all proceeds of Collateral received by the Borrower consisting of cash,
checks and other near-cash items shall be held by the Borrower in trust for the
Lender, segregated from other funds of the Borrower, and shall forthwith upon
receipt by the Borrower be turned over to the Lender in the exact form received
by the Borrower (duly endorsed by the Borrower to the Lender, if required) and
(b) any and all such proceeds received by the Lender (whether from the Borrower
or otherwise) may, in the sole discretion of the Lender, be held by the Lender
as collateral security for, and/or then or at any time thereafter may be applied
by the Lender against, the Secured Obligations (whether matured or unmatured),
such application to be in such order as the Lender shall elect. Any balance of
such proceeds remaining after the Secured Obligations shall have been paid in
full and this Loan Agreement shall have been terminated shall be paid over to
the Borrower or to whomsoever may be lawfully entitled to receive the same. For
purposes hereof, proceeds shall include, but not be limited to, all principal
and interest payments, all prepayments and payoffs, insurance claims,
condemnation awards, sale proceeds, real estate owned rents and any other income
and all other amounts received with respect to the Collateral.

            4.07 Remedies. If an Event of Default shall occur and be continuing,
the Lender may, at its option, enter into one or more Interest Rate Protection
Agreements covering all or a portion of the Mortgage Loans pledged to the Lender
hereunder, and the Borrower shall be responsible for all damages, judgments,
costs and expenses of any kind which may be imposed on, incurred by or asserted
against the Lender relating to or arising out of such Interest Rate Protection
Agreements; including without limitation any losses resulting from such Interest
Rate Protection Agreements. If an Event of Default shall occur and be
continuing, the Lender may exercise, in addition to all other rights and
remedies granted to it in this Loan Agreement and in any other instrument or
agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the Uniform Commercial Code.
Without limiting the generality of the foregoing, the Lender without demand of
performance or

                                      -22-
<PAGE>   28

other demand, presentment, protest, advertisement or notice of any kind (except
any notice required by law referred to below) to or upon the Borrower or any
other Person (each and all of which demands, presentments, protests,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part
thereof (or contract to do any of the foregoing), in one or more parcels or as
an entirety at public or private sale or sales, at any exchange, broker's board
or office of the Lender or elsewhere upon such terms and conditions as it may
deem advisable and at such prices as it may deem best, for cash or on credit or
for future delivery without assumption of any credit risk. The Lender shall have
the right upon any such public sale or sales, and, to the extent permitted by
law, upon any such private sale or sales, to purchase the whole or any part of
the Collateral so sold, free of any right or equity of redemption in the
Borrower, which right or equity is hereby waived or released. The Borrower
further agrees, at the Lender's request, to assemble the Collateral and make it
available to the Lender at places which the Lender shall reasonably select,
whether at the Borrower's premises or elsewhere. The Lender shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred therein or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the Lender
hereunder, including without limitation reasonable attorneys' fees and
disbursements, to the payment in whole or in part of the Secured Obligations, in
such order as the Lender may elect, and only after such application and after
the payment by the Lender of any other amount required or permitted by any
provision of law, including without limitation Section 9-504(1)(c) of the
Uniform Commercial Code, need the Lender account for the surplus, if any, to the
Borrower. To the extent permitted by applicable law, the Borrower waives all
claims, damages and demands it may acquire against the Lender arising out of the
exercise by the Lender of any of its rights hereunder, other than those claims,
damages and demands arising from the gross negligence or willful misconduct of
the Lender. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least 10 days before such sale or other disposition. The Borrower shall
remain liable for any deficiency (plus accrued interest thereon as contemplated
pursuant to Section 2.05(b) hereof) if the proceeds of any sale or other
disposition of the Collateral are insufficient to pay the Secured Obligations
and the fees and disbursements of any attorneys employed by the Lender to
collect such deficiency.

            4.08 Limitation on Duties Regarding Preservation of Collateral. The
Lender's duty with respect to the custody, safekeeping and physical preservation
of the Collateral in its possession, under Section 9-207 of the Uniform
Commercial Code or otherwise, shall be to deal with it in the same manner as the
Lender deals with similar property for its own account. Neither the Lender nor
any of its directors, officers or employees shall be liable for failure to
demand, collect or realize upon all or any part of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Borrower or otherwise.

            4.09 Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.

                                      -23-
<PAGE>   29

            4.10 Release of Security Interest. Upon termination of this Loan
Agreement and repayment to the Lender of all Secured Obligations and the
performance of all obligations under the Loan Documents the Lender shall release
its security interest in any remaining Collateral.

            Section 5. Conditions Precedent.

            5.01 Initial Loan. The obligation of the Lender to make its initial
Loan hereunder is subject to the satisfaction, immediately prior to or
concurrently with the making of such Loan, of the condition precedent that the
Lender shall have received all of the following items, each of which shall be
satisfactory to the Lender and its counsel in form and substance:

            (a) Loan Documents. The Loan Documents, duly completed and executed;

            (i) Note. The Note, duly completed and executed;

            (ii) Custodial Agreement. The Custodial Agreement, duly executed and
      delivered by the Borrower and the Custodian. In addition, the Borrower
      shall have taken such other action as the Lender shall have requested in
      order to perfect the security interests created pursuant to the Loan
      Agreement;

            (b) Organizational Documents. A good standing certificate and
certified copies of the charter and by-laws (or equivalent documents) of the
Borrower and of all corporate or other authority for the Borrower with respect
to the execution, delivery and performance of the Loan Documents and each other
document to be delivered by the Borrower from time to time in connection
herewith (and the Lender may conclusively rely on such certificate until it
receives notice in writing from the Borrower to the contrary);

            (c) Legal Opinion. A legal opinion of outside counsel to the
Borrower, substantially in the form attached hereto as Exhibit C;

            (d) Trust Receipt and Mortgage Loan Schedule and Exception Report. A
Trust Receipt, substantially in the form of Annex 2 of the Custodial Agreement,
dated the Effective Date, from the Custodian, duly completed, with a Mortgage
Loan Schedule and Exception Report attached thereto;

            (e) Facility Fee. The Lender shall have received the facility fee as
contemplated by Section 3.04; and

            (f) Other Documents. Such other documents as the Lender may
reasonably request.

            5.02 Initial and Subsequent Loans. The making of each Loan to the
Borrower (including the initial Loan) on any Business Day is subject to the
satisfaction of the following further conditions precedent, both immediately
prior to the making of such Loan and also after giving effect thereto and to the
intended use thereof:

            (a) no Default or Event of Default shall have occurred and be
continuing;

                                      -24-
<PAGE>   30

            (b) both immediately prior to the making of such Loan and also after
giving effect thereto and to the intended use thereof, the representations and
warranties made by the Borrower in Section 6 and Schedule 1 hereof, and
elsewhere in each of the Loan Documents, shall be true, correct and complete on
and as of the date of the making of such Loan in all material respects (in the
case of the representations and warranties in Section 6.10 and Schedule 1,
solely with respect to Mortgage Loans included in the Borrowing Base) with the
same force and effect as if made on and as of such date (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date). The Lender shall have received an
officer's certificate signed by a Responsible Officer of the Borrower certifying
as to the truth, accuracy and completeness of the above, which certificate shall
specifically include a statement that the Borrower is in compliance with all
governmental licenses and authorizations and is qualified to do business and in
good standing in all required jurisdictions.

            (c) the aggregate outstanding principal amount of the Loans shall
not exceed the Borrowing Base or the Available Loan Amount;

            (d) subject to the Lender's right to perform one or more Due
Diligence Reviews pursuant to Section 11.15 hereof, the Lender shall have
completed its due diligence review of the Mortgage Loan Documents for each Loan
and such other documents, records, agreements, instruments, mortgaged properties
or information relating to such Mortgage Loans as the Lender in its sole
discretion deems appropriate to review and such review shall be satisfactory to
the Lender in its sole discretion;

            (e) the Lender shall have received from the Custodian a Mortgage
Loan Schedule and Exception Report with Exceptions as are acceptable to the
Lender in its sole discretion in respect of Eligible Mortgage Loans to be
pledged hereunder on such Business Day;

            (f) the Lender shall have received from the Borrower a Warehouse
Lender's Release Letter substantially in the form of Exhibit E-2 hereto (or such
other form acceptable to the Lender) or a Seller's Release Letter substantially
in the form of Exhibit E-1 hereto (or such other form acceptable to the Lender)
covering each Mortgage Loan to be pledged to the Lender;

            (g) the Lender shall have received true, correct and current copies
of the applicable Investor Requirements;

            (h) The Lender shall have received evidence that the aggregate
outstanding principal balance of all residential mortgage loans owned by the
Borrower are being hedged in accordance with the Borrower's hedging policy;

            (i) the Borrower shall have delivered to the Custodian, the Mortgage
Loan Documents, the Agency Purchase Submission Package or the Agency MBS
Submission Package, as applicable;

            (j) The Lender shall have received all fees and expenses of counsel
to the Lender as contemplated by Section 11.03 (b), which amount, at the
Lender's option, may be netted from any Loan advanced under this Agreement;

                                      -25-
<PAGE>   31

            (k) Morgan Stanley Dean Witter & Co.'s corporate bond rating as
calculated by S&P or Moody's has not been lowered or downgraded to a rating
below A- as indicated by S&P or below A3 as indicated by Moody's;

            (l) none of the following shall have occurred and/or be continuing:

            (i) an event or events shall have occurred resulting in the
      effective absence of a "repo market" or comparable "lending market" for
      financing debt obligations secured by mortgage loans or securities or an
      event or events shall have occurred resulting in the Lender not being able
      to finance any Mortgage Loans through the "repo market" or "lending
      market" with traditional counterparties at rates which would have been
      reasonable prior to the occurrence of such event or events;

            (ii) an event or events shall have occurred resulting in the
      effective absence of a "securities market" for securities backed by
      mortgage loans or an event or events shall have occurred resulting in the
      Lender not being able to sell securities backed by mortgage loans at
      prices which would have been reasonable prior to such event or events; or

            (iii) there shall have occurred a material adverse change in the
      financial condition of the Lender which effects (or can reasonably be
      expected to effect) materially and adversely the ability of the Lender to
      fund its obligations under this Loan Agreement.

Each request for a borrowing by the Borrower hereunder shall constitute a
certification by the Borrower that all the conditions set forth in this Section
5 (other than Sections 5.02(k) or 5.02(l)) have been satisfied (both as of the
date of such notice, request or confirmation and as of the date of such
borrowing).

            Section 6. Representations and Warranties. The Borrower represents
and warrants to the Lender that throughout the term of this Loan Agreement:

            6.01 Existence. The Borrower (a) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, (b) has all requisite corporate or other power, and has all
governmental licenses, authorizations, consents and approvals necessary to own
its assets and carry on its business as now being or as proposed to be
conducted, except where the lack of such licenses, authorizations, consents and
approvals would not be reasonably likely to have a Material Adverse Effect; and
(c) is qualified to do business and is in good standing in all other
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary, except where failure so to qualify would not be
reasonably likely (either individually or in the aggregate) to have a Material
Adverse Effect.

            6.02 Financial Condition. The Borrower has heretofore furnished to
the Lender a copy of (a) its consolidated balance sheet and the consolidated
balance sheets of its consolidated Subsidiaries for the fiscal year of the
Borrower ended December 31, 1998 and the related consolidated statements of
income and retained earnings and of cash flows for the Borrower and its
consolidated Subsidiaries for such fiscal year, setting forth in each case in
comparative form the figures for the previous year, with the opinion thereon of
PricewaterhouseCoopers LLP and (b) its consolidated balance sheet and the
consolidated balance sheets of its consolidated Subsidiaries for the quarterly
fiscal periods of the Borrower ended

                                      -26-
<PAGE>   32

March 31, 1999 and June 30, 1999 and the related consolidated statements of
income and retained earnings and of cash flows for the Borrower and its
consolidated Subsidiaries for such quarterly fiscal period[s], setting forth in
each case in comparative form the figures for the previous year. All such
financial statements are complete and correct and fairly present, in all
material respects, the consolidated financial condition of the Borrower and its
Subsidiaries and the consolidated results of their operations as at such dates
and for such fiscal periods, all in accordance with GAAP applied on a consistent
basis. Since December 31, 1998, there has been no material adverse change in the
consolidated business, operations or financial condition of the Borrower and its
consolidated Subsidiaries taken as a whole from that set forth in said financial
statements.

            6.03 Litigation. There are no actions, suits, arbitrations,
investigations (including, without limitation, any of the foregoing which are
pending or threatened) or other legal or arbitrable proceedings affecting the
Borrower or any of its Subsidiaries or affecting any of the Property of any of
them before any Governmental Authority that (i) questions or challenges the
validity or enforceability of any of the Loan Documents or any action to be
taken in connection with the transactions contemplated hereby, (ii) makes a
claim or claims in an aggregate amount greater than $1,000,000.00, (iii) which,
individually or in the aggregate, if adversely determined, could reasonably be
likely to have a Material Adverse Effect, or (iv) requires filing with the
Securities and Exchange Commission in accordance with the 1934 Act or any rules
thereunder.

            6.04 No Breach. Neither (a) the execution and delivery of the Loan
Documents nor (b) the consummation of the transactions therein contemplated in
compliance with the terms and provisions thereof will conflict with or result in
a breach of the charter or by-laws of the Borrower, or any applicable law, rule
or regulation, or any order, writ, injunction or decree of any Governmental
Authority, or any Servicing Agreement or other material agreement or instrument
to which the Borrower or any of its Subsidiaries are a party or by which any of
them or any of their Property is bound or to which any of them is subject, or
constitute a default under any such material agreement or instrument or result
in the creation or imposition of any Lien (except for the Liens created pursuant
to this Loan Agreement) upon any Property of the Borrower or any of its
Subsidiaries pursuant to the terms of any such agreement or instrument.

            6.05 Action. The Borrower has all necessary corporate or other
power, authority and legal right to execute, deliver and perform its obligations
under each of the Loan Documents; the execution, delivery and performance by the
Borrower of each of the Loan Documents has been duly authorized by all necessary
corporate or other action on the part of the Borrower; and each Loan Document
has been duly and validly executed and delivered by the Borrower and constitutes
a legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms.

            6.06 Approvals.

            (a) No authorizations, approvals or consents of, and no filings or
registrations with, any Governmental Authority or any securities exchange are
necessary for the execution, delivery or performance by the Borrower of the Loan
Documents or for the legality, validity or

                                      -27-
<PAGE>   33

enforceability thereof, except for filings and recordings in respect of the
Liens created pursuant to this Loan Agreement.

            (b) The Borrower is approved by FHA as an approved mortgagee, by VA
as an approved VA lender, by Fannie Mae as a Fannie Mae approved seller, and by
Freddie Mac as a Freddie Mac approved seller, in each case in good standing,
with no event having occurred or the Borrower having any reason whatsoever to
believe or suspect will occur including without limitation a change in insurance
coverage which would either make the Borrower unable to comply with the
eligibility requirements for maintaining all such applicable approvals or
require notification to the relevant Agency or to HUD, FHA or VA. The Borrower
has adequate financial standing, servicing facilities, procedures and
experienced personnel necessary for the sound servicing of mortgage loans of the
same types as may from time to time constitute Mortgage Loans and in accordance
with Accepted Servicing Practices.

            6.07 Margin Regulations. Neither the making of any Loan hereunder,
nor the use of the proceeds thereof, will violate or be inconsistent with the
provisions of Regulations T, U or X.

            6.08 Taxes. The Borrower and its Subsidiaries have filed all Federal
income tax returns and all other material tax returns that are required to be
filed by them and have paid all taxes due pursuant to such returns or pursuant
to any assessment received by any of them, except for any such taxes as are
being appropriately contested in good faith by appropriate proceedings
diligently conducted and with respect to which adequate reserves have been
provided. The charges, accruals and reserves on the books of the Borrower and
its Subsidiaries in respect of taxes and other governmental charges are, in the
opinion of the Borrower, adequate.

            6.09 Investment Company Act. Neither the Borrower nor any of its
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.

            6.10 Collateral; Collateral Security.

            (a) The Borrower has not assigned, pledged, or otherwise conveyed or
encumbered any Mortgage Loan or other Collateral to any other Person, and
immediately prior to the pledge of such Mortgage Loan or any other Collateral to
the Lender, the Borrower was the sole owner of such Mortgage Loan or such other
Collateral and had good and marketable title thereto, free and clear of all
Liens, in each case except for Liens to be released simultaneously with the
Liens granted in favor of the Lender hereunder. No Mortgage Loan or other
Collateral pledged to the Lender hereunder was acquired (by purchase or
otherwise) by the Borrower from an Affiliate of the Borrower. No Mortgage Loan
pledged to the Lender hereunder was acquired by the Borrower from an Affiliate
of the Borrower unless a True Sale Certification has been delivered to the
Lender prior to such pledge.

            (b) The provisions of this Loan Agreement are effective to create in
favor of the Lender a valid security interest in all right, title and interest
of the Borrower in, to and under the Collateral.

                                      -28-
<PAGE>   34

            (c) Upon receipt by the Custodian of each Mortgage Note, endorsed in
blank by a duly authorized officer of the Borrower, the Lender shall have a
fully perfected first priority security interest therein, in the Mortgage Loan
evidenced thereby and in such Borrower's interest in the related Mortgaged
Property.

            (d) Upon the filing of financing statements on Form UCC-1 naming the
Lender as "Secured Party" and the Borrower as "Debtor", and describing the
Collateral, in the jurisdictions and recording offices listed on Schedule 2
attached hereto, the security interests granted hereunder in the Collateral will
constitute fully perfected first priority security interests under the Uniform
Commercial Code in all right, title and interest of the Borrower in, to and
under such Collateral which can be perfected by filing under the Uniform
Commercial Code.

            6.11 Chief Executive Office/Jurisdiction of Organization. On the
Effective Date, and during the four months immediately preceding the Effective
Date, the chief executive office of the Borrower, is, and has been, located at
1159 F.D. Roosevelt Avenue, San Juan, Puerto Rico 00920. On the Effective Date,
and during the four months immediately preceding the Effective Date, the
Borrower's jurisdiction of organization is the Commonwealth of Puerto Rico.

            6.12 Location of Books and Records. The location where the Borrower
keeps its books and records, including all computer tapes and records relating
to the Collateral is its chief executive office.

            6.13 Hedging. The Borrower has entered into Interest Rate Protection
Agreements satisfying the requirements of Section 7.07 hereof.

            6.14 True and Complete Disclosure. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Borrower to the Lender in connection with the negotiation,
preparation or delivery of this Loan Agreement and the other Loan Documents or
included herein or therein or delivered pursuant hereto or thereto, when taken
as a whole, do not contain any untrue statement of material fact or omit to
state any material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading. All
written information furnished after the date hereof by or on behalf of the
Borrower to the Lender in connection with this Loan Agreement and the other Loan
Documents and the transactions contemplated hereby and thereby will be true,
complete and accurate in every material respect, or (in the case of projections)
based on reasonable estimates, on the date as of which such information is
stated or certified. There is no fact known to any Responsible Officer of the
Borrower, after due inquiry, that could reasonably be expected to have a
Material Adverse Effect that has not been disclosed herein, in the other Loan
Documents or in a report, financial statement, exhibit, schedule, disclosure
letter or other writing furnished to the Lender for use in connection with the
transactions contemplated hereby or thereby.

            6.15 ERISA. Each Plan to which the Borrower or its Subsidiaries make
direct contributions, and, to the knowledge of the Borrower, each other Plan and
each Multiemployer Plan, is in compliance in all material respects with, and has
been administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other Federal

                                      -29-
<PAGE>   35

or State law. No event or condition has occurred and is continuing as to which
the Borrower would be under an obligation to furnish a report to the Lender
under Section 7.01(d) hereof.

            6.16 Takeout Commitments. Each Takeout Commitment constitutes a
valid, binding and subsisting obligation of a Takeout Investor, enforceable
against the Borrower and the Takeout Investor respectively, in accordance with
its terms (subject to bankruptcy laws and other similar laws of general
application affecting rights of creditors and subject to the application of the
rules of equity, including those relating to specific performance.

            6.17 Delivery of Mortgage Loans. The Borrower has no reason to
believe, after reasonable and diligent inquiry respecting (among other things)
its applicable Approvals, the relevant Mortgage Loan Documents, and Mortgage
Loan Documents, the relevant Investor Requirements, the characteristics and
quality of the Mortgage Loans, that the Whole Loan Transfer and/or issuance of
the Agency MBS, as applicable, will fail to be consummated as contemplated
therein 6.18 Well-Capitalized. As of the Effective Date, the Borrower is Well
Capitalized. Section 7. Covenants of the Borrower. The Borrower covenants and
agrees with the Lender that, so long as any Loan is outstanding and until
payment in full of all Secured Obligations:

            7.01 Financial Statements. The Borrower shall deliver to the Lender:

            (a) as soon as available and in any event within 50 days after the
end of each of the first three quarterly fiscal periods of each fiscal year of
the Borrower, the unaudited consolidated balance sheets of the Borrower and its
consolidated Subsidiaries as at the end of such period and the related unaudited
consolidated statements of income and retained earnings and of cash flows for
the Borrower and its consolidated Subsidiaries for such period and the portion
of the fiscal year through the end of such period, setting forth in each case in
comparative form the figures for the previous year, accompanied by a certificate
of a Responsible Officer of the Borrower, which certificate shall state that
said consolidated financial statements fairly present the consolidated financial
condition and results of operations of the Borrower and its consolidated
Subsidiaries in accordance with GAAP, consistently applied, as at the end of,
and for, such period (subject to normal year-end audit adjustments);

            (b) as soon as available and in any event within 95 days after the
end of each fiscal year of the Borrower, the consolidated balance sheets of the
Borrower and its consolidated Subsidiaries as at the end of such fiscal year and
the related consolidated statements of income and retained earnings and of cash
flows for the Borrower and its consolidated Subsidiaries for such year, setting
forth in each case in comparative form the figures for the previous year,
accompanied by an opinion thereon of independent certified public accountants of
recognized national standing, which opinion shall not be qualified as to scope
of audit or going concern and shall state that said consolidated financial
statements fairly present the consolidated financial condition and results of
operations of the Borrower and its consolidated Subsidiaries as at the end of,
and for, such fiscal year in accordance with GAAP, and a certificate of a
Responsible Officer stating that such Responsible

                                      -30-
<PAGE>   36

Officer has obtained no knowledge, except as specifically stated, of any Default
or Event of Default;

            (c) from time to time such other information regarding the financial
condition, operations, or business of the Borrower as the Lender may reasonably
request; and

            (d) as soon as reasonably possible, and in any event within thirty
(30) days after a Responsible Officer of the Borrower knows, or with respect to
any Plan or Multiemployer Plan to which the Borrower or any of its Subsidiaries
makes direct contributions, has reason to believe, that any of the events or
conditions specified below with respect to any Plan or Multiemployer Plan has
occurred or exists, a statement signed by a senior financial officer of the
Borrower setting forth details respecting such event or condition and the
action, if any, that the Borrower or its ERISA Affiliate proposes to take with
respect thereto (and a copy of any report or notice required to be filed with or
given to PBGC by the Borrower or an ERISA Affiliate with respect to such event
or condition):

            (i) any reportable event, as defined in Section 4043(c) of ERISA and
      the regulations issued thereunder, with respect to a Plan, as to which
      PBGC has not by regulation waived the requirement of Section 4043(a) of
      ERISA that it be notified within thirty (30) days of the occurrence of
      such event (provided that a failure to meet the minimum funding standard
      of Section 412 of the Code or Section 302 of ERISA, including without
      limitation the failure to make on or before its due date a required
      installment under Section 412(m) of the Code or Section 302(e) of ERISA,
      shall be a reportable event regardless of the issuance of any waivers in
      accordance with Section 412(d) of the Code); and any request for a waiver
      under Section 412(d) of the Code for any Plan;

            (ii) the distribution under Section 4041(c) of ERISA of a notice of
      intent to terminate any Plan or any action taken by the Borrower or an
      ERISA Affiliate to terminate any Plan;

            (iii) the institution by PBGC of proceedings under Section 4042 of
      ERISA for the termination of, or the appointment of a trustee to
      administer, any Plan, or the receipt by the Borrower or any ERISA
      Affiliate of a notice from a Multiemployer Plan that such action has been
      taken by PBGC with respect to such Multiemployer Plan;

            (iv) the complete or partial withdrawal from a Multiemployer Plan by
      the Borrower or any ERISA Affiliate that results in liability under
      Section 4201 or 4204 of ERISA (including the obligation to satisfy
      secondary liability as a result of a purchaser default) or the receipt by
      the Borrower or any ERISA Affiliate of notice from a Multiemployer Plan
      that it is in reorganization or insolvency pursuant to Section 4241 or
      4245 of ERISA or that it intends to terminate or has terminated under
      Section 4041A of ERISA;

            (v) the institution of a proceeding by a fiduciary of any
      Multiemployer Plan against the Borrower or any ERISA Affiliate to enforce
      Section 515 of ERISA, which proceeding is not dismissed within 30 days;
      and

                                      -31-
<PAGE>   37

            (vi) the adoption of an amendment to any Plan that would result in
      the loss of tax-exempt status of the trust of which such Plan is a part if
      the Borrower or an ERISA Affiliate fails to provide timely security to
      such Plan in accordance with the provisions of Section 401(a)(29) of the
      Code or Section 307 of ERISA.

The Borrower will furnish to the Lender, at the time it furnishes each set of
financial statements pursuant to paragraphs (a) and (b) above, a certificate of
a Responsible Officer of the Borrower to the effect that, to the best of such
Responsible Officer's knowledge, the Borrower during such fiscal period or year
has observed or performed all of its covenants and other agreements, and
satisfied every condition, contained in this Loan Agreement and the other Loan
Documents to be observed, performed or satisfied by it, and that such
Responsible Officer has obtained no knowledge of any Default or Event of Default
except as specified in such certificate (and, if any Default or Event of Default
has occurred and is continuing, describing the same in reasonable detail and
describing the action the Borrower has taken or proposes to take with respect
thereto).

            7.02 Litigation. The Borrower will promptly, and in any event within
10 days after service of process on any of the following, give to the Lender
notice of all litigation, actions, suits, arbitrations, investigations
(including, without limitation, any of the foregoing which are pending or
threatened) or other legal or arbitrable proceedings affecting the Borrower or
any of its Subsidiaries or affecting any of the Property of any of them before
any Governmental Authority that (i) questions or challenges the validity or
enforceability of any of the Loan Documents or any action to be taken in
connection with the transactions contemplated hereby, (ii) makes a claim or
claims in an aggregate amount greater than $5,000,000.00, (iii) which,
individually or in the aggregate, if adversely determined, could be reasonably
likely to have a Material Adverse Effect, or (iii) requires filing with the
Securities and Exchange Commission in accordance with the 1934 Act and any rules
thereunder.

            7.03 Existence, etc. The Borrower will:

            (a) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises (provided that nothing in
this Section 7.03(a) shall prohibit any transaction expressly permitted under
Section 7.04 hereof);

            (b) comply with the requirements of all applicable laws, rules,
regulations and orders of Governmental Authorities (including, without
limitation, all environmental laws) if failure to comply with such requirements
would be reasonably likely (either individually or in the aggregate) to have a
Material Adverse Effect;

            (c) keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied;

            (d) not move its chief executive office from the address referred to
in Section 6.11 or change its jurisdiction of organization from the jurisdiction
referred to in Section 6.11 unless it shall have provided the Lender 30 days'
prior written notice of such change;

            (e) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any of its
Property prior to the date on which penalties attach thereto, except for any
such tax, assessment, charge or levy the payment

                                      -32-
<PAGE>   38

of which is being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained; and

            (f) permit representatives of the Lender, during normal business
hours, to examine, copy and make extracts from its books and records, to inspect
any of its Properties, and to discuss its business and affairs with its
officers, all to the extent reasonably requested by the Lender.

            7.04 Prohibition of Fundamental Changes. The Borrower shall not
enter into any transaction of merger or consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation, winding up or
dissolution) or sell all or substantially all of its assets; provided, that the
Borrower may merge or consolidate with (a) any wholly owned Subsidiary of the
Borrower, or (b) any other Person if the Borrower is the surviving corporation;
and provided further, that if after giving effect thereto, no Default would
exist hereunder.

            7.05 Borrowing Base Deficiency. If at any time there exists a
Borrowing Base Deficiency the Borrower shall cure same in accordance with
Section 2.06 hereof.

            7.06 Notices. The Borrower shall give notice to the Lender:

            (a) promptly upon receipt of notice or knowledge of the occurrence
of any Default or Event of Default;

            (b) with respect to any Mortgage Loan pledged to the Lender
hereunder, immediately upon receipt of any principal prepayment (in full or
partial) of such pledged Mortgage Loan;

            (c) with respect to any Mortgage Loan pledged to the Lender
hereunder, immediately upon receipt of notice or knowledge that the underlying
Mortgaged Property has been damaged by waste, fire, earthquake or earth
movement, windstorm, flood, tornado or other casualty, or otherwise damaged so
as to have a Material Adverse Effect on the Collateral Value of such pledged
Mortgage Loan; and

            (d) promptly upon receipt of notice or knowledge of (i) any default
related to any Collateral (other than delinquencies appearing on the servicing
tape delivered pursuant to Section 7.14 hereof), (ii) any Lien or security
interest (other than security interests created hereby or by the other Loan
Documents) on, or claim asserted against, any of the Collateral or (iii) any
event or change in circumstances which could reasonably be expected to have a
Material Adverse Effect.

            Each notice pursuant to this Section shall be accompanied by a
statement of a Responsible Officer of the Borrower setting forth details of the
occurrence referred to therein and stating what action the Borrower has taken or
proposes to take with respect thereto.

            7.07 Hedging; Takeout Commitments. The Borrower shall at all times
maintain Interest Rate Protection Agreements consistent with the written hedging
policies of the Borrower and shall promptly notify Lender of any changes with
respect to such written hedging policies. The Mortgage Loans shall be in the
aggregate hedged in accordance with the

                                      -33-
<PAGE>   39

Borrower's hedging policy. To the extent the Borrower has not entered into such
Interest Rate Protection Agreements with MS & Co. or any Affiliate thereof, the
Borrower shall deliver to the Lender monthly a written summary of the hedge
positions under the Interest Rate Protection Agreements together with the total
dollar duration value of such positions and the aggregate outstanding principal
balance of Mortgage Loans to which such Interest Rate Protection Agreements
apply. The Borrower shall not pledge, hypothecate, encumber or permit any Lien
to exist on any Interest Rate Protection Agreement unless such Interest Rate
Protection Agreement does not cover or relate to residential mortgage loans.

            7.08 Reports. Upon the Lender's request, the Borrower shall provide
the Lender with a quarterly report, which report shall include, among other
items, a summary of the Borrower's delinquency and loss experience with respect
to mortgage loans serviced by the Borrower, any Servicer or any designee of
either, plus any such additional reports as the Lender may reasonably request
with respect to the Borrower's or any Servicer's servicing portfolio or pending
originations of mortgage loans.

            7.09 Underwriting Guidelines. Without the prior written consent of
the Lender, the Borrower shall not amend or otherwise modify the Underwriting
Guidelines. Notwithstanding the preceding sentence, in the event that the
Borrower makes any amendment or modification to the Underwriting Guidelines, the
Borrower shall promptly deliver to the Lender a complete copy of the amended or
modified Underwriting Guidelines.

            7.10 Transactions with Affiliates. The Borrower shall not enter into
any transaction, including without limitation any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate of the
Borrower unless such transaction is (a) otherwise permitted under this Loan
Agreement, (b) in the ordinary course of the Borrower's business and (c) upon
fair and reasonable terms no less favorable to the Borrower than it would obtain
in a comparable arm's length transaction with a Person which is not an Affiliate
of the Borrower, or make a payment that is not otherwise permitted by this
Section 7.10 to any Affiliate. In no event shall the Borrower transfer to the
Lender hereunder any Mortgage Loan acquired by the Borrower from an Affiliate of
the Borrower unless a True Sale Certification has been delivered to the Lender
prior to such sale. Notwithstanding the foregoing, the Lender hereby agrees that
the Borrower may forgive the existing indebtedness of Puerto Rico Island Rental
Limited Dividend Partnership, S.E. to the Borrower as more particularly
described in the Borrower's proxy statement dated March 22, 1999 filed with the
Securities and Exchange Commission.

            7.11 Limitation on Liens. The Borrower will defend the Collateral
against, and will take such other action as is necessary to remove, any Lien,
security interest or claim on or to the Collateral, other than the security
interests created under this Loan Agreement, and the Borrower will defend the
right, title and interest of the Lenders in and to any of the Collateral against
the claims and demands of all persons whomsoever.

            7.12 Limitation on Distributions. After the occurrence and during
the continuation of any Event of Default, the Borrower shall not make any
payment on account of, or set apart assets for, a sinking or other analogous
fund for the purchase, redemption, defeasance, retirement or other acquisition
of any equity or partnership interest of the Borrower, whether

                                      -34-
<PAGE>   40

now or hereafter outstanding, or make any other distribution in respect of any
of the foregoing or to any shareholder or equity owner of the Borrower, either
directly or indirectly, whether in cash or property or in obligations of the
Borrower or any of its consolidated Subsidiaries.

            7.13 Maintenance of Profitability. The Borrower shall not permit,
for any period of three consecutive fiscal quarters (each such period, a "Test
Period"), Net Income for such Test Period, before income taxes for such Test
Period and distributions made during such Test Period, to be less than $1.00.

            7.14 Servicer; Servicing Tape. The Borrower shall provide to the
Lender on the fifth Business Day of each month a computer readable file
containing servicing information, including without limitation those fields
specified by the Lender from time to time, on a loan-by-loan basis and in the
aggregate, with respect to the Mortgage Loans serviced hereunder by the Borrower
or any Servicer. The Borrower shall not cause the Mortgage Loans to be serviced
by any servicer other than a servicer expressly approved in writing by the
Lender.

            7.15 Required Filings. Each quarter the Borrower shall provide the
Lender with a copy of its most recent 10-Q filed with the Securities and
Exchange Commission. The Borrower shall promptly provide the Lender with copies
of all documents which the Borrower or any Affiliate of the Borrower is required
to file with the Securities and Exchange Commission in accordance with the 1934
Act or any rules thereunder.

            7.16 No Adverse Selection. The Borrower has not selected the
Collateral in a manner so as to adversely affect the Lender's interests.

            7.17 Computer Systems. The Borrower shall maintain its System in a
manner that permits the Borrower to be Year 2000 Compliant.

            7.18 Approvals; Servicing. The Borrower shall maintain all
Approvals. The Borrower shall service all Mortgage Loans pledged to the Lender
pursuant to this Loan Agreement in accordance with the applicable Agency Guide.
Should the Borrower, for any reason, cease to possess all such applicable
Approvals, or should notification to the relevant Agency or to HUD, FHA or VA be
required, the Borrower shall so notify Lender immediately in writing.
Notwithstanding the preceding sentence, the Borrower shall take all necessary
action to maintain all of its Approvals at all times during the term of this
Loan Agreement and each outstanding Transaction. Should the Borrower for any
reason cease to possess all such applicable approvals, or should notification to
the relevant Agency or to HUD, FHA or VA be required, the Borrower shall so
notify Lender immediately in writing. The Borrower shall maintain adequate
financial standing, servicing facilities, procedures and experienced personnel
necessary for the sound servicing of mortgage loans of the same types as may
from time to time constitute Mortgage Loans and in accordance with Accepted
Servicing Practices.

            7.19 Downgrade Trigger; Blocked Account. In the event that a
Downgrade Trigger shall have occurred, the Borrower shall promptly cause the
Servicer to establish a blocked account exclusively for the receipt of proceeds
of the Collateral and shall promptly execute and deliver to the Lender a fully
executed Blocked Account Agreement in the form of Exhibit G hereto.

                                      -35-
<PAGE>   41

            7.20 Well-Capitalized. The Borrower shall be Well Capitalized at the
time of each request for borrowing hereunder and shall maintain its status as
Well Capitalized at all times throughout the term of this Loan Agreement.

            Section 8. Events of Default. Each of the following events shall
constitute an event of default (an "Event of Default") hereunder:

            (a) the Borrower shall default in the payment of any principal of or
interest on any Loan when due (whether at stated maturity, upon acceleration or
at mandatory or optional prepayment); or

            (b) the Borrower shall default in the payment of any other amount
payable by it hereunder or under any other Loan Document after notification by
the Lender of such default, and such default shall have continued unremedied for
five Business Days; or

            (c) any representation, warranty or certification made or deemed
made herein or in any other Loan Document by the Borrower or any certificate
furnished to the Lender pursuant to the provisions hereof or thereof shall prove
to have been false or misleading in any material respect as of the time made or
furnished (other than the representations and warranties set forth in Schedule
1, which shall be considered solely for the purpose of determining the
Collateral Value of the Mortgage Loans; unless (i) the Borrower shall have made
any such representations and warranties with knowledge that they were materially
false or misleading at the time made or (ii) any such representations and
warranties have been determined by the Lender in its sole discretion to be
materially false or misleading on a regular basis); or

            (d) the Borrower shall fail to comply with the requirements of
Section 7.03(a), Section 7.04, Section 7.05, Section 7.06, or Sections 7.09
through 7.20 hereof; or the Borrower shall otherwise fail to comply with the
requirements of Section 7.03 hereof and such default shall continue unremedied
for a period of five Business Days; or the Borrower shall fail to observe or
perform any other covenant or agreement contained in this Loan Agreement or any
other Loan Document and such failure to observe or perform shall continue
unremedied for a period of seven (7) Business Days; or

            (e) a final judgment or judgments for the payment of money in excess
of $5,000,000 in the aggregate shall be rendered against the Borrower or any of
its Affiliates by one or more courts, administrative tribunals or other bodies
having jurisdiction and the same shall not be satisfied, discharged (or
provision shall not be made for such discharge) or bonded, or a stay of
execution thereof shall not be procured, within 30 days from the date of entry
thereof, and the Borrower or any such Affiliate shall not, within said period of
30 days, or such longer period during which execution of the same shall have
been stayed or bonded, appeal therefrom and cause the execution thereof to be
stayed during such appeal; or

            (f) the Borrower shall admit in writing its inability to pay its
debts as such debts become due; or

            (g) the Borrower or any of its Affiliates shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee, examiner or liquidator or the like of itself or of all or a
substantial part of its property, (ii) make a general

                                      -36-
<PAGE>   42

assignment for the benefit of its creditors, (iii) commence a voluntary case
under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement or winding-up, or composition or readjustment of debts,
(v) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case under the
Bankruptcy Code or (vi) take any corporate or other action for the purpose of
effecting any of the foregoing; or

            (h) a proceeding or case shall be commenced, without the application
or consent of the Borrower or any of its Affiliates, in any court of competent
jurisdiction, seeking (i) its reorganization, liquidation, dissolution,
arrangement or winding-up, or the composition or readjustment of its debts, (ii)
the appointment of, or the taking of possession by, a receiver, custodian,
trustee, examiner, liquidator or the like of the Borrower or any such Affiliate
or of all or any substantial part of its property, or (iii) similar relief in
respect of the Borrower or any such Affiliate under any law relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or
winding-up, or composition or adjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of 30 or more days; or an order for relief against the
Borrower or any such Affiliate shall be entered in an involuntary case under the
Bankruptcy Code; or

            (i) the Custodial Agreement or any Loan Document shall for whatever
reason be terminated or cease to be in full force and effect, or the
enforceability thereof shall be contested by the Borrower; or

            (j) the Borrower shall grant, or suffer to exist, any Lien on any
Collateral except the Liens contemplated hereby; or the Liens contemplated
hereby shall cease to be first priority perfected Liens on the Collateral in
favor of the Lender or shall be Liens in favor of any Person other than the
Lender; or

            (k) the Borrower and/or any of its Affiliates shall, individually or
collectively, be in default in excess of $5,000,000 in the aggregate under one
or more of any note, indenture, loan agreement, guaranty, swap agreement or any
other contract to which it is a party, including, without limitation, any MS
Indebtedness, which default (1) involves the failure to pay a matured
obligation, or (2) permits the acceleration of the maturity of obligations by
any other party to or beneficiary of such note, indenture, loan agreement,
guaranty, swap agreement or other contract; or

            (l) any materially adverse change in the Property, business,
financial condition or prospects of the Borrower or any of its Affiliates shall
occur, in each case as determined by the Lender in its sole discretion, or any
other condition shall exist which, in the Lender's sole discretion, constitutes
a material impairment of the Borrower's ability to perform its obligations under
this Loan Agreement, the Note or any other Loan Document;

            (m) The Borrower's senior corporate bond rating has been lowered or
downgraded to a rating below BB by S&P or below Ba2 by Moody's; or

            (n) the discovery by the Lender of a condition or event which
existed at or prior to the execution hereof and which the Lender, in its sole
discretion, determines materially

                                      -37-
<PAGE>   43

and adversely affects: (i) the condition (financial or otherwise) of the
Borrower, the Borrower's Subsidiaries or Affiliates; or (ii) the ability of
either the Borrower or the Lender to fulfill their respective obligations under
this Loan Agreement.

            (o) Morgan Stanley Dean Witter & Co.'s corporate bond rating as
calculated by S&P or Moody's has been lowered or downgraded to a rating below A-
as indicated by S&P or below A3 as indicated by Moody's and the Borrower shall
have failed to repay outstanding Loans within ninety (90) calendar days
following demand therefor by the Lender.

            (p) there shall have occurred an "Event of Default" under the
Repurchase Agreement.

            Section 9. Remedies Upon Default.

            (a) An Event of Default shall be deemed to be continuing unless
expressly waived by the Lender in writing. Upon the occurrence of one or more
Events of Default hereunder, the Lender's obligation to make additional Loans to
the Borrower shall automatically terminate without further action by any Person.
Upon the occurrence of one or more Events of Default other than those referred
to in Section 8(g) or (h), the Lender may immediately declare the principal
amount of the Loans then outstanding under the Note to be immediately due and
payable, together with all interest thereon and fees and expenses accruing under
this Loan Agreement. Upon the occurrence of an Event of Default referred to in
Sections 8(g) or (h), such amounts shall immediately and automatically become
due and payable without any further action by any Person. Upon such declaration
or such automatic acceleration, the balance then outstanding on the Note shall
become immediately due and payable, without presentment, demand, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower.

            (b) Upon the occurrence of one or more Events of Default, the Lender
shall have the right to obtain physical possession of the Servicing Records and
all other files of the Borrower relating to the Collateral and all documents
relating to the Collateral which are then or may thereafter come in to the
possession of the Borrower or any third party acting for the Borrower and the
Borrower shall deliver to the Lender such assignments as the Lender shall
request. The Lender shall be entitled to specific performance of all agreements
of the Borrower contained in this Loan Agreement.

            Section 10. No Duty of Lender. The powers conferred on the Lender
hereunder are solely to protect the Lender's interests in the Collateral and
shall not impose any duty upon it to exercise any such powers. The Lender shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrower for any act or failure
to act hereunder, except for its or their own gross negligence or willful
misconduct.

            Section 11. Miscellaneous.

            11.01 Waiver. No failure on the part of the Lender to exercise and
no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under any Loan Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any

                                      -38-
<PAGE>   44

right, power or privilege under any Loan Document preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.

            11.02 Notices. Except as otherwise expressly permitted by this Loan
Agreement, all notices, requests and other communications provided for herein
and under the Custodial Agreement (including without limitation any
modifications of, or waivers, requests or consents under, this Loan Agreement)
shall be given or made in writing (including without limitation by telex or
telecopy) delivered to the intended recipient at the "Address for Notices"
specified below its name on the signature pages hereof or thereof); or, as to
any party, at such other address as shall be designated by such party in a
written notice to each other party provided, that a copy of all notices given
under Section 7.01 shall simultaneously be delivered to Credit Department,
Morgan Stanley Dean Witter, 1221 Avenue of the Americas, 35th Floor, New York,
New York 10036; Attention: Patrick Romaine. Except as otherwise provided in this
Loan Agreement and except for notices given under Section 2 (which shall be
effective only on receipt), all such communications shall be deemed to have been
duly given when transmitted by telex or telecopy or personally delivered or, in
the case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.

            11.03 Indemnification and Expenses.

            (a) The Borrower agrees to hold the Lender, and its Affiliates and
their officers, directors, employees, agents and advisors (each an "Indemnified
Party") harmless from and indemnify any Indemnified Party against all
liabilities, losses, damages, judgments, costs and expenses of any kind which
may be imposed on, incurred by or asserted against such Indemnified Party
(collectively, the "Costs") relating to or arising out of this Loan Agreement,
the Note, any other Loan Document or any transaction contemplated hereby or
thereby, or any amendment, supplement or modification of, or any waiver or
consent under or in respect of, this Loan Agreement, the Note, any other Loan
Document or any transaction contemplated hereby or thereby, that, in each case,
results from anything other than any Indemnified Party's gross negligence or
willful misconduct. Without limiting the generality of the foregoing, the
Borrower agrees to hold any Indemnified Party harmless from and indemnify such
Indemnified Party against all Costs with respect to all Mortgage Loans relating
to or arising out of any violation or alleged violation of any environmental
law, rule or regulation or any consumer credit laws, including without
limitation the Truth in Lending Act and/or the Real Estate Settlement Procedures
Act, that, in each case, results from anything other than such Indemnified
Party's gross negligence or willful misconduct. In any suit, proceeding or
action brought by an Indemnified Party in connection with any Mortgage Loan for
any sum owing thereunder, or to enforce any provisions of any Mortgage Loan, the
Borrower will save, indemnify and hold such Indemnified Party harmless from and
against all expense, loss or damage suffered by reason of any defense, set-off,
counterclaim, recoupment or reduction or liability whatsoever of the account
debtor or obligor thereunder, arising out of a breach by the Borrower of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or obligor or
its successors from the Borrower. The Borrower also agrees to reimburse an
Indemnified Party as and when billed by such Indemnified Party for all such
Indemnified Party's costs and expenses incurred in connection with the
enforcement or the preservation of such Indemnified Party's rights under this
Loan Agreement, the Note, any

                                      -39-
<PAGE>   45

other Loan Document or any transaction contemplated hereby or thereby, including
without limitation the reasonable fees and disbursements of its counsel. The
Borrower hereby acknowledges that, notwithstanding the fact that the Note is
secured by the Collateral, the obligation of the Borrower under the Note is a
recourse obligation of the Borrower.

            (b) The Borrower agrees to pay as and when billed by the Lender all
of the out-of-pocket costs and expenses incurred by the Lender in connection
with the development, preparation and execution of, and any amendment,
supplement or modification to, this Loan Agreement, the Note, any other Loan
Document or any other documents prepared in connection herewith or therewith.
The Borrower agrees to pay as and when billed by the Lender all of the
out-of-pocket costs and expenses incurred in connection with the consummation
and administration of the transactions contemplated hereby and thereby including
without limitation (i) all the reasonable fees, disbursements and expenses of
counsel to the Lender and (ii) all the due diligence, inspection, testing and
review costs and expenses incurred by the Lender with respect to Collateral
under this Loan Agreement, including, but not limited to, those costs and
expenses incurred by the Lender pursuant to Sections 11.03(a), 11.14 and 11.15
hereof.

            11.04 Amendments. Except as otherwise expressly provided in this
Loan Agreement, any provision of this Loan Agreement may be modified or
supplemented only by an instrument in writing signed by the Borrower and the
Lender and any provision of this Loan Agreement may be waived by the Lender.

            11.05 Successors and Assigns This Loan Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.

            11.06 Survival. The obligations of the Borrower under Sections 3.03
and 11.03 hereof shall survive the repayment of the Loans and the termination of
this Loan Agreement. In addition, each representation and warranty made or
deemed to be made by a request for a borrowing, herein or pursuant hereto shall
survive the making of such representation and warranty, and the Lender shall not
be deemed to have waived, by reason of making any Loan, any Default that may
arise because any such representation or warranty shall have proved to be false
or misleading, notwithstanding that the Lender may have had notice or knowledge
or reason to believe that such representation or warranty was false or
misleading at the time such Loan was made.

            11.07 Captions. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this Loan
Agreement.

            11.08 Counterparts. This Loan Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any of the parties hereto may execute this Loan Agreement
by signing any such counterpart.

            11.09 Loan Agreement Constitutes Security Agreement; Governing Law.
This Loan Agreement shall be governed by New York law without reference to
choice of law doctrine, and shall constitute a security agreement within the
meaning of the Uniform Commercial Code.

                                      -40-
<PAGE>   46

            11.10 Submission To Jurisdiction; Waivers. The Borrower hereby
irrevocably and unconditionally:

            (A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS LOAN AGREEMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT
THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF
NEW YORK, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;

            (B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT
COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;

            (C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING
MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR
ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS ADDRESS SET
FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF WHICH THE LENDER
SHALL HAVE BEEN NOTIFIED; AND

            (D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT
TO SUE IN ANY OTHER JURISDICTION.

            11.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE LENDER
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS LOAN AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.

            11.12 Acknowledgments. The Borrower hereby acknowledges that:

            (a) it has been advised by counsel in the negotiation, execution and
delivery of this Loan Agreement, the Note and the other Loan Documents;

            (b) the Lender has no fiduciary relationship to the Borrower, and
the relationship between the Borrower and the Lender is solely that of debtor
and creditor; and

            (c) no joint venture exists between the Lender and the Borrower.

                                      -41-
<PAGE>   47

            11.13 Hypothecation or Pledge of Loans. The Lender shall have free
and unrestricted use of all Collateral and nothing in this Loan Agreement shall
preclude the Lender from engaging in repurchase transactions with the Collateral
or otherwise pledging, repledging, transferring, hypothecating, or
rehypothecating the Collateral. Nothing contained in this Loan Agreement shall
obligate the Lender to segregate any Collateral delivered to the Lender by the
Borrower.

            11.14 Servicing.

            (a) The Borrower covenants to maintain or cause the servicing of the
Mortgage Loans to be maintained in conformity with accepted and prudent
servicing practices in the industry for the same type of mortgage loans as the
Mortgage Loans and in a manner at least equal in quality to the servicing the
Borrower provides for mortgage loans which it owns. In the event that the
preceding language is interpreted as constituting one or more servicing
contracts, each such servicing contract shall terminate automatically upon the
earliest of (i) an Event of Default, (ii) the date on which all the Secured
Obligations have been paid in full or (iii) the transfer of servicing approved
by the Borrower.

            (b) If the Mortgage Loans are serviced by the Borrower, (i) the
Borrower agrees that the Lender is the collateral assignee of all servicing
records, including but not limited to any and all servicing agreements, files,
documents, records, data bases, computer tapes, copies of computer tapes, proof
of insurance coverage, insurance policies, appraisals, other closing
documentation, payment history records, and any other records relating to or
evidencing the servicing of Mortgage Loans (the "Servicing Records"), and (ii)
the Borrower grants the Lender a security interest in all servicing fees and
rights relating to the Mortgage Loans and all Servicing Records to secure the
obligation of the Borrower or its designee to service in conformity with this
Section and any other obligation of the Borrower to the Lender. The Borrower
covenants to safeguard such Servicing Records and to deliver them promptly to
the Lender or its designee (including the Custodian) at the Lender's request.

            (c) If the Mortgage Loans are serviced by a third party servicer
(such third party servicer, the "Servicer"), the Borrower (i) shall provide a
copy of the servicing agreement to the Lender, which shall be in form and
substance acceptable to the Lender (the "Servicing Agreement"); (ii) shall
provide a Servicer Notice to the Servicer substantially in the form of Exhibit H
hereto, and (iii) hereby irrevocably assigns to the Lender and the Lender's
successors and assigns all right, title, interest of the Borrower in, to and
under, and the benefits of, any Servicing Agreement with respect to the Mortgage
Loans. Any successor to the Servicer shall be approved in writing by the Lender
prior to such successor's assumption of servicing obligations with respect to
the Mortgage Loans.

            (d) If the servicer of the Mortgage Loans is the Borrower or the
Servicer is an Affiliate of the Borrower, the Borrower shall provide to the
Lender a letter from the Borrower or the Servicer, as the case may be, to the
effect that upon the occurrence of an Event of Default, the Lender may terminate
any Servicing Agreement and transfer servicing to its designee, at no cost or
expense to the Lender, it being agreed that the Borrower will pay any and all
fees required to terminate the Servicing Agreement and to effectuate the
transfer of servicing to the designee of the Lender.

                                      -42-
<PAGE>   48

            (e) After the Funding Date, until the pledge of any Mortgage Loan is
relinquished by the Custodian, the Borrower will have no right to modify or
alter the terms of such Mortgage Loan and the Borrower will have no obligation
or right to repossess such Mortgage Loan or substitute another Mortgage Loan,
except as provided in the Custodial Agreement.

            (f) In the event the Borrower or an Affiliate is servicing the
Mortgage Loans, the Borrower shall permit the Lender to inspect the Borrower's
or its Affiliate's servicing facilities, as the case may be, for the purpose of
satisfying the Lender that the Borrower or its Affiliate, as the case may be,
has the ability to service the Mortgage Loans as provided in this Loan
Agreement.

            (g) The Borrower shall ensure that the Servicer will maintain the
Servicer's System in a manner that permits the Servicer to be Year 2000
Compliant.

            11.15 Periodic Due Diligence Review. The Borrower acknowledges that
the Lender has the right to perform continuing due diligence reviews with
respect to the Mortgage Loans, for purposes of verifying compliance with the
representations, warranties and specifications made hereunder, or otherwise, and
the Borrower agrees that upon reasonable (but no less than three (3) Business
Day's) prior notice to the Borrower, the Lender or its authorized
representatives will be permitted during normal business hours to examine,
inspect, and make copies and extracts of, the Mortgage Files and any and all
documents, records, agreements, instruments or information relating to such
Mortgage Loans in the possession or under the control of the Borrower and/or the
Custodian. The Borrower also shall make available to the Lender a knowledgeable
financial or accounting officer for the purpose of answering questions
respecting the Mortgage Files and the Mortgage Loans. Without limiting the
generality of the foregoing, the Borrower acknowledges that the Lender may make
Loans to the Borrower based solely upon the information provided by the Borrower
to the Lender in the Mortgage Loan Tape and the representations, warranties and
covenants contained herein, and that the Lender, at its option, has the right at
any time to conduct a partial or complete due diligence review on some or all of
the Mortgage Loans securing such Loan, including without limitation ordering new
credit reports and new appraisals on the related Mortgaged Properties and
otherwise re-generating the information used to originate such Mortgage Loan.
The Lender may underwrite such Mortgage Loans itself or engage a mutually agreed
upon third party underwriter to perform such underwriting. The Borrower agrees
to cooperate with the Lender and any third party underwriter in connection with
such underwriting, including, but not limited to, providing the Lender and any
third party underwriter with access to any and all documents, records,
agreements, instruments or information relating to such Mortgage Loans in the
possession, or under the control, of the Borrower. The Borrower further agrees
that it shall reimburse the Lender for any and all out-of-pocket costs and
expenses incurred by the Lender in connection with the Lender's activities
pursuant to this Section 11.15 (the "Due Diligence Fee"); provided that, the Due
Diligence Fee shall be limited to $25,000 per annum unless (a) the Lender, due
to no fault of the Lender, has to conduct more extensive due diligence than
originally contemplated in connection with this Agreement or (b) there is an
increase in the cost of conducting due diligence as a result of the structure or
timing of any Loan contemplated hereunder or (c) a Default shall have occurred.

                                      -43-
<PAGE>   49

            11.16 Set-Off. In addition to any rights and remedies of the Lender
provided by this Loan Agreement and by law, the Lender shall have the right,
without prior notice to the Borrower, any such notice being expressly waived by
the Borrower to the extent permitted by applicable law, upon any amount becoming
due and payable by the Borrower hereunder (whether at the stated maturity, by
acceleration or otherwise) to set-off and appropriate and apply against such
amount any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by the Lender or any Affiliate
thereof to or for the credit or the account of the Borrower. The Lender agrees
promptly to notify the Borrower after any such set-off and application made by
the Lender; provided that the failure to give such notice shall not affect the
validity of such set-off and application.

            11.17 Intent. The parties recognize that each Loan is a "securities
contract" as that term is defined in Section 741 of Title 11 of the United
States Code, as amended.

                            [SIGNATURE PAGE FOLLOWS]

                                      -44-
<PAGE>   50

            IN WITNESS WHEREOF, the parties hereto have caused this Loan
Agreement to be duly executed and delivered as of the day and year first above
written.

                                        BORROWER

                                        DORAL FINANCIAL CORPORATION

                                        By: /S/ Mario S. Levis
                                           ------------------------------------
                                           Title: Executive Vice President &
                                                  Treasurer

                                        Address for Notices:

                                        1159 F.D Roosevelt Avenue
                                        San Juan, Puerto Rico 00920-2998

                                        Attention: Mario S. Levis
                                        Telecopier No.: (787) 749-8267
                                        Telephone No: (787) 749-7108

                                        LENDER

                                        MORGAN STANLEY MORTGAGE
                                        CAPITAL INC.

                                        By: /s/ Marc Flamino
                                           ------------------------------------
                                        Title: Vice President

                                        Address for Notices:

                                        1585 Broadway
                                        New York, New York 10036
                                        Attention: Marc Flamino
                                        Telecopier No.: 212-761-0093
                                        Telephone No.: 212-761-4243
<PAGE>   51

                                   Schedule 1

                REPRESENTATIONS AND WARRANTIES RE: MORTGAGE LOANS

                  Part I. Eligible Residential Mortgage Loans

            As to each residential Mortgage Loan included in the Borrowing Base
on a Funding Date (and the related Mortgage, Mortgage Note, Assignment of
Mortgage and Mortgaged Property), the Borrower shall be deemed to make the
following representations and warranties to the Lender as of such date and as of
each date Collateral Value is determined (certain defined terms used herein and
not otherwise defined in the Loan Agreement appearing in Part III to this
Schedule 1):

            (a) Mortgage Loans as Described. The information set forth in the
Mortgage Loan Schedule with respect to the Mortgage Loan is complete, true and
correct in all material respects. Each Mortgage Loan to be part of a Whole Loan
Transfer is an Eligible Mortgage Loan or an Agency Eligible Mortgage Loan. As to
the Agency Eligible Mortgage Loans in the aggregate and each Agency Eligible
Mortgage Loan, all of the Standard Agency Mortgage Loan Representations are (and
shall be as of all relevant dates) true and correct in all material respects;
Borrower has not negotiated with the applicable Agency any exceptions or
modifications to such Standard Agency Mortgage Loan Representations unless such
exceptions or modifications have been disclosed in writing to the Lender.

            (b) Payments Current. All payments required to be made up to the
Funding Date for the Mortgage Loan under the terms of the Mortgage Note have
been made and credited. With respect to each Mortgage Loan, other than a
Delinquent Mortgage Loan, no payment required under the Mortgage Loan is
delinquent nor has any payment under the Mortgage Loan been delinquent at any
time since the origination of the Mortgage Loan. The first Monthly Payment shall
be made, or shall have been made, with respect to the Mortgage Loan on its Due
Date or within the grace period, all in accordance with the terms of the related
Mortgage Note.

            (c) No Outstanding Charges. There are no defaults in complying with
the terms of the Mortgage securing the Mortgage Loan, and all taxes,
governmental assessments, insurance premiums, water, sewer and municipal
charges, leasehold payments or ground rents which previously became due and
owing have been paid, or an escrow of funds has been established in an amount
sufficient to pay for every such item which remains unpaid and which has been
assessed but is not yet due and payable. Neither the Borrower nor the Qualified
Originator from which the Borrower acquired the Mortgage Loan has advanced
funds, or induced, solicited or knowingly received any advance of funds by a
party other than the Mortgagor, directly or indirectly, for the payment of any
amount required under the Mortgage Loan, except for interest accruing from the
date of the Mortgage Note or date of disbursement of the proceeds of the
Mortgage Loan, whichever is earlier, to the day which precedes by one month the
Due Date of the first installment of principal and interest thereunder.

            (d) Original Terms Unmodified. The terms of the Mortgage Note and
Mortgage have not been impaired, waived, altered or modified in any respect,
from the date of origination; except by a written instrument which has been
recorded, if necessary to protect the

                                      1-1
<PAGE>   52

interests of the Lender, and which has been delivered to the Custodian and the
terms of which are reflected in the Mortgage Loan Schedule. The substance of any
such waiver, alteration or modification has been approved by the title insurer,
to the extent required, and its terms are reflected on the Mortgage Loan
Schedule. No Mortgagor in respect of the Mortgage Loan has been released, in
whole or in part, except in connection with an assumption agreement approved by
the title insurer, to the extent required by such policy, and which assumption
agreement is part of the Mortgage File delivered to the Custodian and the terms
of which are reflected in the Mortgage Loan Schedule.

            (e) No Defenses. The Mortgage Loan is not subject to any right of
rescission, set-off, counterclaim or defense, including without limitation the
defense of usury, nor will the operation of any of the terms of the Mortgage
Note or the Mortgage, or the exercise of any right thereunder, render either the
Mortgage Note or the Mortgage unenforceable, in whole or in part and no such
right of rescission, set-off, counterclaim or defense has been asserted with
respect thereto, and no Mortgagor in respect of the Mortgage Loan was a debtor
in any state or Federal bankruptcy or insolvency proceeding at the time the
Mortgage Loan was originated. The Borrower has no knowledge nor has it received
any notice that any Mortgagor in respect of the Mortgage Loan is a debtor in any
state or federal bankruptcy or insolvency proceeding.

            (f) Hazard Insurance. The Mortgaged Property is insured by a fire
and extended perils insurance policy, issued by a Qualified Insurer, and such
other hazards as are customary in the area where the Mortgaged Property is
located, and to the extent required by the Borrower as of the date of
origination consistent with the Underwriting Guidelines, against earthquake and
other risks insured against by Persons operating like properties in the locality
of the Mortgaged Property, in an amount not less than the greatest of (i) 100%
of the replacement cost of all improvements to the Mortgaged Property, (ii) the
outstanding principal balance of the Mortgage Loan, or (iii) the amount
necessary to avoid the operation of any co-insurance provisions with respect to
the Mortgaged Property, and consistent with the amount that would have been
required as of the date of origination in accordance with the Underwriting
Guidelines. If any portion of the Mortgaged Property is in an area identified by
any federal Governmental Authority as having special flood hazards, and flood
insurance is available, a flood insurance policy meeting the current guidelines
of the Federal Emergency Management Agency is in effect with a generally
acceptable insurance carrier, in an amount representing coverage not less than
the least of (1) the outstanding principal balance of the Mortgage Loan, (2) the
full insurable value of the Mortgaged Property, and (3) the maximum amount of
insurance available under the National Flood Insurance Act of 1968, as amended
by the Flood Disaster Protection Act of 1974. All such insurance policies
(collectively, the "hazard insurance policy") contain a standard mortgagee
clause naming the Borrower, its successors and assigns (including without
limitation, subsequent owners of the Mortgage Loan), as mortgagee, and may not
be reduced, terminated or canceled without 30 days' prior written notice to the
mortgagee. No such notice has been received by the Borrower. All premiums on
such insurance policy have been paid. The related Mortgage obligates the
Mortgagor to maintain all such insurance and, at such Mortgagor's failure to do
so, authorizes the mortgagee to maintain such insurance at the Mortgagor's cost
and expense and to seek reimbursement therefor from such Mortgagor. Where
required by state law or regulation, the Mortgagor has been given an opportunity
to choose the carrier of the required hazard insurance, provided the policy is
not a "master" or "blanket" hazard insurance policy covering a condominium, or
any hazard insurance policy covering the common facilities of a

                                      1-2
<PAGE>   53

planned unit development. The hazard insurance policy is the valid and binding
obligation of the insurer and is in full force and effect. The Borrower has not
engaged in, and has no knowledge of the Mortgagor's having engaged in, any act
or omission which would impair the coverage of any such policy, the benefits of
the endorsement provided for herein, or the validity and binding effect of
either including, without limitation, no unlawful fee, commission, kickback or
other unlawful compensation or value of any kind has been or will be received,
retained or realized by any attorney, firm or other Person, and no such unlawful
items have been received, retained or realized by the Borrower.

            (g) Compliance with Applicable Laws. Any and all requirements of any
federal, state or local law including, without limitation, usury,
truth-in-lending, real estate settlement procedures, consumer credit protection,
equal credit opportunity or disclosure laws applicable to the Mortgage Loan have
been complied with, the consummation of the transactions contemplated hereby
will not involve the violation of any such laws or regulations, and the Borrower
shall maintain or shall cause its agent to maintain in its possession, available
for the inspection of the Lender, and shall deliver to the Lender, upon demand,
evidence of compliance with all such requirements.

            (h) No Satisfaction of Mortgage. The Mortgage has not been
satisfied, canceled, subordinated or rescinded, in whole or in part, and the
Mortgaged Property has not been released from the lien of the Mortgage, in whole
or in part, nor has any instrument been executed that would effect any such
release, cancellation, subordination or rescission. The Borrower has not waived
the performance by the Mortgagor of any action, if the Mortgagor's failure to
perform such action would cause the Mortgage Loan to be in default, nor has the
Borrower waived any default resulting from any action or inaction by the
Mortgagor.

            (i) Location and Type of Mortgaged Property. The Mortgaged Property
is located in an Acceptable State as identified in the Mortgage Loan Schedule
and consists of a single parcel of real property with a detached single family
residence erected thereon, or a two- to four-family dwelling, or an individual
condominium unit in a low-rise condominium project, or an individual unit in a
planned unit development or a de minimis planned unit development, provided,
however, that any condominium unit or planned unit development shall conform
with the applicable Fannie Mae and Freddie Mac requirements regarding such
dwellings and that no residence or dwelling is a mobile home or a manufactured
dwelling. No portion of the Mortgaged Property is used for commercial purposes.

            (j) Valid Lien. The Mortgage is a valid, subsisting, enforceable and
perfected (A) first lien and first priority security interest with respect to
each Mortgage Loan which is indicated by the Borrower to be a first lien (as
reflected on the Mortgage Loan Tape) or (B) second lien and second priority
security interest with respect to each Mortgage Loan which is indicated by the
Borrower to be a Second Lien (as reflected on the Mortgage Loan Tape), in either
case, on the real property included in the Mortgaged Property, including all
buildings on the Mortgaged Property located in or annexed to such buildings, and
all additions, alterations and replacements made at any time with respect to the
foregoing. The lien of the Mortgage is subject only to the items listed in (1),
(2) and (3) below (the "Permitted Liens"):

                                      1-3
<PAGE>   54

            (1) the lien of current real property taxes and assessments not yet
      due and payable;

            (2) covenants, conditions and restrictions, rights of way, easements
      and other matters of the public record as of the date of recording
      acceptable to prudent mortgage lending institutions generally and
      specifically referred to in the lender's title insurance policy delivered
      to the originator of the Mortgage Loan and (a) referred to or otherwise
      considered in the appraisal made for the originator of the Mortgage Loan
      or (b) which do not adversely affect the Appraised Value of the Mortgaged
      Property set forth in such appraisal;

            (3) other matters to which like properties are commonly subject
      which do not materially interfere with the benefits of the security
      intended to be provided by the Mortgage or the use, enjoyment, value or
      marketability of the related Mortgaged Property; and

            (4) with respect to each Mortgage Loan which is indicated by the
      Borrower to be a Second Lien Mortgage Loan (as reflected on the Mortgage
      Loan Tape) a first lien on the Mortgaged Property.

Any security agreement, chattel mortgage or equivalent document related to and
delivered in connection with the Mortgage Loan establishes and creates a valid,
subsisting and enforceable (A) first lien and first priority security interest
with respect to each Mortgage Loan which is indicated by the Borrower to be a
first lien (as reflected on the Mortgage Loan Tape) or (B) second lien and
second priority security interest with respect to each Mortgage Loan which is
indicated by the Borrower to be a Second Lien Mortgage Loan (as reflected on the
Mortgage Loan Tape), in either case, on the property described therein and such
Borrower has full right to pledge and assign the same to the Lender. The
Mortgaged Property was not, as of the date of origination of the Mortgage Loan,
subject to a mortgage, deed of trust, deed to secure debt or other security
instrument creating a lien subordinate to the lien of the Mortgage.

            (k) Validity of Mortgage Documents. The Mortgage Note and the
Mortgage and any other agreement executed and delivered by a Mortgagor or
guarantor, if applicable, in connection with a Mortgage Loan are genuine, and
each is the legal, valid and binding obligation of the maker thereof enforceable
in accordance with its terms. All parties to the Mortgage Note, the Mortgage and
any other such related agreement had legal capacity to enter into the Mortgage
Loan and to execute and deliver the Mortgage Note, the Mortgage and any such
agreement, and the Mortgage Note, the Mortgage and any other such related
agreement have been duly and properly executed by such related parties. No
fraud, error, omission, misrepresentation, negligence or similar occurrence with
respect to a Mortgage Loan has taken place on the part of any Person, including,
without limitation, the Mortgagor, any appraiser, any builder or developer, or
any other party involved in the origination of the Mortgage Loan. The Borrower
has reviewed all of the documents constituting the Servicing File and has made
such inquiries as it deems necessary to make and confirm the accuracy of the
representations set forth herein.

            (l) Full Disbursement of Proceeds. The Mortgage Loan has been closed
and the proceeds of the Mortgage Loan have been fully disbursed and there is no
further requirement

                                      1-4
<PAGE>   55

for future advances thereunder, and any and all requirements as to completion of
any on-site or off-site improvement and as to disbursements of any escrow funds
therefor have been complied with. All costs, fees and expenses incurred in
making or closing the Mortgage Loan and the recording of the Mortgage were paid,
and the Mortgagor is not entitled to any refund of any amounts paid or due under
the Mortgage Note or Mortgage.

            (m) Ownership. The Borrower is the sole owner and holder of the
Mortgage Loan. The Mortgage Loan is not assigned or pledged, and the Borrower
has good, indefeasible and marketable title thereto, and has full right to
transfer, pledge and assign the Mortgage Loan to the Lender free and clear of
any encumbrance, equity, participation interest, lien, pledge, charge, claim or
security interest, and has full right and authority subject to no interest or
participation of, or agreement with, any other party, to assign, transfer and
pledge each Mortgage Loan pursuant to this Loan Agreement and following the
pledge of each Mortgage Loan, the Lender will hold such Mortgage Loan free and
clear of any encumbrance, equity, participation interest, lien, pledge, charge,
claim or security interest except any such security interest created pursuant to
the terms of this Loan Agreement.

            (n) Doing Business. All parties which have had any interest in the
Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or,
during the period in which they held and disposed of such interest, were) (i) in
compliance with any and all applicable licensing requirements of the laws of the
state wherein the Mortgaged Property is located, and (ii) either (A) organized
under the laws of such state, (B) qualified to do business in such state, (C) a
federal savings and loan association, a savings bank or a national bank having a
principal office in such state, or (D) not doing business in such state.

            (o) LTV; CLTV. No Agency Eligible Mortgage Loan (other than an FHA
insured or VA guaranteed Mortgage Loan) has an LTV greater than 80%. No Agency
Eligible Mortgage Loan that is an FHA insured or VA guaranteed Mortgage Loan has
an LTV greater than 97%. No Non-Agency Mortgage Loan has a CLTV greater than
85%.

            (p) Title Insurance. The Mortgage Loan is covered by either (i) an
attorney's opinion of title and abstract of title, the form and substance of
which is acceptable to prudent mortgage lending institutions making mortgage
loans in the area wherein the Mortgaged Property is located or (ii) an ALTA
lender's title insurance policy or other generally acceptable form of policy or
insurance acceptable to Fannie Mae or Freddie Mac and each such title insurance
policy is issued by a title insurer acceptable to Fannie Mae or Freddie Mac and
qualified to do business in the jurisdiction where the Mortgaged Property is
located, insuring the Borrower, its successors and assigns, as to the first
priority lien of the Mortgage in the original principal amount of the Mortgage
Loan (or to the extent a Mortgage Note provides for negative amortization, the
maximum amount of negative amortization in accordance with the Mortgage),
subject only to the exceptions contained in clauses (1), (2) and (3) and, with
respect to each Mortgage Loan which is indicated by the Borrower to be a Second
Lien Mortgage Loan (as reflected on the Mortgage Loan Tape) clause (4) of
paragraph (j)) of this Part I of Schedule 1, and in the case of adjustable rate
Mortgage Loans, against any loss by reason of the invalidity or unenforceability
of the lien resulting from the provisions of the Mortgage providing for
adjustment to the Mortgage Interest Rate and Monthly Payment. Where required by
state law or regulation, the Mortgagor has been given the opportunity to choose
the carrier of the required

                                      1-5
<PAGE>   56

mortgage title insurance. Additionally, such lender's title insurance policy
affirmatively insures ingress and egress and against encroachments by or upon
the Mortgaged Property or any interest therein. The title policy does not
contain any special exceptions (other than the standard exclusions) for zoning
and uses and has been marked to delete the standard survey exception or to
replace the standard survey exception with a specific survey reading. The
Borrower, its successors and assigns, are the sole insureds of such lender's
title insurance policy, and such lender's title insurance policy is valid and
remains in full force and effect and will be in force and effect upon the
consummation of the transactions contemplated by this Loan Agreement. No claims
have been made under such lender's title insurance policy, and no prior holder
or servicer of the related Mortgage, including the Borrower, has done, by act or
omission, anything which would impair the coverage of such lender's title
insurance policy, including, without limitation, no unlawful fee, commission,
kickback or other unlawful compensation or value of any kind has been or will be
received, retained or realized by any attorney, firm or other Person, and no
such unlawful items have been received, retained or realized by the Borrower.

            (q) No Defaults. There is no default, breach, violation or event of
acceleration existing under the Mortgage or the Mortgage Note (other than
payment defaults with respect to Delinquent Mortgage Loans) and no event has
occurred which, with the passage of time or with notice and the expiration of
any grace or cure period, would constitute a default, breach, violation or event
of acceleration, and neither the Borrower nor its predecessors have waived any
default, breach, violation or event of acceleration. With respect to each
Mortgage Loan which is indicated by the Borrower to be a Second Lien Mortgage
Loan (as reflected on the Mortgage Loan Schedule) (i) the prior mortgage is in
full force and effect, (ii) there is no default, breach, violation or event of
acceleration existing under such prior mortgage or the related mortgage note,
(iii) no event which, with the passage of time or with notice and the expiration
of any grace or cure period, would constitute a default, breach, violation or
event of acceleration thereunder, and either (A) the prior mortgage contains a
provision which allows or (B) applicable law requires, the mortgagee under the
Second Lien Mortgage Loan to receive notice of, and affords such mortgagee an
opportunity to cure any default by payment in full or otherwise under the prior
mortgage.

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

            (s) Location of Improvements; No Encroachments. All improvements
which were considered in determining the Appraised Value of the Mortgaged
Property lie wholly within the boundaries and building restriction lines of the
Mortgaged Property, and no improvements on adjoining properties encroach upon
the Mortgaged Property. No improvement located on or being part of the Mortgaged
Property is in violation of any applicable zoning and building law, ordinance or
regulation.

            (t) Origination; Payment Terms. The Mortgage Loan was originated by
or in conjunction with a mortgagee approved by the Secretary of Housing and
Urban Development pursuant to Sections 203 and 211 of the National Housing Act,
a savings and loan association, a savings bank, a commercial bank, credit union,
insurance company or similar banking institution

                                      1-6
<PAGE>   57

which is supervised and examined by a federal or state authority. Principal
payments on the Mortgage Loan commenced no more than 60 days after funds were
disbursed in connection with the Mortgage Loan. The Mortgage Interest Rate is
adjusted, with respect to adjustable rate Mortgage Loans, on each Interest Rate
Adjustment Date to equal the Index plus the Gross Margin (rounded up or down to
the nearest .125%), subject to the Mortgage Interest Rate Cap. The Mortgage Note
is payable on the first day of each month in equal monthly installments of
principal and interest, which installments of interest, with respect to
adjustable rate Mortgage Loans, are subject to change due to the adjustments to
the Mortgage Interest Rate on each Interest Rate Adjustment Date, with interest
calculated and payable in arrears, sufficient to amortize the Mortgage Loan
fully by the stated maturity date, over an original term of not more than 30
years from commencement of amortization. The due date of the first payment under
the Mortgage Note is no more than 60 days from the date of the Mortgage Note.

            (u) Customary Provisions. The Mortgage Note has a stated maturity.
The Mortgage contains customary and enforceable provisions such as to render the
rights and remedies of the holder thereof adequate for the realization against
the Mortgaged Property of the benefits of the security provided thereby,
including, (i) in the case of a Mortgage designated as a deed of trust, by
trustee's sale, and (ii) otherwise by judicial foreclosure. Upon default by a
Mortgagor on a Mortgage Loan and foreclosure on, or trustee's sale of, the
Mortgaged Property pursuant to the proper procedures, the holder of the Mortgage
Loan will be able to deliver good and merchantable title to the Mortgaged
Property. There is no homestead exemption available to a Mortgagor other than
those which are inferior to the rights of the Mortgagee under the Mortgage,
provided that the Mortgage Note related thereto evidences indebtedness for the
acquisition or purchase of, or liability incurred for improvements to, the
Mortgaged Property. Any Mortgage which does not arise out of indebtedness for
the acquisition or purchase of, or liability incurred for improvements to, the
Mortgaged Property, may be subject to a homestead exemption of $1,500.

            (v) Conformance with Underwriting Guidelines and Agency Standards.
The Mortgage Loan was underwritten in accordance with the Underwriting
Guidelines. The Mortgage Note and Mortgage are on forms similar to those used by
Freddie Mac or Fannie Mae and the Borrower has not made any representations to a
Mortgagor that are inconsistent with the mortgage instruments used.

            (w) Occupancy of the Mortgaged Property. As of the Funding Date the
Mortgaged Property is lawfully occupied under applicable law. All inspections,
licenses and certificates required to be made or issued with respect to all
occupied portions of the Mortgaged Property and, with respect to the use and
occupancy of the same, including but not limited to certificates of occupancy
and fire underwriting certificates, have been made or obtained from the
appropriate authorities. The Borrower has not received notification from any
Governmental Authority that the Mortgaged Property is in material non-compliance
with such laws or regulations, is being used, operated or occupied unlawfully or
has failed to have or obtain such inspection, licenses or certificates, as the
case may be. The Borrower has not received notice of any violation or failure to
conform with any such law, ordinance, regulation, standard, license or
certificate. The Mortgagor represented at the time of origination of the
Mortgage Loan that the Mortgagor would occupy the Mortgaged Property as the
Mortgagor's primary residence.

                                      1-7
<PAGE>   58

            (x) No Additional Collateral. The Mortgage Note is not and has not
been secured by any collateral except the lien of the corresponding Mortgage and
the security interest of any applicable security agreement or chattel mortgage
referred to in clause (j) above.

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

            (z) Delivery of Mortgage Documents. The Mortgage Note, the Mortgage,
the Assignment of Mortgage and any other documents required to be delivered
under the Custodial Agreement for each Mortgage Loan have been delivered to the
Custodian. The Borrower or its agent is in possession of a complete, true and
accurate Mortgage File in compliance with the Custodial Agreement, except for
such documents the originals of which have been delivered to the Custodian.

            (aa) Transfer of Mortgage Loans. The Assignment of Mortgage, to the
extent required, is in recordable form and is acceptable for recording under the
laws of the jurisdiction in which the Mortgaged Property is located.

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

            (cc) No Buydown Provisions; No Graduated Payments or Contingent
Interests. The Mortgage Loan does not contain provisions pursuant to which
Monthly Payments are paid or partially paid with funds deposited in any separate
account established by the Borrower, the Mortgagor, or anyone on behalf of the
Mortgagor, or paid by any source other than the Mortgagor nor does it contain
any other similar provisions which may constitute a "buydown" provision. The
Mortgage Loan is not a graduated payment mortgage loan and the Mortgage Loan
does not have a shared appreciation or other contingent interest feature.

            (dd) Consolidation of Future Advances. Any future advances made to
the Mortgagor prior to the Funding Date have been consolidated with the
outstanding principal amount secured by the Mortgage, and the secured principal
amount, as consolidated, bears a single interest rate and single repayment term.
The lien of the Mortgage securing the consolidated principal amount is expressly
insured as having either (A) first lien priority with respect to each Mortgage
Loan which is indicated by the Borrower to be a first lien (as reflected on the
Mortgage Loan Tape) or (B) second lien priority with respect to each Mortgage
Loan which is indicated by the Borrower to be a Second Lien Mortgage Loan (as
reflected on the Mortgage Loan Tape), in either case, by a title insurance
policy, an endorsement to the policy insuring the mortgagee's consolidated
interest or by other title evidence acceptable to Fannie Mae and Freddie Mac.
The consolidated principal amount does not exceed the original principal amount
of the Mortgage Loan.

                                      1-8
<PAGE>   59

            (ee) Mortgaged Property Undamaged. The Mortgaged Property is
undamaged by waste, fire, earthquake or earth movement, windstorm, flood,
tornado or other casualty so as to affect adversely the value of the Mortgaged
Property as security for the Mortgage Loan or the use for which the premises
were intended and each Mortgaged Property is in good repair. There have not been
any condemnation proceedings with respect to the Mortgaged Property and the
Borrower has no knowledge of any such proceedings.

            (ff) Collection Practices; Escrow Deposits; Interest Rate
Adjustments. The origination and collection practices used by the originator,
each servicer of the Mortgage Loan and the Borrower with respect to the Mortgage
Loan have been in all respects in compliance with Accepted Servicing Practices,
applicable laws and regulations, and have been in all respects legal and proper.
With respect to escrow deposits and Escrow Payments (other than with respect to
each Mortgage Loan which is indicated by the Borrower to be a Second Lien
Mortgage Loan and for which the mortgagee under the first lien is collecting
Escrow Payments (as reflected on the Mortgage Loan Tape), all such payments are
in the possession of, or under the control of, the Borrower and there exist no
deficiencies in connection therewith for which customary arrangements for
repayment thereof have not been made. All Escrow Payments have been collected in
full compliance with state and federal law. An escrow of funds is not prohibited
by applicable law and has been established in an amount sufficient to pay for
every item that remains unpaid and has been assessed but is not yet due and
payable. No escrow deposits or Escrow Payments or other charges or payments due
the Borrower have been capitalized under the Mortgage or the Mortgage Note. All
Mortgage Interest Rate adjustments have been made in strict compliance with
state and federal law and the terms of the related Mortgage Note. Any interest
required to be paid pursuant to state, federal and local law has been properly
paid and credited.

            (gg) Conversion to Fixed Interest Rate. With respect to adjustable
rate Mortgage Loans, the Mortgage Loan is not convertible to a fixed interest
rate Mortgage Loan.

            (hh) Other Insurance Policies. No action, inaction or event has
occurred and no state of facts exists or has existed that has resulted or will
result in the exclusion from, denial of, or defense to coverage under any
applicable special hazard insurance policy, PMI Policy or bankruptcy bond,
irrespective of the cause of such failure of coverage. In connection with the
placement of any such insurance, no commission, fee, or other compensation has
been or will be received by the Borrower or by any officer, director, or
employee of the Borrower or any designee of the Borrower or any corporation in
which the Borrower or any officer, director, or employee had a financial
interest at the time of placement of such insurance.

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

            (jj) Appraisal. The Mortgage File contains an appraisal of the
related Mortgaged Property signed prior to the approval of the Mortgage Loan
application by a qualified appraiser, duly appointed by the Borrower, who had no
interest, direct or indirect in the Mortgaged Property or in any loan made on
the security thereof, and whose compensation is not affected by the approval or
disapproval of the Mortgage Loan, and the appraisal and appraiser

                                      1-9
<PAGE>   60

both satisfy the requirements of Fannie Mae or Freddie Mac and Title XI of the
Federal Institutions Reform, Recovery, and Enforcement Act of 1989 as amended
and the regulations promulgated thereunder, all as in effect on the date the
Mortgage Loan was originated.

            (kk) Disclosure Materials. The Mortgagor has executed a statement to
the effect that the Mortgagor has received all disclosure materials required by
applicable law with respect to the making of adjustable rate mortgage loans, and
the Borrower maintains such statement in the Mortgage File.

            (ll) Construction or Rehabilitation of Mortgaged Property. No
Mortgage Loan was made for the purpose of construction or rehabilitation of a
Mortgaged Property or facilitating the trade-in or exchange of a Mortgaged
Property.

            (mm) No Defense to Insurance Coverage. No action has been taken or
failed to be taken, no event has occurred and no state of facts exists or has
existed on or prior to the Funding Date (whether or not known to the Borrower on
or prior to such date) which has resulted or will result in an exclusion from,
denial of, or defense to coverage under any private mortgage insurance
(including, without limitation, any exclusions, denials or defenses which would
limit or reduce the availability of the timely payment of the full amount of the
loss otherwise due thereunder to the insured) whether arising out of actions,
representations, errors, omissions, negligence, or fraud of the Borrower, the
related Mortgagor or any party involved in the application for such coverage,
including the appraisal, plans and specifications and other exhibits or
documents submitted therewith to the insurer under such insurance policy, or for
any other reason under such coverage, but not including the failure of such
insurer to pay by reason of such insurer's breach of such insurance policy or
such insurer's financial inability to pay.

            (nn) Capitalization of Interest. The Mortgage Note does not by its
terms provide for the capitalization or forbearance of interest.

            (oo) No Equity Participation. No document relating to the Mortgage
Loan provides for any contingent or additional interest in the form of
participation in the cash flow of the Mortgaged Property or a sharing in the
appreciation of the value of the Mortgaged Property. The indebtedness evidenced
by the Mortgage Note is not convertible to an ownership interest in the
Mortgaged Property or the Mortgagor and the Borrower has not financed nor does
it own directly or indirectly, any equity of any form in the Mortgaged Property
or the Mortgagor.

            (pp) Withdrawn Mortgage Loans. If the Mortgage Loan has been
released to the Borrower pursuant to a Request for Release as permitted under
Section 5 of the Custodial Agreement, then the promissory note relating to the
Mortgage Loan was returned to the Custodian within 10 days (or if such tenth day
was not a Business Day, the next succeeding Business Day).

            (qq) Origination Date. The Origination Date is no earlier than nine
months prior to the date the Mortgage Loan is first included in the Borrowing
Base.

            (rr) No Exception. The Custodian has not noted any material
exceptions on an Exception Report (as defined in the Custodial Agreement) with
respect to the Mortgage Loan

                                      1-10
<PAGE>   61

which would materially adversely affect the Mortgage Loan or the Lender's
security interest, granted by the Borrower, in the Mortgage Loan.

            (ss) Qualified Originator. The Mortgage Loan has been originated by,
and, if applicable, purchased by the Borrower from, a Qualified Originator.

            (tt) Mortgage Submitted for Recordation. The Mortgage either has
been or will promptly be submitted for recordation in the appropriate
governmental recording office of the jurisdiction where the Mortgaged Property
is located.

            (uu) Riegle Act. None of the Mortgage Loans are classified as "high
cost" loans under the Home Ownership and Equity Protection Act of 1994.

            (vv) Agency Eligible Mortgage Loans. With respect to each Agency
Eligible Mortgage Loan:

            (i) With respect to each Agency Eligible Mortgage Loan covered by a
            Takeout Commitment, the Mortgage Loan is covered by a Takeout
            Commitment of the Agency for the swap of such Mortgage Loan for an
            Agency MBS or the purchase of such Mortgage Loan by the Agency, and
            each Takeout Commitment is a valid, binding and subsisting
            obligation of the Agency enforceable in accordance with its terms.

                  (ii) The Borrower has no reason to believe, after reasonable
            and diligent inquiry respecting (among other things) its Agency
            Approval, the relevant Agency Purchase Documents, the relevant
            Agency Program requirements and the characteristics and quality of
            the Agency Eligible Mortgage Loans, that Agency MBS will not be
            issued and delivered or the Agency purchase shall not be
            consummated, as applicable, with respect to such Agency Eligible
            Mortgage Loan.

                  (iii) Each Agency Eligible Mortgage Loan complies with all
            applicable Fannie Mae regulations.

                  (iv) All of the representations and warranties made or deemed
            made respecting such Agency Eligible Mortgage Loan in, and contained
            in or incorporated by reference in, the Agency Guide and Agency
            Program (collectively, the "Standard Agency Mortgage Loan
            Representations") are (and shall be as of all relevant dates) true
            and correct in all material respects; and except as has been
            expressly disclosed to the Lender by the Borrower in writing, the
            Borrower has not negotiated with the Agency any exceptions or
            modifications to such Standard Agency Mortgage Loan Representations.

                                      1-11
<PAGE>   62

                            Part II. Defined Terms.

            In addition to terms defined elsewhere in the Loan Agreement, the
following terms shall have the following meanings when used in this Schedule 1:

            "Acceptable State" shall mean the Commonwealth of Puerto Rico and
any state notified by the Borrower to the Lender from time to time and approved
in writing by the Lender, which approval has not been revoked by the Lender in
their sole discretion, any such notice of revocation to be given no later than
10 Business Days prior to its intended effective date.

            "Accepted Servicing Practices" shall mean, with respect to any
Mortgage Loan, those mortgage servicing practices of prudent mortgage lending
institutions which service mortgage loans of the same type as such Mortgage
Loans in the jurisdiction where the related Mortgaged Property is located.

            "ALTA" means the American Land Title Association.

            "Appraised Value" shall mean the value set forth in an appraisal
made in connection with the origination of the related Mortgage Loan as the
value of the Mortgaged Property.

            "Assignment of Mortgage" shall mean, with respect to any Mortgage,
an assignment of the Mortgage, notice of transfer or equivalent instrument in
recordable form, sufficient under the laws of the jurisdiction wherein the
related Mortgaged Property is located to reflect the assignment of the Mortgage
to the Lender.

            "Best's" means Best's Key Rating Guide, as the same shall be amended
from time to time.

            "Combined Loan-to-Value Ratio" or "CLTV" means with respect to any
Mortgage Loan, as of any date, the percentage equivalent of a fraction, the
numerator of which is the original outstanding principal amount of such Mortgage
Loan as of the related date of origination of such Mortgage Loan of (i) the
Mortgage Loan plus (ii) the mortgage loan constituting the first lien (if any)
and the denominator of which is the Appraised Value of the Mortgaged Property.

            "Due Date" means the day of the month on which the Monthly Payment
is due on a Mortgage Loan, exclusive of any days of grace.

            "Escrow Payments" means with respect to any Mortgage Loan, the
amounts constituting ground rents, taxes, assessments, water rates, sewer rents,
municipal charges, mortgage insurance premiums, fire and hazard insurance
premiums, condominium charges, and any other payments required to be escrowed by
the Mortgagor with the mortgagee pursuant to the Mortgage or any other document.

                                      1-12
<PAGE>   63

            "Gross Margin" means with respect to each adjustable rate Mortgage
Loan, the fixed percentage amount set forth in the related Mortgage Note.

            "Index" means with respect to each adjustable rate Mortgage Loan,
the index set forth in the related Mortgage Note for the purpose of calculating
the interest rate thereon.

            "Insurance Proceeds" means with respect to each Mortgage Loan,
proceeds of insurance policies insuring the Mortgage Loan or the related
Mortgaged Property.

            "Interest Rate Adjustment Date" means with respect to each
adjustable rate Mortgage Loan, the date, specified in the related Mortgage Note
and the Mortgage Loan Schedule, on which the Mortgage Interest Rate is adjusted.

            "Loan-to-Value Ratio" or "LTV" means with respect to any Mortgage
Loan, the ratio of the original outstanding principal amount of the Mortgage
Loan to the lesser of (a) the Appraised Value of the Mortgaged Property at
origination or (b) if the Mortgaged Property was purchased within 12 months of
the origination of the Mortgage Loan, the purchase price of the Mortgaged
Property.

            "Monthly Payment" means the scheduled monthly payment of principal
and interest on a Mortgage Loan as adjusted in accordance with changes in the
Mortgage Interest Rate pursuant to the provisions of the Mortgage Note for an
adjustable rate Mortgage Loan.

            "Mortgage Interest Rate" means the annual rate of interest borne on
a Mortgage Note, which shall be adjusted from time to time with respect to
adjustable rate Mortgage Loans.

            "Mortgage Interest Rate Cap" means with respect to an adjustable
rate Mortgage Loan, the limit on each Mortgage Interest Rate adjustment as set
forth in the related Mortgage Note.

            "Mortgagee" means the Borrower or any subsequent holder of a
Mortgage Loan.

            "Origination Date" shall mean, with respect to each Mortgage Loan,
the date of the Mortgage Note relating to such Mortgage Loan, unless such
information is not provided by the Borrower with respect to such Mortgage Loan,
in which case the Origination Date shall be deemed to be the date that is 40
days prior to the date of the first payment under the Mortgage Note relating to
such Mortgage Loan.

            "PMI Policy" or "Primary Insurance Policy" means a policy of primary
mortgage guaranty insurance issued by a Qualified Insurer.

            "Qualified Insurer" means an insurance company duly qualified as
such under the laws of the jurisdiction in which the Mortgaged Property is
located, duly authorized and licensed in such jurisdiction to transact the
applicable insurance business and to write the insurance provided, and approved
as an insurer by Fannie Mae and Freddie Mac and whose claims paying ability is
rated in the two highest rating categories by any of the rating agencies with
respect to primary mortgage insurance and in the two highest rating categories
by Best's with respect to hazard and flood insurance.

                                      1-13
<PAGE>   64

            "Qualified Originator" means an originator of Mortgage Loans
reasonably acceptable to the Lender.

            "Servicing File" means with respect to each Mortgage Loan, the file
retained by the Borrower consisting of originals of all documents in the
Mortgage File which are not delivered to a Custodian and copies of the Mortgage
Loan Documents set forth in Section 2 of the Custodial Agreement.

            "Underwriting Guidelines" means the underwriting guidelines attached
as Exhibit E hereto.

                                      1-14
<PAGE>   65

                                   Schedule 2

                        FILING JURISDICTIONS AND OFFICES

                     [TO BE PROVIDED BY COUNSEL TO BORROWER]

                                      2-1
<PAGE>   66

                                    EXHIBIT A

                            [FORM OF PROMISSORY NOTE]
$ 400,000,000                                                  December 30, 1999
                                                              New York, New York

            FOR VALUE RECEIVED, DORAL FINANCIAL CORPORATION, a Commonwealth of
Puerto Rico corporation (the "Borrower"), hereby promises to pay to the order of
MORGAN STANLEY MORTGAGE CAPITAL INC. (the "Lender"), at the principal office of
the Lender at 1585 Broadway, New York, New York, 10036, in lawful money of the
United States, and in immediately available funds, the principal sum of FOUR
HUNDRED MILLION DOLLARS ($400,000,000) (or such lesser amount as shall equal the
aggregate unpaid principal amount of the Loans made by the Lender to the
Borrower under the Loan Agreement), on the dates and in the principal amounts
provided in the Loan Agreement, and to pay interest on the unpaid principal
amount of each such Loan, at such office, in like money and funds, for the
period commencing on the date of such Loan until such Loan shall be paid in
full, at the rates per annum and on the dates provided in the Loan Agreement.

            The date, amount and interest rate of each Loan made by the Lender
to the Borrower, and each payment made on account of the principal thereof,
shall be recorded by the Lender on its books and, prior to any transfer of this
Note, endorsed by the Lender on the schedule attached hereto or any continuation
thereof; provided, that the failure of the Lender to make any such recordation
or endorsement shall not affect the obligations of the Borrower to make a
payment when due of any amount owing under the Loan Agreement or hereunder in
respect of the Loans made by the Lender.

            This Note is the Note referred to in the Master Loan and Security
Agreement dated as of December 30, 1999 (as amended, supplemented or otherwise
modified and in effect from time to time, the "Loan Agreement") between the
Borrower and the Lender, and evidences Loans made by the Lender thereunder.
Terms used but not defined in this Note have the respective meanings assigned to
them in the Loan Agreement.

            The Borrower agrees to pay all the Lender's costs of collection and
enforcement (including reasonable attorneys' fees and disbursements of Lender's
counsel) in respect of this Note when incurred, including, without limitation,
reasonable attorneys' fees through appellate proceedings.

            Notwithstanding the pledge of the Collateral, the Borrower hereby
acknowledges, admits and agrees that the Borrower's obligations under this Note
are recourse obligations of the Borrower to which the Borrower pledges its full
faith and credit.

            The Borrower, and any indorsers or guarantors hereof, (a) severally
waive diligence, presentment, protest and demand and also notice of protest,
demand, dishonor and nonpayments of this Note, (b) expressly agree that this
Note, or any payment hereunder, may be extended from time to time, and consent
to the acceptance of further Collateral, the release of any Collateral for this
Note, the release of any party primarily or secondarily liable hereon, and (c)
expressly agree that it will not be necessary for the Lender, in order to
enforce payment of

                                      A-1
<PAGE>   67

this Note, to first institute or exhaust the Lender's remedies against the
Borrower or any other party liable hereon or against any Collateral for this
Note. No extension of time for the payment of this Note, or any installment
hereof, made by agreement by the Lender with any person now or hereafter liable
for the payment of this Note, shall affect the liability under this Note of the
Borrower, even if the Borrower is not a party to such agreement; provided,
however, that the Lender and the Borrower, by written agreement between them,
may affect the liability of the Borrower.

            Any reference herein to the Lender shall be deemed to include and
apply to every subsequent holder of this Note. Reference is made to the Loan
Agreement for provisions concerning optional and mandatory prepayments,
Collateral, acceleration and other material terms affecting this Note.

                                      A-2
<PAGE>   68

            This Note shall be governed by and construed under the laws of the
State of New York (without reference to choice of law doctrine) whose laws the
Borrower expressly elects to apply to this Note. The Borrower agrees that any
action or proceeding brought to enforce or arising out of this Note may be
commenced in the Supreme Court of the State of New York, Borough of Manhattan,
or in the District Court of the United States for the Southern District of New
York.

                                        DORAL FINANCIAL CORPORATION

                                        By:_____________________________________
                                           Name:
                                           Title:

                                      A-3
<PAGE>   69

                                SCHEDULE OF LOANS

            This Note evidences Loans made under the within-described Loan
Agreement to the Borrower, on the dates, in the principal amounts and bearing
interest at the rates set forth below, and subject to the payments and
prepayments of principal set forth below:

<TABLE>
<CAPTION>
                Principal                                  Unpaid
                 Amount       Interest   Amount Paid      Principal    Notation
 Date Made       of Loan        Rate      or Prepaid       Amount       Made by
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<S>             <C>           <C>        <C>              <C>          <C>

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</TABLE>

                                      A-4
<PAGE>   70

                                    EXHIBIT B

                          [FORM OF CUSTODIAL AGREEMENT]

                                      B-1
<PAGE>   71

                                    EXHIBIT C

                    [FORM OF OPINION OF COUNSEL TO BORROWER]

                                     (date)

Morgan Stanley Mortgage Capital Inc.
1585 Broadway
New York, New York  10036

Dear Sirs and Mesdames:

            You have requested [our] [my] opinion, as counsel to DORAL FINANCIAL
CORPORATION, a Commonwealth of Puerto Rico corporation (the "Borrower"), with
respect to certain matters in connection with that certain Master Loan and
Security Agreement, dated December 30, 1999 (the "Loan and Security Agreement"),
by and between the Borrower and Morgan Stanley Mortgage Capital Inc. (the
"Lender"), being executed contemporaneously with a Promissory Note, dated
December 30, 1999, from the Borrower to the Lender (the "Note"), a Custodial
Agreement, dated as of December 30, 1999, (the "Custodial Agreement"), by and
among the Borrower, Banco Popular de Puerto Rico (the "Custodian"), and the
Lender. Capitalized terms not otherwise defined herein have the meanings set
forth in the Loan and Security Agreement.

            [We] [I] have examined the following documents:

            1.    the Loan and Security Agreement;

            2.    the Note;

            3.    Custodial Agreement;

            4.    unfiled copies of the financing statements listed on Schedule
                  1 (collectively, the "Financing Statements") naming the
                  Borrower as Debtor and the Lender as Secured Party and
                  describing the Collateral (as defined in the Loan and Security
                  Agreement) as to which security interests may be perfected by
                  filing under the Uniform Commercial Code of the States listed
                  on Schedule 1 (the "Filing Collateral"), which [we][I]
                  understand will be filed in the filing offices listed on
                  Schedule 1 (the "Filing Offices");

            5.    the reports listed on Schedule 2 as to UCC financing
                  statements (collectively, the "UCC Search Report");

            6.    such other documents, records and papers as we have deemed
                  necessary and relevant as a basis for this opinion.

                                      C-1
<PAGE>   72

            To the extent [we] [I] have deemed necessary and proper, [we] [I]
have relied upon the representations and warranties of the Borrower contained in
the Loan and Security Agreement. [We] [I] have assumed the authenticity of all
documents submitted to [us][me] as originals, the genuineness of all signatures,
the legal capacity of natural persons and the conformity to the originals of all
documents submitted to [us][me] as originals.

            Based upon the foregoing, it is [our] [my] opinion that:

            1. Doral Financial Corporation is a Commonwealth of Puerto Rico
corporation duly organized, validly existing and in good standing under the laws
of Puerto Rico and is qualified to transact business in, and is in good standing
under, the laws of Puerto Rico.

            2. The Borrower has the corporate power to engage in the
transactions contemplated by the Loan and Security Agreement, the Note, and the
Custodial Agreement and all requisite corporate power, authority and legal right
to execute and deliver the Loan and Security Agreement, the Note, and the
Custodial Agreement and observe the terms and conditions of such instruments.
The Borrower has all requisite corporate power to borrow under the Loan and
Security Agreement and to grant a security interest in the Collateral under the
Loan and Security Agreement.

            3. The execution, delivery and performance by the Borrower of the
Loan and Security Agreement, the Note, and the Custodial Agreement, and the
borrowings by the Borrower and the pledge of the Collateral under the Loan and
Security Agreement have been duly authorized by all necessary corporate action
on the part of the Borrower. Each of the Loan and Security Agreement, the Note
and the Custodial Agreement have been executed and delivered by the Borrower and
are legal, valid and binding agreements enforceable in accordance with their
respective terms against the Borrower, subject to bankruptcy laws and other
similar laws of general application affecting rights of creditors and subject to
the application of the rules of equity, including those respecting the
availability of specific performance, none of which will materially interfere
with the realization of the benefits provided thereunder or with the Lender's
security interest in the Collateral.

            4. No consent, approval, authorization or order of, and no filing or
registration with, any court or governmental agency or regulatory body is
required on the part of the Borrower for the execution, delivery or performance
by the Borrower of the Loan and Security Agreement, the Note and the Custodial
Agreement or for the borrowings by the Borrower under the Loan and Security
Agreement or the granting of a security interest to the Lender in the
Collateral, under the Loan and Security Agreement.

            5. The execution, delivery and performance by the Borrower of, and
the consummation of the transactions contemplated by, the Loan and Security
Agreement, the Note and the Custodial Agreement do not and will not (a) violate
any provision of the Borrower's charter or by-laws, (b) violate any applicable
law, rule or regulation, (c) violate any order, writ, injunction or decree of
any court or governmental authority or agency or any arbitral award applicable
to the Borrower of which I have knowledge (after due inquiry) or (d) result in a
breach of, constitute a default under, require any consent under, or result in
the acceleration or required prepayment of any indebtedness pursuant to the
terms of, any agreement or instrument

                                      C-2
<PAGE>   73

of which [we][I] have knowledge (after due inquiry) to which the Borrower is a
party or by which it is bound or to which it is subject, or (except for the
Liens created pursuant to the Loan and Security Agreement) result in the
creation or imposition of any Lien upon any Property of the Borrower pursuant to
the terms of any such agreement or instrument.

            6. There is no action, suit, proceeding or investigation pending or,
to the best of [our] [my] knowledge, threatened against the Borrower which, in
[our] [my] judgment, either in any one instance or in the aggregate, would be
reasonably likely to result in any material adverse change in the properties,
business or financial condition, or prospects of the Borrower or in any material
impairment of the right or ability of the Borrower to carry on its business
substantially as now conducted or in any material liability on the part of the
Borrower or which would draw into question the validity of the Loan and Security
Agreement, the Note, the Custodial Agreement or the Mortgage Loans or of any
action taken or to be taken in connection with the transactions contemplated
thereby, or which would be reasonably likely to impair materially the ability of
the Borrower to perform under the terms of the Loan and Security Agreement, the
Note, the Custodial Agreement or the Mortgage Loans.

            7. The Loan and Security Agreement is effective to create, in favor
of the Lender, a valid security interest under the Uniform Commercial Code in
all of the right, title and interest of the Borrower in, to and under the
Collateral as collateral security for the payment of the Secured Obligations (as
defined in the Loan and Security Agreement), except that (a) such security
interests will continue in Collateral after its sale, exchange or other
disposition only to the extent provided in Section 9-306 of the Uniform
Commercial Code, and (b) the security interests in Collateral in which the
Borrower acquires rights after the commencement of a case under the Bankruptcy
Code in respect of the Borrower may be limited by Section 552 of the Bankruptcy
Code.

            8. When the Mortgage Notes are delivered to the Custodian, endorsed
in blank by a duly authorized officer of the Borrower, the security interest
referred to in paragraph 7 above in the Mortgage Notes will constitute a fully
perfected first priority security interest in all right, title and interest of
the Borrower therein, in the Mortgage Loan evidenced thereby and in the
Borrower's interest in the related Mortgaged Property.

            9. (a) Upon the filing of financing statements on Form UCC-1 naming
the Lender as "Secured Party" and the Borrower as "Debtor", and describing the
Collateral, in the jurisdictions and recording offices listed on Schedule 1
attached hereto, the security interests referred to in paragraph 7 above will
constitute fully perfected security interests under the Uniform Commercial Code
in all right, title and interest of the Borrower in, to and under such
Collateral, which can be perfected by filing under the Uniform Commercial Code.

            (b) The UCC Search Report sets forth the proper filing offices and
the proper debtors necessary to identify those Persons who have on file in the
jurisdictions listed on Schedule 1 financing statements covering the Filing
Collateral as of the dates and times specified on Schedule 2. The UCC Search
Report identifies no Person who has filed in any Filing Office a financing
statement describing the Filing Collateral prior to the effective dates of the
UCC Search Report.

                                      C-3
<PAGE>   74

            10.___The Borrower is not an "investment company", or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.

                                        Very truly yours,

                                      C-4
<PAGE>   75

                                   EXHIBIT D

                         [FORM OF REQUEST FOR BORROWING]

            Master Loan and Security Agreement, dated as of December 30, 1999
(the "Loan and Security Agreement"), by and between the Borrower and Morgan
Stanley Mortgage Capital Inc. (the "Lender"),

Lender:                                 Morgan Stanley Mortgage Capital Inc.

Borrower:                               Doral Financial Corporation

Requested Funding Date:                 ________________________________________

Transmission Date:                      ________________________________________

Transmission Time:

Number of Mortgage
Loans to be Pledged:                    ________________________________________

UPB:                                    $_______________________________________

Requested Wire Amount:                  $_______________________________________

Wire Instructions:

Requested by:

DORAL FINANCIAL CORPORATION

By:______________________________________
   Name:
   Title:

                                      D-1
<PAGE>   76

                                   EXHIBIT E-1

                       [FORM OF BORROWER'S RELEASE LETTER]

                                     [Date]

Morgan Stanley Mortgage Capital Inc.
1585 Broadway
New York, New York 10036
Attention: ____________________
Facsimile: ____________________

            Re:   Master Loan and Security Agreement, dated as of December 30,
                  1999 (the "Loan and Security Agreement"), by and among Doral
                  Financial Corporation (the "Borrower") and Morgan Stanley
                  Mortgage Capital Inc. (the "Lender")

Ladies and Gentlemen:

            With respect to the mortgage loans described in the attached
Schedule A (the "Mortgage Loans") (a) we hereby certify to you that the Mortgage
Loans are not subject to a lien of any third party and (b) we hereby release all
right, interest or claim of any kind with respect to such Mortgage Loans, such
release to be effective automatically without further action by any party upon
payment from Morgan Stanley Mortgage Capital Inc., of the amount of the Loan
contemplated under the Loan and Security Agreement (calculated in accordance
with the terms thereof) in accordance with the wiring instructions set forth in
the Loan and Security Agreement.

                                        Very truly yours,

                                        DORAL FINANCIAL CORPORATION

                                        By:____________________________________
                                           Name:
                                           Title:

                                      E-1-1
<PAGE>   77

                                   EXHIBIT E-2

                   [FORM OF WAREHOUSE LENDER'S RELEASE LETTER]

                                     (Date)

Morgan Stanley Mortgage Capital Inc.
1585 Broadway
New York, New York 10036
Attention: ________________
Facsimile:________________

            Re:   Certain Mortgage Loans Identified on Schedule A hereto and
                  owned by Doral Financial Corporation

            The undersigned hereby releases all right, interest, lien or claim
of any kind with respect to the mortgage loan (s) described in the attached
Schedule A, such release to be effective automatically without any further
action by any party upon payment in one or more installments, in immediately
available funds of $__________________, in accordance with the following wire
instructions:

                                        ________________________________________

                                        ________________________________________

                                        Very truly yours,

                                        [WAREHOUSE LENDER]

                                        By: __________________________________
                                            Name:
                                            Title:

                                     E-2-1
<PAGE>   78

                                    EXHIBIT F

                             UNDERWRITING GUIDELINES

                        [TO BE PROVIDED BY THE BORROWER]

                                      F-1
<PAGE>   79

                                    EXHIBIT G

                     [FORM OF BLOCKED ACCOUNT AGREEMENT FOR
                            NON-CALIFORNIA ENTITIES]

                                                                 ______ __, 199_

________________________
________________________
________________________

Attn: __________________

            Re:   Collection Account Established by ______________ ("Servicer")
                  Pursuant to that Certain Servicing Agreement (as amended,
                  supplemented or otherwise modified from time to time, the
                  "Servicing Agreement"), dated December 30, 1999, among
                  Servicer, Doral Financial Corporation (the "Borrower")

Ladies and Gentlemen:

            We refer to the collection account established by the Servicer
pursuant to the Servicing Agreement, at _______________, ___________, _____,
Account No._____________, ABA# ____________ (the "Blocked Account"), which the
Servicer maintains in the Servicer's name in trust for the Borrower.

            The Servicer will, from time to time, deposit funds received in
accordance with the Servicing Agreement into the Blocked Account. Morgan Stanley
Mortgage Capital Inc. (the "Lender") has established a secured loan arrangement
with the Borrower. By its execution of this letter, the Servicer acknowledges
that the Borrower has granted a security interest in all of its right, title and
interest in and to the Blocked Account and any funds from time to time on
deposit therein, that such funds are received by the Servicer in trust for the
benefit of Lender and, except as provided below, are for application against the
Borrower's liabilities to Lender.

            By the Servicer's execution of this letter, it agrees: (a) that all
funds from time to time hereafter in the Blocked Account are the property of the
Borrower held in trust for the benefit of the Lender and that unless and until
the Servicer receives notice from the Lender that an event of default has
occurred and is continuing under the Lender's secured lending arrangement with
the Borrower (a "Notice of Event of Default"), the Servicer shall transfer funds
from the Blocked Account in accordance with the Borrower's instructions; (b)
that Servicer will not exercise any right of set-off, banker's lien or any
similar right in connection with such funds provided, that in the event any
check is returned to the Servicer because of insufficient funds (or is otherwise
unpaid) the Servicer shall be entitled to set off the amount of any such
returned check; (c) that until the Servicer receives written notification from
the Lender to the contrary, the Servicer will not withdraw (other than as
expressly set forth in the Servicing Agreement or herein) or permit any person
or entity to withdraw or transfer funds from the Blocked Account;

                                      G-1
<PAGE>   80

and (d) that if the Servicer receives a Notice of Event of Default from the
Lender, the Servicer shall not withdraw or permit the Borrower to withdraw or
transfer funds from the Blocked Account and shall cause or permit withdrawals
from the Blocked Account in any manner as the Lender may instruct.

            All bank statements in respect to the Blocked Account shall be sent
to the Borrower with copies to:

                                        Morgan Stanley Mortgage Capital Inc.
                                        1585 Broadway
                                        New York, New York 10036
                                        Attention:

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       G-2
<PAGE>   81

            Kindly acknowledge your agreement with the terms of this agreement
by signing the enclosed copy of this letter and returning it to the undersigned.

                                        Very truly yours,

                                        MORGAN STANLEY MORTGAGE CAPITAL INC.

                                        By: ___________________________________
                                            Title:

Agreed and acknowledged:

By:________________________________
   Title:

                                      G-3
<PAGE>   82

                                   EXHIBIT H

                             FORM OF SERVICER NOTICE

                              __________ __, 199__

[SERVICER], as Servicer
[ADDRESS] Attention: ___________

            Re:   Master Loan and Security Agreement, dated as of December 30,
                  1999 (the "Loan and Security Agreement"), by and between Doral
                  Financial Corporation (the "Borrower") and Morgan Stanley
                  Mortgage Capital Inc. (the "Lender").

Ladies and Gentlemen:

            [SERVICER] (the "Servicer") is servicing certain mortgage loans for
the Borrower pursuant to certain Servicing Agreements between the Servicer and
the Borrower. Pursuant to the Loan Agreement between the Lender and the
Borrower, the Servicer is hereby notified that the Borrower has pledged to the
Lender certain mortgage loans which are serviced by Servicer which are subject
to a security interest in favor of the Lender.

            Upon receipt of a Notice of Event of Default from the Lender in
which the Lender shall identify the mortgage loans which are then pledged to
Lender under the Loan Agreement (the "Mortgage Loans"), the Servicer shall
segregate all amounts collected on account of such Mortgage Loans, hold them in
trust for the sole and exclusive benefit of the Lender, and remit such
collections in accordance with the Lender's written instructions. Following such
Notice of Event of Default, Servicer shall follow the instructions of Lender
with respect to the Mortgage Loans, and shall deliver to Lender any information
with respect to the Mortgage Loans reasonably requested by Lender.

            Notwithstanding any contrary information which may be delivered to
the Servicer by the Borrower, the Servicer may conclusively rely on any
information or Notice of Event of Default delivered by the Lender, and the
Borrower shall indemnify and hold the Servicer harmless for any and all claims
asserted against it for any actions taken in good faith by the Servicer in
connection with the delivery of such information or Notice of Event of Default.

            No provision of this letter may be modified or amended without the
prior written consent of the Lender. The Lender is an intended third party
beneficiary of this letter.

                                      H-1
<PAGE>   83

            Please acknowledge receipt of this instruction letter by signing in
the signature block below and forwarding an executed copy to the Lender promptly
upon receipt. Any notices to the Lender should be delivered to the following
address: 1585 Broadway, New York, New York 10036; Attention: Mr. Steven Rudner,
with a copy to Mr. Greg Walker; Telephone: (212) 761-2144; Facsimile: (212)
761-0747.

                                        Very truly yours,

                                        DORAL FINANCIAL CORPORATION

                                        By:____________________________________
                                           Name:
                                           Title:

ACKNOWLEDGED:

   __________________________________
   as Servicer

By:__________________________________
   Title:
   Telephone:
   Facsimile:

                                      H-2
<PAGE>   84

                                   EXHIBIT I

                    FORM OF CONFIRMATION OF RECEIPT OF FUNDS

To:___________________

      Re:   The Master Loan and Security Agreement, dated as of December 30,
            1999 (the "Loan Agreement"), between Morgan Stanley Mortgage Capital
            Inc. ("Lender"), and Doral Financial Corporation (the "Borrower").

            In connection with the administration of the pool of Mortgage Loans
held by you as the Custodian for Lender and its assigns, Borrower hereby
confirms that the Mortgage Loans identified on the attached schedule1 have been
sold in accordance with the applicable Takeout Commitment and the Takeout
Proceeds for such Mortgage Loans equal $______________.

            The Borrower hereby certifies that all Takeout Proceeds received in
connection therewith have been credited to the Lender as provided in the Loan
Agreement.

DORAL FINANCIAL CORPORATION

By:________________________
Name: _____________________
Title:_____________________
Date: _____________________

----------
1 Attach schedule listing for each Mortgage Loan: Mortgage Loan Number;
outstanding principal balance of such Mortgage Loan; Mortgagor's name; Takeout
Proceeds for such Mortgage Loan.

                                      I-1
<PAGE>   85

                                    EXHIBIT I

                        [FORM OF TRUE SALE CERTIFICATION]

                   CERTIFICATE OF DORAL FINANCIAL CORPORATION

In connection with the loan transaction pursuant to the Master Loan and Security
Agreement, dated as of __________, 199__ between [NAME OF LENDER] and Doral
Financial Corporation (the "Purchaser"), the undersigned certifies, on behalf of
Purchaser that:

1.    I personally participated as the __________ of the Purchaser in the
      transaction (the "Transaction"), pursuant to which [NAME OF SELLER] (the
      "Seller") sold [DESCRIBE ASSETS] (the "Assets") to the Purchaser. In such
      capacity, I reviewed the purchase and sale agreement relating to the
      Transaction dated as of __________ __, 199_ (the "Purchase and Sale
      Agreement").

2.    Due to my close involvement in the Transaction, I can accurately and
      diligently certify the facts listed herein on behalf of the Purchaser.

3.    The Seller has shifted all of the risks and burdens which are associated
      with the ownership of the Assets to the Purchaser.

4.    The Seller has shifted all of the benefits and rewards which are
      associated with the Assets to the Purchaser. Subsequent to the
      consummation of the Transaction, the Seller had no control rights with
      respect to the Assets, and all legal rights and title with respect to the
      Assets vested in the Purchaser.

5.    There has been no recourse to the Seller with respect to the performance
      of the Assets.

6.    As of the date of the consummation of the Transaction, the Seller received
      from the Purchaser reasonably equivalent value for the transferred Assets.

7.    The Purchase and Sale Agreement represented the intention of the Seller
      and the Purchaser to accomplish a complete and irrevocable sale of the
      Assets.

8.    The Seller neither was obligated to repurchase, nor had any "call" rights
      with respect to, the Assets.

9.    The Purchaser neither was obligated to sell the Assets back to the Seller,
      nor had any "put" rights with respect to the Assets.

10.   The Purchaser's books and records reflect that the Transaction was a sale
      of the Assets, rather than a secured financing or a loan.

11.   The Purchaser treated the Transaction as a sale for accounting and tax
      purposes.

                                      J-1
<PAGE>   86

12.   The Transaction was duly authorized by the Purchaser's officers and
      directors, as required by the Purchaser's organizational documents and
      applicable law.

      I have been duly authorized to execute this certificate on behalf of
Purchaser

                                        DORAL FINANCIAL CORPORATION

                                        By:_____________________________________
                                        Name:
                                        Title:

                                      J-2
<PAGE>   87

                         CERTIFICATE OF [NAME OF SELLER]

In connection with the loan transaction pursuant to the Master Loan and Security
Agreement, dated as of ___________, 199__ between [NAME OF LENDER] and Doral
Financial Corporation (the "Purchaser"), the undersigned certifies, on behalf of
[NAME OF SELLER] (the "Seller") that:

1.    I personally participated as the __________ of the Seller in the
      transaction (the "Transaction") pursuant to which Seller sold [DESCRIBE
      ASSETS] (the "Assets") to the Purchaser. In such capacity, I reviewed the
      purchase and sale agreement relating to the Transaction dated as of
      __________ __, 199_ (the "Purchase and Sale Agreement").

2.    Due to my close involvement in the Transaction, I can accurately and
      diligently certify the facts listed herein on behalf of the Seller.

3.    The Seller has shifted all of the risks and burdens which are associated
      with the ownership of the Assets to the Purchaser.

4.    The Seller has shifted all of the benefits and rewards which are
      associated with the Assets to the Purchaser. Subsequent to the
      consummation of the Transaction, the Seller had no control rights with
      respect to the Assets, and all legal rights and title with respect to the
      Assets vested in the Purchaser.

5.    There has been no recourse to the Seller with respect to the performance
      of the Assets.

6.    As of the date of the consummation of the Transaction, the Seller received
      from the Purchaser reasonably equivalent value for the transferred Assets.

7.    The Purchase and Sale Agreement represented the intention of the Seller
      and the Purchaser to accomplish a complete and irrevocable sale of the
      Assets.

8.    The Seller neither was obligated to repurchase, nor had any "call" rights
      with respect to, the Assets.

9.    The Purchaser neither was obligated to sell the Assets back to the Seller,
      nor had any "put" rights with respect to the Assets.

10.   The Seller's books and records reflect that the Transaction was a sale of
      the Assets, rather than a secured financing or a loan.

11.   The Seller treated the Transaction as a sale for accounting and tax
      purposes.

12.   The Transaction was duly authorized by the Seller's officers and
      directors, as required by the Seller's organizational documents and
      applicable law.

                                      J-3
<PAGE>   88

      I have been duly authorized to execute this certificate on behalf of [NAME
      OF SELLER].

                                        [NAME OF SELLER]

                                        By:_____________________________________
                                        Name:
                                        Title:

                                      J-4<PAGE>   1
                                                                     EXHIBIT 4.6

                      THIRD AMENDMENT TO CREDIT AGREEMENT,
                               WAIVER AND CONSENT

         This THIRD AMENDMENT TO CREDIT AGREEMENT, WAIVER AND CONSENT (this
"Amendment") is entered into as of August 24, 1999 among GERBER CHILDRENSWEAR,
INC., a Delaware corporation ("Gerber") and AUBURN HOSIERY MILLS, INC., a
Kentucky corporation ("Auburn", collectively with Gerber, the "Borrowers"); the
Subsidiaries of Gerber (other than Auburn) as Guarantors, the Lenders party
hereto and BANK OF AMERICA, N.A., formerly NationsBank, N.A., as Administrative
Agent for the Lenders (the "Administrative Agent"). Capitalized terms used
herein and not otherwise defined shall have the meanings set forth in the Credit
Agreement (as defined below).

                                    RECITALS

         WHEREAS, the Borrowers, the Guarantors, the Lenders and the
Administrative Agent entered into that certain Credit Agreement, dated as of
December 17, 1997 (as amended by that certain First Amendment to Credit
Agreement and Consent, Release and Waiver, dated as of April 3, 1998 and as
amended by that certain Second Amendment to Credit Agreement and Consent,
Release and Waiver, dated as of June 2, 1998, the "Credit Agreement").

         WHEREAS, Gerber intends to acquire through one or more wholly-owned
Canadian Subsidiaries (the "Canadian Subsidiaries") all of the assets of St.
Lawrence Textiles, Inc. and Lian Textiles, Inc., each corporations formed under
the laws of Canada, (the "St. Lawrence Acquisition") pursuant to the terms of an
asset purchase agreement (the "Acquisition Agreement").

         WHEREAS, the Credit Parties are requesting that the Lenders consent to
the St. Lawrence Acquisition and otherwise amend and modify certain terms of the
Credit Agreement as more fully set forth below.

         WHEREAS, the Administrative Agent and the Lenders have agreed to (a)
consent to the St. Lawrence Acquisition and (b) amend and waive certain terms of
the Credit Agreement, in each case, on the terms, and subject to the conditions,
set forth below.

         NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

                                    AGREEMENT

1. Amendments to Credit Agreement.

         (a) Existing Definitions. The following definitions set forth in
Section 1.1 of the Credit Agreement are amended and restated in their entireties
to read as follows:

<PAGE>   2

                           "Fixed Charge Coverage Ratio" means the ratio of (a)
                  EBITDAR less Capital Expenditures made in cash to (b) cash
                  Interest Expense plus Current Maturities of Long Term Debt
                  plus Cash Income Taxes plus cash Rent Expense.

                           "Permitted Acquisitions" means an acquisition of all
                  or substantially all of the assets or stock of another Person
                  by a Credit Party or its Subsidiaries; provided that (a) such
                  acquisition does not cause or would not be reasonably expected
                  to cause a Default or Event of Default, (b) after giving
                  effect to such acquisition, the Credit Parties would be in
                  compliance on a pro forma basis (as such pro forma compliance
                  is computed in accordance with Regulation S-X of the
                  Securities Act) with all of the financial covenants set forth
                  in Section 7.2, (c) such Person must in all material respects
                  engage in a business similar to or a logical extension of the
                  business of the Credit Parties and their Subsidiaries and (d)
                  the aggregate amount of all such acquisitions (other than the
                  acquisition of St. Lawrence Textiles) shall not exceed $10
                  million during the term of this Credit Agreement.

         (b) New Definitions. The following new definition is added to Section
1.1 of the Credit Agreement in the appropriate alphabetical order:

                           "Cash Income Taxes" means, for any period, with
                  respect to the Credit Parties and their Subsidiaries, on a
                  consolidated basis, income taxes actually paid in cash during
                  such period.

         (c) Section 8.1(f). Section 8.1(f) of the Credit Agreement is amended
and restated in its entirety to read as follows:

                           (f) Indebtedness of Foreign Subsidiaries up to
                  $15,000,000, in the aggregate, at any one time;

         (d) Section 8.14. Section 8.14 of the Credit Agreement is amended and
restated in its entirety to read as follows:

                  The Credit Parties will not, nor will they permit any of their
         Subsidiaries to, allow the Foreign Subsidiaries to have assets which in
         the aggregate constitute more than 30% of Total Assets at any time.

2. Consent. Notwithstanding anything in the Credit Documents to the contrary,
subject to the conditions set forth below, the Lenders hereby consent to the St.
Lawrence Acquisition:

                  (a) the St. Lawrence Acquisition shall occur prior to
         September 30, 1999.

                  (b) the St. Lawrence Acquisition occurs on terms identical to
         those described in Acquisition Agreement;

                                       2
<PAGE>   3

                  (c) the St. Lawrence Acquisition complies with the definition
         of "Permitted Acquisition" in Section 1.1 of the Credit Agreement (as
         amended by this Amendment);

                  (d) the aggregate consideration (including, without
         limitation, cash and assumption of Indebtedness) paid in connection
         with the St. Lawrence Acquisition does not exceed $22,000,000.

                  (e) Simultaneously with the consummation of the St. Lawrence
         Acquisition, Gerber provides to the Administrative Agent:

                           (i) a certified copy of the Acquisition Agreement,
                  together with all amendments or modifications thereto;

                           (ii) an updated Schedule 6.15 to the Credit
                  Agreement;

                           (iii) such Uniform Commercial Code filings that the
                  Administrative Agent may reasonably request in order to
                  provide for its continued first-priority perfected security
                  interest in any Collateral, together with opinions with
                  respect thereto; and

                           (iv) such other information, documents, filings or
                  opinions as the Administration Agent may reasonably request in
                  connection with the St. Lawrence Acquisition.

                  (f) Within 30 days following the formation of the Canadian
         Subsidiaries, the Credit Parties shall deliver to the Administrative
         Agent all documentation required to be delivered by Section 7.13 of the
         Credit Agreement, including, without limitation, an executed pledge
         agreement which pledges 65% of the capital stock of each Canadian
         Subsidiary to the Collateral Agent for the benefit of the Lenders,
         together with favorable opinions of counsel.

3. Waiver. The Required Lenders hereby agree to waive compliance with Section
3.3(b)(ii) of the Credit Agreement for the fiscal year ending December 31, 1999.
This is a one time waiver and shall not be construed to be a waiver of any other
mandatory prepayment which may be required by Section 3.3(b)(ii) in the future.

4. Conditions Precedent. The effectiveness of this Amendment is subject to
receipt by the Administrative Agent of the following:

                  (a) copies of this Amendment duly executed by the Credit
         Parties and the Lenders;

                                       3
<PAGE>   4

                  (b) an opinion or opinions from counsel to the Credit Parties,
         in form and substance satisfactory to the Administrative Agent,
         addressed to the Administrative Agent on behalf of the Lenders and
         dated as of the date hereof;

                  (c) the payment to the Administrative Agent, for the account
         of each Lender approving this Amendment on or prior to August 24, 1999,
         an amendment fee equal to $3,500 per Lender; and

                  (d) the payment of expenses, including without limitation
         reasonable attorneys fees, incurred in connection with the preparation
         of this Amendment.

5. Ratification of Credit Agreement. The term "Credit Agreement" as used in each
of the Credit Documents shall hereafter mean the Credit Agreement as amended and
modified by this Amendment. Except as herein specifically agreed, the Credit
Agreement, as amended by this Amendment, is hereby ratified and confirmed and
shall remain in full force and effect according to its terms. The Credit Parties
acknowledge and consent to the modifications set forth herein and agree that
this Amendment does not impair, reduce or limit any of their obligations under
the Credit Documents and that, after the date hereof, this Amendment shall
constitute a Credit Document. Notwithstanding anything herein to the contrary
and without limiting the foregoing, (a) each of the Credit Parties reaffirms the
liens and security interests granted under the terms of the Credit Documents and
(b) each of the Guarantors reaffirm their guaranty obligations set forth in the
Credit Agreement.

6. Authority/Enforceability. Each of the Credit Parties represents and warrants
as follows:

                  (a) It has taken all necessary action to authorize the
         execution, delivery and performance of this Amendment.

                  (b) This Amendment has been duly executed and delivered by
         such Person and constitutes such Person's legal, valid and binding
         obligations, enforceable in accordance with its terms, except as such
         enforceability may be subject to (i) bankruptcy, insolvency,
         reorganization, fraudulent conveyance or transfer, moratorium or
         similar laws affecting creditors' rights generally and (ii) general
         principles of equity (regardless of whether such enforceability is
         considered in a proceeding at law or in equity).

                  (c) No consent, approval, authorization or order of, or
         filing, registration or qualification with, any court or governmental
         authority or third party is required in connection with the execution,
         delivery or performance by such Person of this Amendment.

                  (d) The execution and delivery of this Amendment does not (i)
         violate, contravene or conflict with any provision of its, or its
         Subsidiaries' organizational documents or (ii) materially violate,
         contravene or conflict with any Requirement of Law or any other law,
         regulation (including, without limitation, Regulation U or Regulation
         X),

                                       4
<PAGE>   5

         order, writ, judgment, injunction, decree or permit applicable to it or
         any of its Subsidiaries.

7. No Default. The Credit Parties represent and warrant to the Lenders that (a)
the representations and warranties of the Credit Parties set forth in Section 6
of the Credit Agreement (as amended by this Amendment) are true and correct as
of the date hereof and (b) no event has occurred and is continuing which
constitutes a Default or an Event of Default.

8. Release. In consideration of entering into this Amendment, each of the Credit
Parties releases the Agents, the Lenders, and each Agent's and each of the
Lender's respective Affiliates, Subsidiaries, officers, employees,
representatives, agents, counsel and directors from any and all actions, causes
of action, claims, demands, damages and liabilities of whatever kind or nature,
in law or in equity, now known or unknown, suspected or unsuspected to the
extent that any of the foregoing arises from any action or failure to act on or
prior to the date hereof.

9. Counterparts/Telecopy. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall constitute one and the same instrument. Delivery of
executed counterparts of this Amendment by telecopy shall be effective as an
original and shall constitute a representation that an original shall be
delivered.

10. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NORTH CAROLINA.

                  [remainder of page intentionally left blank]

                                       5
<PAGE>   6

         IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered and this Amendment shall be
effective as of the date first above written.

BORROWERS:

                                       GERBER CHILDRENSWEAR, INC., a Delaware
                                       corporation

                                       By:      /s/ Richard Solar
                                          --------------------------------------
                                                Name:    Richard Solar
                                                Title:   Senior Vice President

                                       AUBURN HOSIERY MILLS, INC.,
                                       a Kentucky corporation

                                       By:      /s/ Richard Solar
                                          --------------------------------------
                                                Name:    Richard Solar
                                                Title:   Senior Vice President

                              [Signatures continue]

                                       6
<PAGE>   7

GUARANTORS:
                                            COSTURA DOMINICANA, INC.,
                                            a Delaware corporation

                                            By:      /s/ Richard Solar
                                               ---------------------------------
                                            Name:    Richard Solar
                                            Title:   Senior Vice President

                                            GCW HOLDINGS, INC.
                                            (formerly Auburn Holdings, Inc.),
                                            a Delaware corporation

                                            By:      /s/ Richard Solar
                                               ---------------------------------
                                            Name:    Richard Solar
                                            Title:   Senior Vice President

                                            GCI IP SUB, INC.,
                                            a Delaware corporation

                                            By:      /s/ Richard Solar
                                               ---------------------------------
                                            Name:    Richard Solar
                                            Title:   Senior Vice President

                                            GERBER CHILDRENSWEAR CANADA, INC.,
                                            a Delaware corporation

                                            By:      /s/ Richard Solar
                                               ---------------------------------
                                            Name:    Richard Solar
                                            Title:   Senior Vice President

<PAGE>   8

Signature Page to Third Amendment to Credit Agreement, Waiver and Consent

LENDERS:

                                            BANK OF AMERICA, N.A., formerly
                                            NationsBank, N.A., acting in its
                                            capacity as Administrative Agent and
                                            Collateral Agent and individually
                                            as a Lender

                                            By:      /s/ David H. Dinkins
                                               ---------------------------------
                                            Name:    David H. Dinkins
                                            Title:   Vice President

                                            BANK OF AMERICA, N.A., formerly
                                            NationsBank of Tennessee, N.A.,
                                            solely in its capacity as an Issuing
                                            Lender in connection with certain
                                            Existing Letters of Credit

                                            By:      /s/ David H. Dinkins
                                               ---------------------------------
                                            Name:    David H. Dinkins
                                            Title:   Vice President

<PAGE>   9

Signature Page to Third Amendment to Credit Agreement, Waiver and Consent

                                           THE CHASE MANHATTAN BANK

                                            By:      /s/ Maureen Morgan
                                               ---------------------------------
                                            Name:    Maureen Morgan
                                            Title:   Vice President

<PAGE>   10

Signature Page to Third Amendment to Credit Agreement, Waiver and Consent

                                            FLEET BANK, N.A.

                                            By:      /s/ Alfred Bonfantini
                                               ---------------------------------
                                            Name:    Alfred Bonfantini
                                            Title:   Senior Vice President

<PAGE>   11

Signature Page to Third Amendment to Credit Agreement, Waiver and Consent

                                            SUNTRUST BANK, ATLANTA

                                            By:    /s/ Laura Kahn
                                               ---------------------------------
                                            Name:  Laura Kahn
                                            Title: Director, Senior Relationship
                                                   Manager

                                            By:
                                               ---------------------------------
                                            Name:
                                                 -------------------------------
                                            Title:
                                                  ------------------------------

<PAGE>   12

Signature Page to Third Amendment to Credit Agreement, Waiver and Consent

                                            WACHOVIA BANK, N.A.

                                            By:      /s/ Richard E.S. Bowen
                                               ---------------------------------
                                            Name:    Richard E.S. Bowen
                                            Title:   Assistant Vice President

<PAGE>   13

Signature Page to Third Amendment to Credit Agreement, Waiver and Consent

                                            BANK BOSTON, N.A.

                                            By:      /s/ Nancy E. Fuller
                                               ---------------------------------
                                            Name:    Nancy E. Fuller
                                            Title:   Director

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