Document:

<PAGE>

                                                                    EXHIBIT 10.1

                  THIRD AMENDED AND RESTATED CREDIT AGREEMENT

                           Dated September 26, 2001

                                 by and among

                            MATRIX SERVICE COMPANY
                     MIDWEST INDUSTRIAL CONTRACTORS, INC.
                      MATRIX SERVICE MID-CONTINENT, INC.
                  SAN LUIS TANK PIPING CONSTRUCTION CO., INC.
                             MATRIX COATINGS, INC.
                             MATRIX SERVICE, INC.

                                   Borrower

                                      and

                           BANK ONE, OKLAHOMA, N.A.

                                    Lender
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                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<S>                                                                          <C>
1.  TERMS DEFINED IN THE CREDIT AGREEMENT................................     2
  1.1  Terms Defined Above...............................................     2
  1.2  Certain Definitions...............................................     2
  1.3  Accounting Terms..................................................    16
  1.4  Terms Defined in UCC..............................................    16
  1.4  Terms Defined in UCC. Any terms used herein that are defined
       in Article 9 of the UCC, and not otherwise defined................    16
  1.5  Interpretation....................................................    16

2.  LENDING AGREEMENT....................................................    16
  2.1  Revolving Credit Facility.........................................    16
    2.1.1  General.......................................................    16
    2.1.2  Acquisition Term Loans........................................    16
    2.1.3  Term Loan.....................................................    17
  2.2  Use of Proceeds...................................................    17
    2.2.1  Revolving Credit Facility.....................................    17
    2.2.2  Term Loan.....................................................    17
  2.3  Borrowing Procedures..............................................    17
    2.3.1  Requests for Advances.........................................    17
    2.3.2  Disbursements.................................................    18
  2.4  Letters of Credit.................................................    18
    2.4.1  Terms.........................................................    18
    2.4.2  Draws.........................................................    18
    2.4.3  Release and Indemnification...................................    18
    2.4.4  Reimbursement.................................................    19
    2.4.5  Advice of Credit..............................................    19
    2.4.6  Obligation to Issue Letters of Credit.........................    19
    2.4.7  Maximum Amount of Outstanding Letters of Credit...............    19
  2.5  Notes.............................................................    19
    2.5.1  Revolving Note................................................    20
    2.5.2  Term Note.....................................................    20
    2.5.3  Acquisition Term Note.........................................    20
    2.5.4  Amount Owed...................................................    20
  2.6  Interest..........................................................    20
    2.6.1  Credit Facilities.............................................    20
    2.6.2  Rate Elections; Interest Periods..............................    21
    2.6.3  Continuation and Conversion Options...........................    22
    2.6.4  Computation of Interest.......................................    22
  2.7  Fees..............................................................    22
    2.7.1  Revolving Credit Facility Fee.................................    22
</TABLE>
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<TABLE>
<S>                                                                          <C>
    2.7.2  Letter of Credit Fees...........................................  22
  2.8  Scheduled Payments..................................................  22
    2.8.1  Revolving Credit Facility.......................................  23
    2.8.2  Term Loan.......................................................  23
  2.9  Mandatory Prepayments...............................................  23
  2.10 Making of Payments..................................................  23
  2.11 Renewal and Extension...............................................  23
  2.12 Maximum Lawful Interest Rate........................................  23
  2.13 Appointment of Agent................................................  24

3.  COLLATERAL.............................................................  24
  3.1  SA Collateral.......................................................  24
  3.2  Reaffirmation and Execution of Security Agreements..................  24
  3.3  Mortgages...........................................................  25
    3.3.1  Port Facility...................................................  25
    3.3.2  California Property.............................................  25
    3.3.3  Additional Collateral...........................................  25
    3.3.4  Resumption of Project...........................................  26
    3.3.5  Release of Mortgages............................................  26
  3.4  Lockbox.............................................................  26
  3.5  Collateral to be Provided Upon Default..............................  26
  3.6  Further Assurances..................................................  27

4.  CONDITIONS OF LENDING..................................................  27
  4.1  Closing.............................................................  27
  4.2  Conditions to Agreement.............................................  27
  4.3  Conditions to Subsequent Advances Under Revolving Credit Facility...  28
    (a)    Disbursement Request............................................  29
    (b)    Borrowing Base..................................................  29
    (c)    Acquisition Information.........................................  29
    (d)    Representations and Warranties..................................  29
    (e)    No Defaults.....................................................  29
    (f)    No Violation....................................................  29
  4.4  Additional Conditions Precedent if Port Facility Abandoned..........  29

5.  REPRESENTATIONS AND WARRANTIES.........................................  29
  5.1  Existence...........................................................  30
  5.2  Validity and Binding Nature.........................................  30
  5.3  Conflicting Agreements and Restrictions.............................  30
  5.4  Actions and Proceedings.............................................  30
  5.5  Financial Condition.................................................  30
  5.6  Ownership of Properties; Liens......................................  31
  5.7  Permits.............................................................  31
</TABLE>

                                    ii
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<TABLE>
<S>                                                                          <C>
  5.8   No Defaults.......................................................   31
  5.9   ERISA.............................................................   31
  5.10  No Violation of Applicable Law....................................   31
  5.11  Environmental Laws................................................   31
  5.12  Taxes.............................................................   31
  5.13  Compliance with FRB Regulations...................................   32
  5.14  Investment Company Act; Public Utility Holding Company Act........   32
  5.15  Common Enterprise.................................................   32
  5.16  Survival of Representations.......................................   32

6.  AFFIRMATIVE COVENANTS.................................................   32
  6.1   Financial Statements and Other Reports............................   33
    (a)    Annual Financial Statements and Reports........................   33
    (b)    Quarterly Financial Reports and Reports........................   33
    (c)    Other Reports..................................................   33
  6.2   Certificates and Reports..........................................   33
    (a)    Borrowing Base Certificate.....................................   33
    (b)    Accounts Aging Report..........................................   33
    (c)    Compliance Certificate.........................................   34
    (d)    Monthly Reporting..............................................   34
  6.3   Other Reports and Notifications...................................   34
    (a)    Survey and Cost Breakdown......................................   34
    (b)    Other Financial Information....................................   34
    (c)    Litigation.....................................................   34
    (d)    Notification of Liens..........................................   34
    (e)    Environmental Notices..........................................   35
    (f)    Events With Respect to ERISA...................................   35
    (g)    Other Notifications............................................   35
  6.4   Books and Records.................................................   35
  6.5   Field Audits......................................................   35
  6.6   Taxes; Other Liens................................................   36
  6.7   Existence.........................................................   36
  6.8   Licenses and Permits..............................................   36
  6.9   Maintenance of Properties.........................................   36
  6.10  Compliance with Laws..............................................   36
  6.11  Further Assurances................................................   36
  6.12  Reimbursement of Expenses.........................................   36
  6.13  Access............................................................   37
  6.14  Insurance.........................................................   37
  6.15  Environmental Compliance..........................................   37

7.  NEGATIVE COVENANTS....................................................   38
  7.1   Negative Pledge; Creation or Existence of Liens...................   38
</TABLE>

                                      iii
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<TABLE>
<S>                                                                          <C>
  7.2   Sale of Assets.....................................................  38
  7.3   Mergers and Consolidations.........................................  38
  7.4   Changes in Nature of Business......................................  38
  7.5   Dividends and Distributions........................................  39
  7.6   Financial Covenants................................................  39
  7.6.1 Consolidated Current Ratio.........................................  39
  7.6.2 Consolidated Debt to Tangible Net Worth Ratio......................  39
  7.6.3 Consolidated Funded Debt to EBITDA Ratio...........................  39
  7.6.4 Consolidated Debt Service Coverage Ratio...........................  39

8.  EVENTS OF DEFAULT......................................................  39
  8.1   Nonpayment.........................................................  39
  8.2   Nonpayment of Letter of Credit.....................................  39
  8.3   Other Nonpayment...................................................  40
  8.4   Representations and Warranties.....................................  40
  8.5   Breach of Covenants................................................  40
  8.6   Other Breach of Covenants..........................................  40
  8.7   Insolvency.........................................................  40
  8.8   Settlements/Judgments/Penalties....................................  40
  8.9   Default on Other Funded Debt.......................................  40
  8.10  Breach of Other Agreements.........................................  41
  8.11  ERISA Non-Compliance...............................................  41
  8.12  Change in Nature of Business.......................................  41
  8.13  Permits............................................................  41
  8.14  Unenforceability of Loan Documents.................................  41
  8.15  Port Lease.........................................................  41

9.  REMEDIES...............................................................  41
  9.1   Acceleration of Indebtedness.......................................  41
  9.2   Remedies...........................................................  42
  9.3   Cumulative Remedies................................................  42
  9.4   Waiver of Default..................................................  42
  9.5   Deposits; Setoff...................................................  42
  9.6   Application of Payments............................................  42

10. GENERAL PROVISIONS.....................................................  42
  10.1  Participating Lender...............................................  42
  10.2  Hold Harmless......................................................  43
  10.3  Notices............................................................  43
  10.4  Construction; Applicable Law.......................................  43
  10.5  Binding Effect.....................................................  44
  10.6  Exhibits and Schedules.............................................  44
  10.7  Entire Agreement; Conflicting Provisions...........................  44
  10.8  Waivers............................................................  44
</TABLE>

                                      iv
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  10.9  WAIVER OF JURY....................................................   44
  10.10 Jurisdiction and Venue............................................   44
  10.11 Counterpart Execution.............................................   45

Signature Page............................................................   47

EXHIBITS
--------

     Exhibit "A-1"        -             Form of Revolving Note
     Exhibit "A-2"        -             Form of Term Note

SCHEDULES
---------

     Schedule 1.2         -             Real Estate Requirements
     Schedule 3.3.1       -             Legal Description of Port Facility
     Schedule 3.3.2       -             Legal Description of California Property
     Schedule 5.11        -             Schedule of Environmental Disclosures
     Schedule 7.1         -             Schedule of Existing Liens
     Schedule 8.8         -             Schedule of Settlements /Judgments/
                                          Penalties

                                       v
<PAGE>

                  THIRD AMENDED AND RESTATED CREDIT AGREEMENT
                  -------------------------------------------

     THIS THIRD AMENDED AND RESTATED CREDIT AGREEMENT ("Amendment") is made and
entered into effective as of the 26th day of September, 2001 (the "Effective
Date"), by and among MATRIX SERVICE COMPANY, a Delaware corporation (hereinafter
referred to as "Matrix"), MATRIX SERVICE, INC., an Oklahoma corporation
(hereinafter referred to as "MSI"), MIDWEST INDUSTRIAL CONTRACTORS, INC., a
Delaware corporation (hereinafter referred to as "MIC"), MATRIX SERVICE MID-
CONTINENT, INC., an Oklahoma corporation (hereinafter referred to as "MSM"), SAN
LUIS TANK PIPING CONSTRUCTION CO., INC., a Delaware corporation (hereinafter
referred to as "SLT"), MATRIX COATINGS, INC., a California corporation, f/k/a
WEST COAST INDUSTRIAL COATINGS, INC., a California corporation (hereinafter
referred to as "Coatings"), MATRIX SERVICE, INC. (CANADA), an Ontario
corporation (hereinafter referred to as "MSIC"), and BANK ONE, OKLAHOMA, N.A.
(hereinafter referred to as the "Bank"). Matrix, MSI, MIC, MSM, SLT, Coatings
and MSIC are hereinafter collectively referred to as the "Borrowers" and
individually as a "Borrower."

                                   RECITALS
                                   --------

     A.   The Bank and certain of the Borrowers are parties to that certain
Second Amended and Restated Credit Agreement dated as of November 30, 1999, as
amended by that certain First Amendment to Second Amended and Restated Credit
Agreement dated as of October 31, 2000 (the "Existing Credit Agreement"),
pursuant to which the Bank has established a Revolving Credit Facility in the
maximum principal amount of $20,000,000.

     B.   Pursuant to the Existing Credit Agreement, the Bank has established a
Revolving Credit Facility in the original principal amount of $20,000,000 with a
current maturity date of October 31, 2003.

     C.   The Borrowers have requested that the Bank (i) extend the maturity of
the Revolving Credit Facility to October 31, 2004, and (ii) make a term loan to
the Borrowers in the amount of $5,900,000.01 to permanently refinance certain
amounts outstanding under the Revolving Credit Facility.

     D.   The Bank has agreed to extend the maturity of the Revolving Credit
Facility and make the requested term loan, subject to the terms and conditions
hereinafter set forth.

     E.   The parties desire to make certain other modifications to the Existing
Credit Agreement and to amend and restate the Existing Credit Agreement in its
entirety.

     NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and subject to the terms and conditions set forth herein, the
parties hereby amend and restate the Existing Credit Agreement in its entirety
to read as of the Effective Date as follows:
<PAGE>

1.   TERMS DEFINED IN THE CREDIT AGREEMENT .
     -------------------------------------

     1.1  Terms Defined Above. The terms defined above shall have the respective
          -------------------
meanings set forth in the preamble and recitals above.

     1.2  Certain Definitions. As used herein, the following terms shall have
          -------------------
the meanings indicated below (unless the context otherwise requires):

          Accounts. "Accounts" shall mean and include all accounts, accounts
          --------
     receivable, notes receivable, reimbursements and other rights to payment of
     the Borrowers (including rights to payment earned but not yet billed on
     uncompleted contracts), whether now existing or hereafter arising.

          Accounts Aging Report. "Accounts Aging Report" shall mean a written
          ---------------------
     report to be delivered by the Borrowers pursuant to Section 6.2(b) hereof,
                                                         --------------
     in form satisfactory to the Bank.

          Acquisition. "Acquisition" shall mean: (i) the acquisition by Matrix
          -----------
     of additional Subsidiaries, (ii) the acquisition by Matrix of stock in any
     other corporation, (iii) the acquisition by Matrix of a partnership, joint
     venture or equity interest in any partnership, joint venture or other
     business entity, or (iv) the acquisition by Matrix of all or substantially
     all of the assets or properties of any other Person.

          Acquisition Advance. "Acquisition Advance" shall mean a cash loan from
          -------------------
     the Bank to the Borrowers under the Revolving Credit Facility that is made
     for the specific purpose of financing an Acquisition.

          Acquisition Term Loan. "Acquisition Term Loan" shall mean such loans
          ---------------------
     made by the Bank pursuant to Borrowers' election to convert any Acquisition
     Advance into a term loan.

          Acquisition Term Note. "Acquisition Term Note" shall have the meaning
          ---------------------
     assigned thereto in Section 2.1.2 hereof.
                         -------------

          Advance. "Advance" shall mean the cash loan from the Bank to the
          -------
     Borrowers under the Term Loan and any cash loan from the Bank to the
     Borrowers under the Revolving Credit Facility, and shall include
     Acquisition Advances.

          Affiliate. "Affiliate" shall mean with respect to any Person, any
          ---------
     other Person, who directly or indirectly controls, is controlled by or is
     under common control with the other. For purposes of this definition, a
     Person has "control" over another Person if such Person has the ability to
     exercise a controlling influence over the management and policies of the
     other Person or if such Person owns or holds or beneficially owns five
     percent or more of the equity interest in the other Person and, in
     addition, shall include

                                       2
<PAGE>

     all officers and directors of each of the Borrowers. "Affiliate" shall not
     include any employees of any of the Borrowers who are not officers or
     directors of any of the Borrowers.

          Agreement. "Agreement," and such terms as "herein," "hereof,"
          ---------
     "hereto," "hereby," "hereunder" and the like shall mean and refer to this
     Third Amended and Restated Credit Agreement, together with any and all
     exhibits and schedules attached hereto or incorporated by reference from
     the Existing Credit Agreement, and any and all supplements, modifications
     or amendments hereto.

          Applicable LIBOR Rate Margin. "Applicable LIBOR Rate Margin" means the
          ----------------------------
     margin (expressed as a percentage) used in determining the interest rate
     applicable to outstanding Advances priced with reference to the LIBOR Rate.
     The Applicable LIBOR Rate Margin shall be determined and adjusted, if
     necessary, as of each Margin Adjustment Date, based upon the Borrower's
     Consolidated Funded Debt/EBITDA Ratio as of the immediately preceding
     quarterly Calculation Date, in accordance with the table set forth below:

          Consolidated Funded Debt/EBITDA Ratio  Applicable LIBOR Rate Margin
          -------------------------------------  ----------------------------

          Less than or equal to
          1.00 to 1.00                                      +1.000

          Greater than 1.00 to 1.00, but
          less than or equal to 1.50 to 1.00                +1.125

          Greater than 1.50 to 1.00, but
          less than or equal to 2.00 to 1.00                +1.375

          Greater than 2.00 to 1.00, but
          less than or equal to 2.50 to 1.00                +1.875

          Greater than 2.50 to 1.00                         +2.375

          Applicable Prime Rate Margin. "Applicable Prime Rate Margin" means the
          ----------------------------
     margin (expressed as a percentage) used in determining the interest rate
     applicable to outstanding Advances priced with reference to the Prime Rate.
     The Applicable Prime Rate Margin shall be determined and adjusted, if
     necessary, as of each Margin Adjustment Date, based upon the Borrower's
     Consolidated Funded Debt/EBITDA Ratio as of the immediately preceding
     quarterly Calculation Date, in accordance with the table set forth below:

                                       3
<PAGE>

          Consolidated Funded Debt/EBITDA Ratio  Applicable Prime Rate Margin
          -------------------------------------  ----------------------------

          Less than or equal to
          1.00 to 1.00                                      -1.125

          Greater than 1.00 to 1.00, but
          less than or equal to 1.50 to 1.00                -0.875

          Greater than 1.50 to 1.00, but
          less than or equal to 2.00 to 1.00                -0.625

          Greater than 2.00 to 1.00, but
          less than or equal to 2.50 to 1.00                -0.375

          Greater than 2.50 to 1.00                         -0.125

          Board. "Board" means the Board of Governors of the Federal Reserve
          -----
     System.

          Bonded Account. "Bonded Account" means any Account that is subject to,
          --------------
     arises under or earned pursuant to a bonded construction contract, and is
     thereby subject to a bonded lien.

          Borrowing Base. "Borrowing Base" means, as of any determination date,
          --------------
     the sum of (i) 80% of the Eligible Invoiced Accounts Balance, and (ii) 50%
     of the Eligible Uninvoiced Accounts Balance.

          Borrowing Base Certificate. "Borrowing Base Certificate" means a
          --------------------------
     written certificate to be delivered by Matrix on behalf of the Borrowers
     pursuant to Section 6.2(a) hereof, in form satisfactory to the Bank.
                 --------------

          Business Day. "Business Day" means that portion of any day, other than
          ------------
     a Saturday, Sunday or legal holiday for commercial banks under the laws of
     the State of Oklahoma, during which the Bank is open for substantially all
     of its normal banking functions.

          Calculation Date. "Calculation Date" means the last day of each fiscal
          ----------------
     quarter during the term of this Agreement, except that the term
     "Calculation Date" for purposes of preparing and submitting the Borrowing
     Base Certificate shall mean the last day of each fiscal month at such
     periods during the term of this Agreement that the aggregate principal (or
     face) amount of all Advances and Letters of Credit outstanding under the
     Revolving Credit Facility exceeds $12,000,000.

          California Mortgage. "California Mortgage" means that certain Deed of
          -------------------
     Trust, Security Agreement, Financing Statement and Fixture Filing dated as
     of even date from MSI in favor of the Bank, to be delivered to the Bank
     pursuant to Section 3.3.2 hereof.
                 -------------

                                       4
<PAGE>

          California Property. "California Property" means the land described on
          -------------------
     Schedule 3.3.2 attached hereto, and all buildings, structures, fixtures and
     --------------
     other improvements from time to time constructed thereon or affixed
     thereto.

          Capitalized Lease. "Capitalized Lease" of a Person means any lease of
          -----------------
     Property by such Person as lessee which would be capitalized on a balance
     sheet of such Person prepared in accordance with GAAP.

          Capitalized Lease Obligations. "Capitalized Lease Obligations" of a
          -----------------------------
     Person means the amount of the obligations of such Person under Capitalized
     Leases which would be shown as a liability on a balance sheet of such
     Person prepared in accordance with GAAP.

          Closing. "Closing" means the date and time, as provided in Section 4.1
          -------                                                    -----------
     hereof, on which the Loan Documents are executed and delivered by the
     appropriate parties thereto, all in form and substance satisfactory to the
     Bank.

          Collateral. "Collateral" means the SA Collateral, the Port Facility,
          ----------
     the California Property, and all other Property in which the Bank is
     granted a Lien to secure the Indebtedness (or any portion thereof) pursuant
     to the terms of any of the Loan Documents. Upon the release of the Port
     Facility Mortgage and the California Mortgage in accordance with the
     provisions of Section 3.3.5 hereof, the term "Collateral" shall thereafter
                   -------------
     not include the Port Facility or the California Property.

          Collateral Documents. "Collateral Documents" means all Security
          --------------------
     Agreements, the Port Facility Mortgage, the California Mortgage, and any
     other security agreements, mortgages, deeds of trust, assignments or other
     documents from time to time executed by any one or more of the Borrowers in
     order to grant the Bank a Lien on any Property included in the Collateral.

          Compliance Certificate. "Compliance Certificate" means a written
          ----------------------
     certificate to be delivered by Matrix on behalf of the Borrowers pursuant
     to Section 6.2(c) hereof, in form satisfactory to the Bank.
        --------------

          Concentration Limits. "Concentration Limits" means, as of any
          --------------------
     determination date, without duplication, (i) the amount by which the total
     balance due from any account debtor (or group of related account debtors)
     on invoiced Accounts exceeds 20% of the aggregate balance due under all
     invoiced Accounts then outstanding, (ii) the amount by which the total
     balance due from any account debtor (or group of related account debtors)
     on uninvoiced Accounts exceeds 20% of the aggregate balance of all
     uninvoiced Accounts then outstanding, (iii) the amount by which the total
     balance due under invoiced Bonded Accounts exceeds 20% of the aggregate
     balance due under all invoiced Accounts then outstanding, (iv) the amount
     by which the total balance due under uninvoiced Bonded Accounts exceeds 20%
     of the aggregate balance due under all

                                       5
<PAGE>

     uninvoiced Accounts then outstanding, and (v) the amount by which the total
     balance due on all Accounts (whether or not invoiced) from account debtors
     located in Canada exceeds $500,000.

          Consolidated Current Ratio. "Consolidated Current Ratio" means, as of
          --------------------------
     any calculation date, the ratio whose numerator is the Borrowers'
     consolidated current assets as of such date and whose denominator is the
     Borrowers' consolidated current liabilities as of such date.

          Consolidated Debt. "Consolidated Debt" means, as of any calculation
          -----------------
     date, the Debt of the Borrowers calculated on a consolidated basis as of
     such date.

          Consolidated Debt to Tangible Net Worth Ratio. "Consolidated Debt to
          ---------------------------------------------
     Tangible Net Worth Ratio" means, as of any calculation date, the ratio
     whose numerator is the Borrowers' Consolidated Debt as of such date and
     whose denominator is the Borrower's Consolidated Tangible Net Worth as of
     such date.

          Consolidated Debt Service Coverage Ratio. "Consolidated Debt Service
          ----------------------------------------
     Coverage Ratio" means, as of any Calculation Date, the fraction (expressed
     as a ratio) whose numerator (the "Debt Service Numerator") is equal to the
     following:

          (i)   the Borrowers' Consolidated Net Income for the four preceding
                fiscal quarters; PLUS

          (ii)  the Borrowers' consolidated depreciation and amortization
                expense for the four preceding fiscal quarters; PLUS

          (iii) the Borrowers' interest expense for the four preceding fiscal
                quarters; MINUS or (PLUS in the case of losses)

          (iv)  the Borrowers' extraordinary gains (or losses) for the four
                preceding fiscal quarters; MINUS

          (v)   the Borrowers' Unfunded Capital Expenditures; MINUS

          (vi)  the dividends declared during the four preceding fiscal
                quarters;

     and whose denominator is equal to the following:

          (i)   the current maturities of the Borrowers' long-term Consolidated
                Funded Debt during the four fiscal quarters immediately
                following such Calculation Date; PLUS

          (ii)  the Borrowers' interest expense for the four preceding fiscal
quarters.

                                       6
<PAGE>

          Consolidated EBITDA. "Consolidated EBITDA" means, with reference to
          -------------------
     any period, Consolidated Net Income for the previous four (4) quarters
     plus, to the extent deducted from revenues in determining Consolidated Net
     Income for such period, (i) interest expense, (ii) expenses for income
     taxes paid or accrued, (iii) depreciation and (iv) amortization, minus (v)
     non-cash gains (or plus non-cash losses).

          Consolidated Funded Debt. "Consolidated Funded Debt" means and
          ------------------------
     include, without duplication, the following amounts, calculated on a
     consolidated basis as of any date of calculation: (i) all obligations of
     the Borrowers for borrowed money and for the deferred purchase price of
     property or services, (ii) all obligations evidenced by bonds, debentures,
     notes or other similar financial instruments required to be capitalized
     under GAAP, (iii) all Capitalized Lease Obligations of the Borrowers, and
     (iv) all Reimbursement Obligations.

          Consolidated Funded Debt to EBITDA Ratio. "Consolidated Funded Debt to
          ----------------------------------------
     EBITDA Ratio" means, as of any calculation date, the ratio whose numerator
     is the Borrowers' Consolidated Funded Debt as of such date and whose
     denominator is the Borrower's Consolidated EBITDA as of such date.

          Consolidated Net Income. "Consolidated Net Income" means, with
          -----------------------
     reference to any period, the net income (or net loss) of the Borrowers
     calculated on a consolidated basis for such period.

          Consolidated Tangible Net Worth. "Consolidated Tangible Net Worth"
          -------------------------------
     means, as of any calculation date, the stockholders' equity of the
     Borrowers determined on a consolidated basis as of such date, minus all
     intangible assets (as defined in accordance with GAAP) of the Borrowers
     calculated on a consolidated basis as of such date.

          Credit Facility. "Credit Facility" means any of, and "Credit
          ---------------
     Facilities" means each of, the Term Loan and the Revolving Credit Facility.

          Debt. "Debt" means without duplication (i) all obligations of the
          ----
     Borrowers which, in accordance with GAAP, would be shown on their
     respective balance sheets as a liability (including, without limitation,
     obligations for borrowed money and for the deferred purchase price of
     property or services and obligations evidenced by bonds, debentures, notes
     or other similar financial instruments); (ii) all Capitalized Lease
     Obligations; (iii) all Reimbursement Obligations; and (iv) all guaranties
     (direct or indirect) and other contingent obligations of the Borrowers in
     respect of, or obligations to purchase or otherwise acquire or to assure
     payment of, Debt of other Persons.  The term "Debt" shall not include any
     obligations under or with respect to Performance Bonds posted by any of the
     Borrowers.

          Default. "Default" means the occurrence of any event or the existence
          -------
     of any circumstances which, but for the giving of notice or the passage of
     time, or both, would constitute an Event of Default.

                                       7
<PAGE>

          Disbursement Request. "Disbursement Request" means a written request
          --------------------
     for an Advance, in form satisfactory to the Bank.

          Eligible Account. "Eligible Account" means, as of any determination
          ----------------
     date, any Account (a) which arose from a bona fide, outright sale of
     Inventory or from the performance of services by the Borrowers, (b) if
     arising from the sale of Inventory, as to which the items of Inventory have
     been shipped for delivery, (c) which is based upon a valid, enforceable and
     legally binding order or contract; (d) for which the account debtor is
     unconditionally obligated to make payment, and (e) in and to which the Bank
     has a valid and perfected first priority security interest. The term shall

     exclude the following:
     -------

               (i)    Any Account which is in dispute or as to which any of the
          Borrowers has received notice that the account debtor claims right of
          rejection, return, recoupment, setoff, counterclaim, deduction or
          defense to payment;

               (ii)   Any Account which is subject to any assignment, adverse
          claim or Lien (except Permitted Liens);

               (iii)  Any Account which is evidenced by, or as to which any of
          the Borrowers has received, a note, chattel paper, draft, check, trade
          acceptance or other instrument in payment thereof or obtained a
          judgment with respect thereto;

               (iv)   Any Account as to which the account debtor is an
          Affiliate;

               (v)    Any Account as to which the account debtor is a
          Governmental Authority if the Bank is unable to obtain a valid and
          perfected first priority security interest in such Account;

               (vi)   Any Account as to which the account debtor has died or is
          the subject of dissolution, liquidation, termination of existence,
          insolvency, business failure, receivership, bankruptcy, readjustment
          of debt, assignment for the benefit of creditors or similar
          proceedings;

               (vii)  Any Account which is due from an account debtor who is not
          located in the United States or Canada or which is payable in a
          currency other than U.S. Dollars (except that unless the Bank
          determines, in its sole discretion, to include such Account and the
          Bank shall have first received, at its option, a written opinion in
          form and substance, and from counsel for the Borrowers, satisfactory
          to the Bank reflecting that all necessary steps have been taken to
          render the Bank's Lien on such Account properly perfected and of first
          priority);

                                       8
<PAGE>

               (viii) Any Account due and owing to a Borrower which is located
          outside the United States or which is incorporated or organized under
          the laws of a jurisdiction other than a state of the United States
          (unless the Bank determines, in its sole discretion, to include such
          Account or the Bank to its reasonable satisfaction shall have
          determined that all necessary steps have been taken to render the
          Bank's Lien on such Account properly perfected and of first priority);

               (ix)   An Account which has been billed or invoiced and which
          remains unpaid more than 90 days following the original invoice date;

               (x)    Any Account which is due and owing from an account debtor
          who has an outstanding balance under Accounts which have been billed
          and invoiced, if 10% or more of such balance has been outstanding more
          than 90 days beyond the original invoice date; and

               (xi)   Any other Account as to which the Bank has made a
          determination, in the reasonable exercise of its discretion, that the
          prospects for collection are doubtful.

          Eligible Invoiced Accounts Balance. "Eligible Invoiced Accounts
          ----------------------------------
     Balance" means the aggregate unpaid balance (net of interest, finance
     charges and contra accounts) of Eligible Accounts which have been billed or
     invoiced in accordance with the terms of the applicable contract or order,
     less and excluding that portion in excess of any applicable Concentration
     Limits.

          Eligible Uninvoiced Accounts Balance. "Eligible Uninvoiced Accounts
          ------------------------------------
     Balance" means that portion of the aggregate unpaid balance of Eligible
     Accounts (i) which have been earned by performance but not yet not been
     billed or invoiced, (ii) which are reported on the Borrowers' financial
     statements as "Costs and Estimated Earnings in Excess of Billings on
     Uncompleted Contracts" and (iii) which have not been carried on the books
     of the Borrowers for more than 45 days, less and excluding, without
     dupliction, (i) the amount reported on the Borrowers' financial statements
     as "Billings on Uncompleted Contracts In Excess of Costs and Estimated
     Earnings," and (ii) that portion of the uninvoiced accounts in excess of
     any applicable Concentration Limits.

          Environmental Laws. "Environmental Laws" means all laws, statutes,
          ------------------
     ordinances, and regulations of any Governmental Authority pertaining to
     health, industrial hygiene or environmental conditions on, under, about, or
     in any way relating to any properties or assets of any Person including,
     without limitation, the Comprehensive Environmental Response, Compensation,
     and Liability Act of 1980, 42 U.S.C. Sections 9601 et seq., as amended and
                                                        -------
     in effect from time to time, and the Resource Conservation and Recovery Act
     of 1976, 42 U.S.C. Sections 6901 et seq., as amended and in effect from
                                      -------
     time to time.

                                       9
<PAGE>

          ERISA. "ERISA" means the Employee Retirement Income Security Act of
          -----
     1974, as amended and as in effect from time to time.

          Event of Default. "Event of Default" means the occurrence of any of
          ----------------
     the events or the existence of any of the circumstances specified in

     Section 8 hereof.
     ---------

          GAAP. "GAAP" means generally accepted accounting principles in effect
          ----
     from time to time as set forth in the opinions of the Accounting Principles
     Board of the American Institute of Certified Public Accountants and/or
     Statements of the Financial Accounting Standards Board which may be
     applicable as of any determination date.

          General Intangibles. "General Intangibles" means and include (i) all
          -------------------
     general intangibles of the Borrowers, of every nature, whether now owned or
     existing or hereafter arising or acquired, including, without limitation,
     all books, correspondence, credit files, records, computer programs, source
     codes, computer tapes, computer cards, computer disks, Permits, know-how,
     technologies, trade secrets, claims (including, without limitation, claims
     for income tax and other refunds), causes of action, choses in action,
     judgments, goodwill, patents, copyrights, brand names, trademarks,
     tradenames, service names, service marks, logos, licensing agreements,
     franchises, royalty payments, settlements, partnership interests (whether
     general, limited or special), interests in joint ventures, contracts,
     contract rights and monies due under any contract or agreement, (ii) all
     chattel paper of the Borrowers, whether now owned or existing or hereafter
     arising or acquired, and (iii) all papers and documents evidencing or
     constituting any of the foregoing.

          Governmental Authority. "Governmental Authority" means any court or
          ----------------------
     any administrative or governmental department, commission, board, bureau,
     authority, agency or body of any governmental entity, whether foreign or
     domestic, and whether national, federal, state, county, city, municipal or
     otherwise.

          Hazardous Substances. "Hazardous Substances" means and includes: (i)
          --------------------
     those substances included within the definitions of "hazardous substances,"
     "hazardous materials," "toxic substances" or "solid waste" in CERCLA, RCRA
     and/or the Hazardous Materials Transportation Act, 49 U.S.C. (S)(S) 1801 et
     seq., and in the regulations promulgated thereunder; (ii) those substances
     listed in the United States Department of Transportation Table (49 CFR
     172.101 and amendments thereto) or by the Environmental Protection Agency
     (or any successor agency) as hazardous substances (40 CFR Part 302 and
     amendments thereto); (iii) any material, waste or substance, such as
     asbestos, polychlorinated biphenyls, or petroleum, designated as a
     "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33
     U.S.C. (S)(S) 1251 et seq. or listed pursuant to Section 307 of the Clean
     Water Act (33 U.S.C. (S) 1317); (iv) flammable explosives or radioactive
     materials; and (v) such other substances, materials and wastes which are or
     become regulated under applicable Environmental Laws, or which are
     classified as hazardous or toxic under any Environmental Laws.

                                       10
<PAGE>

          Indebtedness. "Indebtedness" means and include all liabilities,
          ------------
     obligations and indebtedness of the Borrowers to the Bank or an affiliate
     of the Bank, of every kind and description, now existing or hereafter
     incurred, direct or indirect, absolute or contingent, due or to become due,
     matured or unmatured, and whether or not of the same or a similar class or
     character as the Credit Facilities and whether or not currently
     contemplated by the Bank or the Borrowers, including, without limitation,
     (i) all Advances, and Letters of Credit (including interest accruing
     thereon and fees payable in respect thereof), (ii) all Reimbursement
     Obligations, (iii) all liabilities, obligations and indebtedness of the
     Borrowers to the Bank arising out of or relating to this Agreement, the
     Credit Facilities, the Notes, the L/C Agreements or any other of the Loan
     Documents, (iv) any overdrafts by any of the Borrowers on any deposit
     account maintained with the Bank, (v) any and all obligations, contingent
     or otherwise, of the Borrowers to the Bank arising under or in connection
     with any Rate Management Transactions, and (vi) any and all extensions and
     renewals of any of the foregoing.

          Interest Payment Date. "Interest Payment Date" means, as to any
          ---------------------
     Tranche, the last day of the Interest Period applicable thereto, provided
                                                                      --------
     that in the case of an Interest Period of six months, "Interest Payment
     Date" shall also include the three month anniversary of the commencement of
     that Interest Period.

          Interest Period. "Interest Period" means any interest period
          ---------------
     applicable to a Tranche as determined in accordance with the provisions of
     Section 2.6.2 hereof.
     -------------

          Inventory. "Inventory" means and include all inventory of the
          ---------
     Borrowers, now existing or hereafter acquired and wherever located,
     including (i) raw goods and raw materials, (ii) goods in process, (iii)
     finished goods, (iv) materials, supplies, containers, boxes and packaging
     materials, (v) materials used or consumed in the course of business, and
     (vi) all other goods held or stored for sale or lease or furnished or to be
     furnished under contracts of service.

          L/C Agreement. "L/C Agreement" means the Bank's standard form of
          -------------
     "Application for Standby Letter of Credit" or "Application for Commercial
     Letter of Credit," as applicable, to be executed and delivered by each of
     the Borrowers in connection with each request for the issuance of a Letter
     of Credit pursuant to Section 2.4.1 hereof.
                           -------------

          Letters of Credit. "Letters of Credit" means, collectively, all
          -----------------
     standby and commercial letters of credit issued or to be issued from time
     to time by the Bank under the Revolving Credit Facility for the account of
     any of the Borrowers, as the same may be amended, supplemented and extended
     from time to time.

          LIBOR Rate. "LIBOR Rate" means, as of any determination date, the
          ----------
     offered rate for U.S. Dollar deposits of not less than $1,000,000 as of
     11:00 a.m., London time, two London Business Days prior to the first day of
     such Interest Period, as shown

                                       11
<PAGE>

     on the display designated as "British Bankers Assoc. Interest Settlement
     Rates" on the Telerate System ("Telerate"), Page 3750 or Page 3740, or such
     other page or pages as may replace such pages on Telerate for the purpose
     of displaying such rate; provided, however, that if such rate is not
     available on Telerate, then such offered rate shall be otherwise
     independently determined by the Bank from an alternate, substantially
     similar independent source available to the Bank or shall be calculated by
     the Bank by a substantially similar methodology as that theretofore used to
     determine such offered rate in Telerate.

          LIBOR Tranche. "LIBOR Tranche" means each portion of the Term Loan or
          -------------
     Advances under the Revolving Credit Facility which the Borrowers designate
     as such pursuant to a Rate Election.

          Lien. "Lien" means any mortgage, pledge, lien, security interest,
          ----
     assignment, charge, restriction, claim, or other encumbrance, whether
     statutory, consensual or otherwise, which is granted, created or suffered
     to exist by the Borrowers on any of their Properties and which secures any
     Debt of the Borrowers.

          Loan Documents. "Loan Documents" means this Agreement, the Notes, the
          --------------
     Collateral Documents, the Lockbox Agreement, the L/C Agreements, and all
     other instruments and documents executed or issued, or to be executed or
     issued, in favor of the Bank or any Affiliate of the Bank pursuant hereto
     or in connection with the Credit Facilities and/or the Collateral, and all
     amendments, modifications, extensions and renewals of any of the foregoing.

          Lockbox Agreement. "Lockbox Agreement" means the Bank's standard form
          -----------------
     of lockbox agreement to be executed by the Borrowers pursuant to Section
                                                                      -------
     3.4 hereof, as the same may be amended, modified, supplemented, renewed or
     ---
     extended from time to time.

          London Business Day. "London Business Day" means any day other than a
          -------------------
     Saturday, Sunday or a day on which banking institutions are generally
     authorized or obligated by law or executive order to close in the City of
     London, England.

          Margin Adjustment Date. "Margin Adjustment Date" means each date on
          ----------------------
     which Matrix, on behalf of the Borrowers, delivers a quarterly Compliance
     Certificate in accordance with Section 6.2(c) but in any event not later
                                    --------------
     than the date on which such Compliance Certificate may be due.

          Material Adverse Effect. "Material Adverse Effect" means any
          -----------------------
     circumstance or set of events which (i) has or could reasonably be expected
     to have any adverse effect whatsoever on the validity, enforceability or
     performance of the Loan Documents, (ii) does or could reasonably be
     expected to reduce the Borrowers' consolidated tangible net worth
     (determined in accordance with GAAP) or the Borrowers' consolidated net
     income by more than $1,000,000, (iii) does or could reasonably be expected
     to impair

                                       12
<PAGE>

     the ability of the Borrowers to fulfill their collective obligations under
     the terms and conditions of the Loan Documents, or (iv) causes or creates a
     Default.

          Mortgaged Property.  "Mortgaged Property" means any land or other real
          ------------------
     property in which the Bank has been granted a Lien as security for the
     Indebtedness (or any portion thereof) pursuant to the terms of this
     Agreement.

          Notes.  "Notes" means, collectively, the Revolving Note, the Term Note
          -----
     and any Acquisition Notes.

          PBGC. "PBGC" means the Pension Benefit Guaranty Corporation, as
          ----
     established pursuant to Section 4002 of ERISA, and any successor thereto or
     substitute therefor under ERISA.

          Performance Bond. "Performance Bond" means any bid bond or performance
          ----------------
     bond posted by any of the Borrowers as security for such Borrower's
     obligations arising in connection with the rendering of bids or the
     performance of services in the ordinary course of business, including bonds
     posted in support of workers' compensation obligations.

          Permit. "Permit" means any permit, certificate, consent, franchise,
          ------
     concession, license, authorization, approval, filing, registration or
     notification from or with any Governmental Authority or other Person.

          Permitted Liens. "Permitted Liens" means the following Liens against
          ---------------
     the Properties of the Borrowers: (i) deposits to secure payment of worker's
     compensation, unemployment insurance and other similar benefits; (ii) Liens
     for property taxes not yet due; (iii) statutory Liens against which there
     are established reserves in conformity with GAAP and which (A) are being
     contested in good faith by appropriate legal proceedings or (B) arise in
     the ordinary course of business and secure obligations which are not yet
     due and not in default; (iv) Liens arising in connection with Capitalized
     Lease Obligations permitted under this Agreement; (v) Liens to secure
     purchase money obligations not to exceed the aggregate amount of $500,000
     in any fiscal year; (vi) Liens in favor of the Bank; (vii) Liens, deposits,
     or pledges to secure the performance of bids, tenders, contracts (other
     than contracts for the payment of money), leases permitted under this
     Agreement, public or statutory obligations, surety, stay, appeal,
     indemnity, performance or other similar bonds, or other similar obligations
     arising in the ordinary course of business; (viii) easements, rights-of-
     way, servitudes, permits, surface leases and other rights in respect to
     surface operations, conditions, covenants or other restrictions and
     easements for streets, alleys, highways, pipelines, telephone lines, power
     lines, railways and other easements and rights-of-way, on, over or in
     respect to any of the Borrowers' Properties which do not have a Material
     Adverse Effect on the ownership, use, operation or value of such
     Properties; (ix) title defects and other minor irregularities in title with
     respect to any Properties, to the extent such matters do not have a
     Material Adverse Effect on the ownership, use, operation or value of such
     Properties;

                                       13
<PAGE>

     and (x) rights reserved to or vested in any municipality, governmental,
     statutory or public authority to control or regulate any of the Borrowers'
     Properties in any manner, to the extent such reserved rights, if exercised,
     would not have a Material Adverse Effect on the ownership, use, operation
     or value of such Properties.

          Person. "Person" means any individual, sole proprietorship,
          ------
     partnership, joint venture, trust, unincorporated organization,
     association, corporation, limited liability company, institution, entity,
     party or Governmental Authority.

          Port Lease. "Port Lease" means that certain Lease Agreement dated as
          ----------
     of March 1, 2001 between The City of Tulsa-Rogers County Port Authority,
     Oklahoma, as Lessor, and Matrix, as Lessee, covering the Port Facility.

          Port Facility. "Port Facility" means the land described on Schedule
          -------------                                              --------
     3.3.1 attached hereto, and all buildings, structures, fixtures (including,
     -----
     without limitation, bridge cranes), and other improvements from time to
     time constructed thereon or affixed thereto, including, without limitation,
     the buildings, structures, fixtures and other improvements comprising the
     Project.

          Port Facility Mortgage. "Port Facility Mortgage" means that certain
          ----------------------
     Mortgage, Security Agreement, Financing Statement and Fixture Filing dated
     as of even date from Matrix in favor of the Bank, to be delivered to the
     Bank pursuant to Section 3.3.1 hereof.
                      -------------

          Prime Rate. "Prime Rate" means a rate per annum equal to the prime or
          ----------
     base rate of interest announced by Bank One, Oklahoma, N.A., and its
     successors, from time to time, changing when and as said rate changes.

          Prime Tranche. "Prime Tranche" means that portion of the outstanding
          -------------
     Advances under the Revolving Credit Facility or the Term Loan which is not
     made up of LIBOR Tranches.

          Proceeds. "Proceeds" means all proceeds of all or any portion of the
          --------
     Collateral, including, (i) all proceeds of any insurance, judgment,
     indemnity, warranty or guaranty payable to or for the account of any of the
     Borrowers with respect to all or any portion of the Collateral, (ii) all
     proceeds in the form of accounts, collections, contract rights, documents,
     instruments, chattel paper or general intangibles relating in whole or in
     part to the Collateral, and (iii) all payments, in any form whatsoever,
     made or due and payable to or for the account of any of the Borrowers in
     connection with any requisition, confiscation, condemnation, seizure or
     forfeiture of all or any portion of the Collateral by any Governmental
     Authority.

          Project.  "Project" means the construction, installation and equipping
          -------
     by Matrix of a 37,000 square foot corporate office building, a 14,000
     square foot regional office building with 20,000 square foot attached metal
     building, and a 23,000 square foot

                                       14
<PAGE>

     office building with 130,000 square foot attached metal building to be used
     as a fabrication plant, all to be constructed on and located at the Port
     Facility, together with all related structures, improvements, and fixtures.

          Property. "Property" means any asset or property, whether real,
          --------
     personal or mixed, tangible or intangible, which is now or at any time
     hereafter owned, operated or leased by any or all of the Borrowers.

          Rate Election. "Rate Election" shall have the meaning set forth in
          -------------
     Sections 2.6.2 and 2.6.3 hereof.
     --------------     -----

          Rate Management Transaction. "Rate Management Transaction" means any
          ---------------------------
     transaction (including an agreement with respect thereto) now existing or
     hereafter entered into between Borrower and the Bank, or any Affiliate of
     the Bank, which is a rate swap, basis swap, forward rate transaction,
     commodity swap, commodity option, equity or equity index swap, equity or
     equity index option, bond option, interest rate option, foreign exchange
     transaction, cap transaction, floor transaction, collar transaction,
     forward transaction, currency swap transaction, cross-currency rate swap
     transaction, currency option or any other similar transaction (including
     any option with respect to any of these transactions) or any combination
     thereof, whether linked to one or more interest rates, foreign currencies,
     commodity prices, equity prices or other financial measures.

          Real Estate Requirements.  "Real Estate Requirements" means the
          ------------------------
     documents and other items listed in Schedule 1.2 attached hereto to be
     furnished to the Bank with respect to each Mortgaged Property.

          Reimbursement Obligation. "Reimbursement Obligation" means the joint
          ------------------------
     and several obligation of the Borrowers arising under the UCC, the Uniform
     Customs and Practice for Documentary Credits (International Chamber of
     Commerce Publication No. 500, 1993 Revision), as the same may have or may
     be amended from time to time, and the applicable L/C Agreement to reimburse
     the Bank upon its payment of drafts presented against any Letter of Credit.

          Responsible Officer. "Responsible Officer" means either the acting
          -------------------
     Chief Executive Officer or acting Chief Financial Officer of Matrix.

          Revolving Commitment. "Revolving Commitment" means, as of any
          --------------------
     determination date, the lesser of (i) $20,000,000, and (ii) the Borrowing
     Base in effect on such determination date.

          Revolving Credit Facility. "Revolving Credit Facility" means the
          -------------------------
     revolving loan facility to be established and continued by the Bank in
     favor of the Borrowers pursuant to Section 2.1.1 hereof.
                                        -------------

                                       15
<PAGE>

          Revolving Credit Facility Maturity Date. "Revolving Credit Facility
          ---------------------------------------
     Maturity Date" means October 31, 2004, as the same may be extended at the
     Bank's discretion in accordance with Section 2.11 hereof.
                                          ------------

          Revolving Note. "Revolving Note" means the replacement promissory note
          --------------
     to be executed by the Borrowers in order to evidence the Advances from time
     to time made and outstanding under the Revolving Credit Facility, in the
     form of Exhibit "A-1" attached hereto, as such note may be amended,
     modified, supplemented, renewed or extended from time to time.

          SA Collateral. "SA Collateral" means and includes (i) all Accounts,
          -------------
     (ii) all Inventory, (iii) all General Intangibles, (iv) all books, records,
     ledger cards, electronic data processing materials and other general
     intangibles relating to the foregoing property, and (v) all Proceeds of the
     foregoing property.

          Security Agreement. "Security Agreement" means each security agreement
          ------------------
     executed by the Borrowers as described in Section 3.1 hereof, each
                                               -----------
     substantially in the form of Exhibit "C" attached to the Existing Credit
     Agreement, as the same may be amended, modified, supplemented, renewed or
     extended from time to time.

          Subsidiary. "Subsidiary" means any Person in which any of the
          ----------
     Borrowers jointly or individually own or control more than 50% of the
     outstanding equity interest.

          Term Loan. "Term Loan" means the permanent term loan to be established
          ---------
     by the Bank pursuant to Section 2.1.3.
                             -------------

          Term Loan Maturity Date. "Term Loan Maturity Date" means June 6, 2006.
          -----------------------

          Term Note. "Term Note" means that promissory note in the stated
          ---------
     principal amount of $5,900,000.01 to be made by the Borrowers payable to
     the order of the Bank, as provided in Section 2.5.2, substantially in the
                                           -------------
     form of Exhibit A-2 attached hereto, as such note may be amended, modified,
     supplemented, renewed or extended from time to time.

          Tranches. "Tranches" means, collectively, the Prime Tranches and all
          --------
     LIBOR Tranches, and "Tranche" means any of the Tranches.

          UCC. "UCC" means the Uniform Commercial Code of the State of Oklahoma,
          ---
     as amended and as in effect from time to time.

          Unfunded Capital Expenditures. "Unfunded Capital Expenditures" means
          -----------------------------
     capital expenditures of the Borrowers that are funded solely through the
     Borrowers' operational cash flow apart from Debt.

                                       16
<PAGE>

     1.3  Accounting Terms. Accounting and financial terms used herein and not
          ----------------
otherwise defined with respect to the Borrowers' financial statements and
consolidated financial position shall have the meanings ascribed thereto
pursuant to GAAP.

     1.4  Terms Defined in UCC. Any terms used herein that are defined in
          --------------------
Article 9 of the UCC, and not otherwise defined herein shall have the
respective meanings set forth therein.

     1.5  Interpretation. All terms defined herein in the singular shall
          --------------
include the plural, as the context requires, and vice-versa. Unless the context
otherwise requires, all references herein to "the Borrowers" shall mean "the
Borrowers, jointly and severally, and any one of the Borrowers, individually."

2.   LENDING AGREEMENT. Subject to the terms and conditions of this Agreement
     -----------------
and the Loan Documents, and in reliance upon the representations and warranties
contained herein and therein:

     2.1  Revolving Credit Facility.
          -------------------------

          2.1.1  General. The Bank agrees to continue the revolving credit
                 -------
     facility, that has been designated in the Existing Credit Agreement as the
     "Revolving Credit Facility," in an aggregate principal amount equal to the
     Revolving Commitment. The Revolving Credit Facility may be drawn upon by
     the Borrowers from time to time, in whole or in part, on or before the
     Revolving Credit Facility Maturity Date, by requesting an Advance in
     accordance with the provisions of Sections 2.3.1 and 2.4.2 hereof, or the
                                       ------------------------
     issuance of a Letter of Credit in accordance with the provisions of Section
                                                                         -------
     2.4.1 hereof; provided, however, that the aggregate principal (or face)
     -----         --------  -------
     amount of all Advances and Letters of Credit at any one time outstanding
     under the Revolving Credit Facility shall not exceed the Revolving
     Commitment as of such date. The Revolving Credit Facility shall be a
     revolving facility, and the prepayment of Advances drawn, the payment of
     principal outstanding under any Acquisition Term Loan and the expiration of
     Letters of Credit issued under the Revolving Credit Facility shall restore
     the amount available for reborrowing.

          2.1.2  Acquisition Term Loans. At any time within 90 days of the
                 ----------------------
     Borrowers' request for an Acquisition Advance, the Borrowers may elect to
     convert such Acquisition Advance into an Acquisition Term Loan. The
     repayment terms of each Acquisition Term Loan shall be negotiated at the
     time the Borrowers request the Acquisition Advance; provided, however,
     that: (i) the repayment terms of each Acquisition Term Loan shall be
     calculated on the basis of a five-year amortization term, (ii) all
     principal and accrued and unpaid interest on each Acquisition Term Loan
     shall be due and payable on or before October 31, 2005, and (iii) the
     aggregate amount of principal outstanding at any time under the Acquisition
     Term Loans shall not exceed $5,000,000. If the Borrowers elect to convert
     an Acquisition Advance into an Acquisition Term Loan, the Borrowers agree
     to execute and deliver a promissory note

                                       17
<PAGE>

     (an "Acquisition Term Note"), payable to the order of the Bank containing
     such terms of repayment to which the parties shall have mutually agreed.

          2.1.3  Term Loan. Subject to the satisfaction of the conditions set
                 ---------
     forth in Section 4.4 hereof, the Bank agrees to make a term loan, to be
              -----------
     designated as the "Term Loan," to the Borrowers at the Closing in the
     maximum principal amount of $5,900,000.01. Amounts paid or prepaid on the
     Term Loan shall not be available for reborrowing.

     2.2  Use of Proceeds.
          ---------------

          2.2.1  Revolving Credit Facility. Advances under the Revolving
                 -------------------------
     Credit Facility shall be used by the Borrowers for the purposes of (i)
     providing working capital, (ii) financing the Borrowers' corporate
     Acquisition and capital expenditure activity, and/or (iii) general
     corporate purposes.

          2.2.2  Term Loan. The Advance under the Term Loan shall be used to
                 ---------
     refinance a portion of the principal amount currently outstanding under the
     Revolving Credit Facility. The amount to be refinanced was originally used
     by the Borrowers to finance the acquisition of the land comprising the
     California Property and for other general corporate purposes.

     2.3  Borrowing Procedures. All Advances under the Revolving Credit
          --------------------
Facility shall be made in accordance with the disbursement conditions and
procedures set forth below.

          2.3.1  Requests for Advances. The Borrowers shall make each request
                 ---------------------
     for an Advance either orally or in writing no later than 11:00 a.m., Tulsa
     time, on the requested date of disbursement; provided, however, that the
                                                  --------  -------
     Bank in its sole discretion may request that the Borrowers confirm oral
     requests for Advances by delivering to the Bank a properly completed and
     executed Disbursement Request. Each request for an Advance shall specify
     (i) the requested date of disbursement (which shall be a Business Day),
     (ii) the amount of the requested Advance, (iii) whether the requested
     Advance will be included within the Prime Tranche or a LIBOR Tranche, and
     (iv) in the case of an Advance to be included within a LIBOR Tranche, the
     requested Interest Period. Each request for an Advance under the Prime
     Tranche shall be in a minimum amount of $50,000 (unless the remaining
     availability under the Revolving Credit Facility is less than $50,000) and
     in integral multiples of $50,000 in excess of that amount, and each request
     for an Advance under a LIBOR Tranche shall be in a minimum amount of
     $500,000 and in integral multiples of $50,000 in excess of that amount.

          2.3.2  Disbursements. Not later than 12:30 p.m., Tulsa time, on the
                 -------------
     date on which any Advance under the Revolving Credit Facility is requested
     to be made, the Bank shall credit the amount of the requested Advance to
     the account maintained by Matrix with the Bank. Notwithstanding any
     provision of this Agreement, the Bank shall

                                       18
<PAGE>

     not be required to make any Advance hereunder if any of the conditions
     precedent in Section 4 hereof has not been satisfied.
                  ---------

     2.4  Letters of Credit. The Letters of Credit to be issued by the Bank
          -----------------
under the Revolving Credit Facility shall be subject to the following terms and
conditions:

          2.4.1  Terms. Each Letter of Credit shall be either a standby or a
                 -----
     commercial letter of credit for a proper business purpose, with a maximum
     term of not more than 18 months and with a final expiration date not later
     than 90 days after the termination of the Revolving Credit Facility. Each
     Letter of Credit shall be issued pursuant to and subject to the terms and
     conditions of a L/C Agreement, which shall be completed and executed by the
     Borrowers at least three Business Days prior to the issuance of the
     applicable Letter of Credit.

          2.4.2  Draws. In the event a draft drawn under (or purporting to be
                 -----
     drawn under) any Letter of Credit is presented to the Bank for payment, the
     Bank shall promptly notify the Borrowers. At least one Business Day prior
     to the date such draft is payable, the Borrowers shall advise the Bank
     either (i) that they intend to provide the Bank with funds sufficient to
     pay such draft on or before the date it is payable, or (ii) that the Bank
     is requested to make an Advance under the Revolving Credit Facility to pay
     the Bank for the amount of such draft. The latter option shall not be
     available to the Borrowers if there is not sufficient availability under
     the Revolving Commitment to make the requested Advance. Upon the Bank's
     payment of such draft through an Advance under the Revolving Credit
     Facility, the Borrowers shall be deemed to have borrowed from the Bank
     under the Revolving Credit Facility and the Bank shall record such amount
     as an Advance under the Revolving Note.

          2.4.3  Release and Indemnification. The Bank shall be authorized to
                 ---------------------------
     pay any draft drawn under any Letter of Credit upon its due presentation by
     the beneficiary thereof in accordance with its terms and conditions. The
     Borrowers jointly and severally agree to release the Bank and to indemnify
     and hold the Bank harmless from and against all liability, cost and expense
     resulting from or relating to its honor of any such draft (except as the
     same failure to honor arises from the gross negligence or willful
     misconduct of the Bank). The Borrowers further agree that, in the event the
     Bank incurs any loss, cost or expense (including, without limitation, any
     loss of profit) as a result of any failure by the Borrowers to provide
     funds to the Bank sufficient to pay any draft drawn on any Letter of Credit
     prior to its due date (unless the Borrowers have properly requested an
     Advance under the Revolving Credit Facility prior to such date), the
     Borrowers will upon demand pay to the Bank such amount as will reimburse it
     for such loss, cost or expense.

          2.4.4  Reimbursement. The Borrowers' Reimbursement Obligations shall
                 -------------
     be absolute and unconditional under any and all circumstances (except as
     provided below with respect to the gross negligence or willful misconduct
     of the Bank) and irrespective of any setoff, counterclaim or defense to
     payment which the Borrowers may have or

                                       19
<PAGE>

     have had against the Bank, including (i) any defense based upon the failure
     of any drawing under a Letter of Credit to conform to the terms of the
     Letter of Credit (other than a defense based upon the gross negligence or
     willful misconduct of the Bank in determining whether such drawing conforms
     to the terms of the Letter of Credit), or any non-application or
     misapplication by the beneficiary of the proceeds of such drawing; (ii) any
     claim, setoff, defense or other right which the Borrowers may have at any
     time against a beneficiary named in a Letter of Credit, any transferee of
     any Letter of Credit, the Bank or any other person, whether in connection
     with this Agreement, any Letter of Credit, the transactions contemplated
     herein or any unrelated transactions (including any underlying transaction
     between the Borrowers and the beneficiary named in any such Letter of
     Credit); (iii) any claim, setoff, defense or other right which the
     Borrowers may have based upon any draft, certificate or any other document
     presented under any Letter of Credit proving to be forged, fraudulent,
     invalid or insufficient in any respect or any statement therein being
     untrue or inaccurate in any respect; or (iv) any other circumstance which
     might otherwise constitute a defense available to, or a discharge of, the
     Borrowers (other than the gross negligence or willful misconduct of the
     Bank). The Borrowers further agree that, in the absence of gross negligence
     or willful misconduct of the Bank, the Bank shall not be responsible for,
     and Borrowers' Reimbursement Obligations shall not be affected by, among
     other things, the validity or genuineness of documents or any endorsements
     thereon, even though such documents shall in fact prove to be invalid,
     fraudulent or forged or any dispute between or among the Borrowers and the
     beneficiary of any Letter of Credit or any other party to which such Letter
     of Credit may be transferred or any claims whatsoever of the Borrowers
     against any beneficiary of such Letter of Credit or any such transferee.

          2.4.5  Advice of Credit. The Bank shall not be liable for any error,
                 ----------------
     omission, interruption or delay in transmission, dispatch or delivery of
     any message or advice, however transmitted, in connection with any Letter
     of Credit, except for errors or omissions caused by the Bank's gross
     negligence or willful misconduct.

          2.4.6  Obligation to Issue Letters of Credit. Notwithstanding any
                 -------------------------------------
     provision of this Agreement, the Bank shall not be required to issue any
     Letter of Credit hereunder if the conditions precedent set forth in Section
                                                                         -------
     4 hereof have not been satisfied.
     --

          2.4.7  Maximum Amount of Outstanding Letters of Credit.
                 -----------------------------------------------
     Notwithstanding any provision of this Agreement, the maximum aggregate
     amount outstanding at any time under all Letters of Credit issued by the
     Bank hereunder shall not exceed $10,000,000.

     2.5  Notes.
          -----

          2.5.1  Revolving Note. The Advances (other than the Acquisition
                 --------------
     Advances which the Borrowers have elected to convert to an Acquisition Term
     Note) from time to time outstanding under the Revolving Credit Facility
     shall be evidenced by the

                                       20
<PAGE>

     Revolving Note, which shall be jointly and severally made, executed and
     delivered by the Borrowers.

          2.5.2  Term Note. The outstanding principal balance of the Advance
                 ---------
     made under the Term Loan shall be evidenced by the Term Note, which shall
     be jointly and severally made, executed and delivered by the Borrowers.

          2.5.3  Acquisition Term Note. The outstanding principal balance of any
                 ---------------------
     Acquisition Advances that the Borrowers have elected to convert into an
     Acquisition Term Loan, as provided in Section 2.1.2 hereof, shall be
                                           -------------
     evidenced in each case by an Acquisition Term Note, which shall be jointly
     and severally made, executed and delivered by the Borrowers in accordance
     with Section 2.1.2.
          -------------

          2.5.4  Amount Owed. Notwithstanding the principal amount stated on the
                 -----------
     face of any Note, the actual principal due from the Borrowers on account of
     such Note shall be the sum of all Advances made by the Bank under such
     Note, less all principal payments actually received by the Bank in
     collected funds for application against the principal balance of such Note.
     All Advances and payments under the Notes shall be recorded by the Bank in
     its books and records, and the unpaid principal balance so recorded shall
     be presumptive evidence of the principal amount owing thereon, absent
     manifest error.

     2.6  Interest.
          --------

          2.6.1  Credit Facilities. The unpaid principal amount of all Advances
                 -----------------
     (other than those which become subject to a fixed rate of interest pursuant
     to a Rate Management Transaction) from time to time outstanding under the
     Revolving Note or the Term Note shall bear interest at a rate determined by
     reference to the Prime Rate or the LIBOR Rate, as selected by the Borrowers
     pursuant to a Rate Election made in accordance with the provisions of
     Section 2.6.1 hereof, as follows:
     -------------

                 (a) Advances included within the Prime Tranche shall bear
          interest at a fluctuating rate per annum equal to the Prime Rate minus
                                                                           -----
          the Applicable Prime Rate Margin.

                 (b) Advances included within each LIBOR Tranche shall bear
          interest at a rate per annum equal to the sum of the LIBOR Rate
          applicable to such LIBOR Tranche plus the Applicable LIBOR Rate
                                           ----
          Margin.

                 (c) In the event of any Event of Default and until cured to the
          satisfaction of the Bank, the unpaid principal amount of all Advances
          outstanding under the Revolving Note or the Term Note shall bear
          interest at a fluctuating rate per annum equal to the Prime Rate plus
          1-1/2%, adjusted as of the date of each change therein.

                                       21
<PAGE>

          2.6.2  Rate Elections; Interest Periods. In connection with each
                 --------------------------------
     request for an Advance under the Revolving Credit Facility submitted
     pursuant to Section 2.3.1 hereof, or each request to continue or convert an
                 -------------
     existing Tranche (or portion thereof) under the Revolving Credit Facility
     or the Term Loan pursuant to Section 2.6.3 hereof, the Borrowers shall
                                  -------------
     notify the Bank whether such Advance or Tranche will be included within the
     Prime Tranche or within a LIBOR Tranche (a "Rate Election") and shall elect
     an interest period (each an "Interest Period") to be applicable to such
     Tranche, which Interest Period shall (i) in the case of Advances included
     within the Prime Tranche, be a one (1) month period, and (ii) in the case
     of Advances included within a LIBOR Tranche, be either a one, three or six
     month period; provided that:
                   --------

                 (a) the Interest Period for any Advance shall commence on the
          date such Advance is disbursed pursuant to Section 2.3.2 hereof, and
                                                     -------------
          the Interest Period for any Tranche shall commence on the date such
          Tranche is converted or continued pursuant to Section 2.6.3 hereof;
                                                        -------------

                 (b) if any Interest Period would otherwise expire on a day
          which is not a Business Day, such Interest Period shall expire on the
          next succeeding Business Day;

                 (c) no Interest Period applicable to Advances under the
          Revolving Credit Facility shall extend beyond the Revolving Credit
          Facility Maturity Date and no Interest Period applicable to the Term
          Loan shall extend beyond the Term Loan Maturity Date;

                 (d) the Borrowers shall make no Rate Election requesting
          inclusion of an Advance or Tranche within a LIBOR Tranche without
          specifying the applicable Interest Period;

                 (e) each Rate Election shall be irrevocable, and, if no Rate
          Election is made, the Advance or the Tranche, as the case may be,
          shall be included within the Prime Tranche;

                 (f) there shall be no limit to the maximum number of Tranches
          outstanding under the Revolving Credit Facility or the Term Loan at
          any time; and

                 (g) notwithstanding any provisions herein to the contrary, the
          Borrowers may select an Interest Period of less than 30 days for
          Advances included within the Prime Tranche if such shorter period ends
          on the Revolving Credit Facility Maturity Date or the Term Loan
          Maturity Date, as applicable.

          2.6.3  Continuation and Conversion Options. Subject to the limitations
                 -----------------------------------
     set forth in Section 2.6.2 hereof, the Borrowers may under the Revolving
                  -------------
     Credit Facility or the Term Loan from time to time: (i) elect to continue,
     on the last day of the Interest Period

                                       22
<PAGE>

     therefor, any LIBOR Tranche (or any portion thereof) to a subsequent
     Interest Period, (ii) elect to convert, on the last day of the Interest
     Period therefor, any LIBOR Tranche into a Prime Tranche; or (iii) elect to
     convert, on any Business Day, the Prime Tranche (or any portion thereof)
     into a LIBOR Tranche. The Borrowers shall give the Bank irrevocable notice
     of each conversion or continuation either orally or in writing (by
     delivering to the Bank a properly completed and executed Disbursement
     Request) no later than 5:00 p.m., Tulsa time, at least one Business Day
     prior to the conversion or continuation date; provided, however, that the
                                                   --------  -------
     Bank in its sole discretion may request that the Borrowers confirm oral
     conversion or continuation notices by delivering to the Bank a properly
     completed and executed Disbursement Request within three Business Days
     after the date of the oral request. Each conversion or continuation notice
     shall specify (i) the proposed conversion or continuation date (which shall
     be a Business Day), (ii) the aggregate amount to be converted or continued,
     (iii) the nature of the proposed conversion or continuation, and (iv) in
     the case of conversion to or continuation as a LIBOR Tranche, the requested
     Interest Period. No LIBOR Tranche may be converted or continued (i) at any
     time other than on the last day of the Interest Period applicable thereto,
     or (ii) at any time that a Default or Event of Default has occurred and is
     continuing.

          2.6.4  Computation of Interest. Interest on the outstanding amounts
                 -----------------------
     under each Note shall be computed on the basis of a year consisting of 360
     days and for the actual number of days elapsed.

     2.7  Fees.
          ----

          2.7.1  Revolving Credit Facility Fee. On an annual basis until the
                 -----------------------------
     date of termination of the Revolving Credit Facility, the Borrowers shall
     pay to the Bank a nonrefundable "Revolving Credit Facility Fee" in the
     amount of $28,750. The "Revolving Credit Facility Fee" shall be payable on
     October 31, 2001, and on each October 31 thereafter.

          2.7.2  Letter of Credit Fees. Upon the issuance of each Letter of
                 ---------------------
     Credit, the Borrowers shall pay to the Bank (i) a "Letter of Credit Fee"
     equal to the product of (A) in the case of a Letter of Credit in a face
     amount less than $250,000, 1-1/4% of the face amount of the Letter of
     Credit, or (B) in the case of a Letter of Credit in a face amount equal to
     or greater than $250,000, 3/4 of 1% of the face amount of the Letter of
     Credit, times a fraction, the numerator of which is the number of days
     which will elapse prior to the final maturity of the Letter of Credit and
     the denominator of which is the number 360, and (ii) all other usual and
     customary charges of the Bank for documentary credits, as provided in the
     applicable L/C Agreement.

     2.8  Scheduled Payments.
          ------------------

          2.8.1  Revolving Credit Facility. The Borrowers shall pay all unpaid
                 -------------------------
     accrued interest under the Revolving Note on each Payment Date and on the
     Revolving Credit

                                       23
<PAGE>

     Facility Maturity Date. The entire outstanding principal balance under the
     Revolving Note, together with all unpaid interest accrued thereon, shall be
     due and payable in full on the Revolving Credit Facility Maturity Date.

          2.8.2  Term Loan. Prior to maturity, the balance of the Term Loan
                 ---------
     shall be due and payable in 57 equal installments of principal, together
     with accrued and unpaid interest, on the last day of each calendar month
     commencing on September 30, 2001. The amount of the principal portion of
     each monthly installment shall be $33,333.33 (calculated on the basis of a
     15-year amortization). The entire remaining principal balance of the Term
     Note, together with all accrued and unpaid interest, shall be due and
     payable in full on the Term Loan Maturity Date.

     2.9  Mandatory Prepayments. If at any time the outstanding principal
          ---------------------
balance of the Revolving Note plus the total face amount of all outstanding
Letters of Credit exceeds the Revolving Commitment, the Borrowers shall make an
immediate mandatory prepayment of principal on the Revolving Note sufficient to
reduce the principal balance of the Revolving Note to not more than the
Revolving Commitment.

     2.10 Making of Payments. All payments shall be made to the Bank at its
          ------------------
principal office in Tulsa, Oklahoma, on or before 2:00 p.m. (Tulsa time), on the
date due, in immediately available funds. Whenever a payment is due on a day
other than a Business Day, the due date shall be extended to the next succeeding
Business Day and interest (if any) shall accrue during such extension.

     2.11 Renewal and Extension. Between May 31 and September 30, 2002, and
          ---------------------
between May 31 and September 30 of each year thereafter, the Borrowers may
submit a written request to the Bank to extend the termination date of the
Revolving Credit Facility for an additional one year period beyond the then
stated maturity. The Bank shall give the Borrowers notice of its decision with
respect to the Borrowers' request on or before October 31, 2002, and October 31
of each year thereafter, which decision shall be made by the Bank in the
exercise of its sole, absolute and unconditional discretion. In the event that
the Bank elects to renew and extend the Revolving Credit Facility pursuant to
the Borrowers' request, the terms and provisions of this Agreement shall
continue in full force and effect with respect to Revolving Credit Facility
except as may otherwise be agreed in writing by the Borrowers and the Bank.
Notwithstanding the foregoing, the Bank shall not be obligated, and nothing
contained in this Agreement shall be construed as obligating the Bank, to agree
or consent to any such renewal and extension.

     2.12 Maximum Lawful Interest Rate. It is not the intention of the Bank or
          ----------------------------
the Borrowers to violate the laws of any applicable jurisdiction relating to
usury or other restrictions on the maximum lawful interest rate. The Loan
Documents and all other agreements between the Borrowers and the Bank, whether
now existing or hereafter arising and whether written or oral, are hereby
limited so that in no event shall the interest paid or agreed to be paid to the
Bank for the use, forbearance or detention of money loaned, or for the payment
or performance of any covenant or obligation contained herein or in any other
Loan Document, exceed the maximum amount permissible under applicable law. If
from any

                                       24
<PAGE>

circumstances whatsoever fulfillment of any provision hereof or of any other
Loan Document, at the time the performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by law, then, ipso facto,
                                                                    ---- -----
the obligation to be fulfilled shall be reduced to the limit of such validity.
If from any such circumstances the Bank shall ever receive anything of value
deemed interest under applicable law which would exceed interest at the highest
lawful rate, such excessive interest shall be applied to the reduction of the
principal amount owing hereunder, and not to the payment of interest, or if such
excessive interest exceeds any unpaid balance of principal, such excess shall be
refunded to the Borrowers. All sums paid or agreed to be paid to the Bank for
the use, forbearance or detention of monies shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full
term of such indebtedness until payment in full so that the rate of interest on
account of such indebtedness is uniform throughout the term thereof. This
Section 2.12 shall control every other provision of the Loan Documents and all
------------
other agreements between the Bank and the Borrowers contemplated thereby.

     2.13 Appointment of Agent. Each of the Borrowers (other than Matrix) hereby
          --------------------
designates and appoints Matrix as its sole and exclusive agent for the purposes
of requesting and receiving Advances under the Credit Facilities hereunder,
giving notices of Rate Elections or continuation or conversion notices
hereunder, submitting reports and certificates hereunder and making payments or
prepayments in accordance herewith.

3.   COLLATERAL. To secure the Indebtedness, including, without limitation, all
     ----------
Advances outstanding under the Revolving Credit Facility, the Term Loan, all
Reimbursement Obligations under outstanding Letters of Credit and any obligation
by any of the Borrowers owed to an affiliate of the Bank:

     3.1  SA Collateral. The Borrowers have and shall continue to grant and
          -------------
maintain, or cause to be granted and maintained, in favor of the Bank at all
times during the term of this Agreement and until the Indebtedness is paid and
satisfied in full, a valid and perfected first priority security interest in and
to the SA Collateral, free and clear of all other Liens. Toward that end, each
of the Borrowers has executed and delivered, or upon the request of the Bank
will execute and deliver, a Security Agreement, together with such UCC financing
statements as the Bank has deemed or will deem necessary or advisable.

     3.2  Reaffirmation and Execution of Security Agreements. By signing below,
          --------------------------------------------------
the Borrowers hereby ratify and reaffirm the Security Agreements and agree that
the Security Agreements shall continue in full force and effect in accordance
with their terms as security for payment and performance of all Indebtedness.
Any of the Borrowers which was not party to the Existing Credit Agreement shall
execute and deliver to the Bank a Security Agreement as security for payment and
performance of the Indebtedness. Any of the Borrowers which was a party to the
Existing Credit Agreement, but which has changed its corporate name since its
execution and delivery of a Security Agreement, shall fully cooperate with the
Bank in executing any amended financing statements to reflect the name change.
All references to the term "Indebtedness" contained in the Security Agreements
and other Loan Documents shall hereafter be deemed to include all liabilities,
obligations and indebtedness of the Borrowers to

                                       25
<PAGE>

the Bank arising out of or relating to this Agreement, the Notes, and any other
Loan Documents (including without limitation any documents relating to any Rate
Management Transaction) and shall also secure any amounts now or hereafter due
and payable by any of the Borrowers to the Bank or any Affiliate of the Bank.

     3.3  Mortgages. To secure the prompt and full repayment when due of the
          ---------
Indebtedness:

          3.3.1  Port Facility. Matrix shall grant and maintain in favor of the
                 -------------
     Bank at all times during the term of this Agreement and until all principal
     and interest on the Term Loan has been paid and satisfied in full, a valid
     and perfected first priority mortgage lien on and security interest in the
     Port Facility (it being understood that Matrix has only a leasehold
     interest, as a sublessee, in the land comprising the Port Facility). In
     order to provide the Bank with such mortgage lien and security interest,
     Matrix shall execute and deliver the Port Facility Mortgage to the Bank at
     the Closing. The Bank acknowledges that Matrix has suspended construction
     of the Project pending resolution of certain issues relating to the Port
     Lease.

          3.3.2  California Property. MSI shall grant and maintain in favor of
                 -------------------
     the Bank at all times during the term of this Agreement and until all
     principal and interest on the Term Loan has been paid and satisfied in
     full, a valid and perfected first priority mortgage lien on the California
     Property. In order to provide the Bank with such mortgage lien, MSI shall
     execute and deliver the California Mortgage to the Bank at the Closing.

          3.3.3  Additional Collateral. If Matrix fails to resume construction
                 ---------------------
     of the Project within 120 days following the Closing and if the "collateral
     value" assigned by the Bank to the Port Facility and the California
     Property is not sufficient to establish an 85% "loan to collateral value,"
     then within 30 days after the "as built" appraisal of the California
     Property is delivered to the Bank in accordance with the Real Estate
     Requirements, the Borrowers shall execute and deliver such additional
     Collateral Documents as may be necessary to grant the Bank valid and
     perfected first priority mortgage liens and/or security interests on other
     Properties acceptable to the Bank having a collateral value which, when
     added to the "collateral value" of the Port Facility and the California
     Property, is sufficient to establish an 85% "loan to collateral value." For
     purposes of this Section 3.3.3, (i) the "collateral value" of the Port
                      -------------
     Facility will be the value, if any, assigned by the Bank in its sole
     discretion to the improvements constructed by Matrix at the Port Facility
     (it being understood that the Bank may elect not to assign any value to
     such improvements), and the "collateral value" of the California Property
     will be the appraised value of the California Property (as reflected in the
     "as built" appraisal to be delivered pursuant to Section 4.4 hereof and
                                                      -----------
     accepted by the Bank), and (ii) the "loan to collateral value" will mean
     the ratio (expressed as a percentage) of the then outstanding principal
     balance of the Term Note to the collateral value of the Port Facility, the
     California Property and any other Properties in which the Bank is granted a
     Lien pursuant to this Section 3.3.3.
                           -------------

                                       26
<PAGE>

          3.3.4  Resumption of Project. If Matrix resumes construction of the
                 ---------------------
     Project within 120 days following the Closing and provides the Bank with
     adequate assurances that the Project will be completed in accordance with
     the original plans, the Bank agrees that it will then release the
     California Mortgage and file appropriate releases and termination
     statements in the applicable filing offices, at the sole cost of the
     Borrowers. If Matrix does not resume construction at the Port Facility, but
     instead (i) acquires an alternative location on which to proceed with
     construction of a project substantially similar to the Project, (ii)
     provides the Bank with a substitute mortgage on the alternative location,
     (iii) satisfies the Real Estate Requirements with respect to the
     alternative location, and (iv) furnishes the Bank with copies of the new
     construction plans and construction budget, all in form and substance
     satisfactory to the Bank, and if the appraised value of the alternative
     location (as reflected in the "as built" appraisal to be delivered pursuant
     to the Real Estate Requirements) as compared to the then outstanding
     principal balance of the Term Note is sufficient to establish an 85% loan
     to collateral value, then upon satisfaction of all of the foregoing
     conditions, the Bank agrees that it will release the California Mortgage
     and file appropriate releases and termination statements in the applicable
     filing offices, at the sole cost of the Borrowers.

          3.3.5  Release of Mortgages. Upon the repayment in full of the
                 --------------------
     principal amount of the Term Loan and all interest accrued thereon, and
     provided that no Default or Event of Default has occurred and is then
     continuing, the Bank will release the Port Facility Mortgage, the
     California Mortgage and any Collateral Documents which may have been
     delivered pursuant to Section 3.3.3 or Section 3.3.4 hereof and will file
                           -------------    -------------
     appropriate releases and termination statements in the applicable filing
     offices, at the sole cost of the Borrowers. Notwithstanding the foregoing,
     if any Event of Default should occur prior to the repayment in full of all
     principal and interest on the Term Loan, the Bank will be entitled to
     foreclose upon or otherwise enforce its rights and remedies under the Port
     Facility Mortgage, the California Mortgage and any Collateral Documents
     delivered pursuant to Section 3.3.3 and/or Section 3.3.4 hereof to the full
                           -------------        -------------
     extent of the outstanding Indebtedness, and nothing contained in this
     Section 3.3.5 shall be construed as limiting the amount of Indebtedness
     -------------
     secured by the Port Facility Mortgage, the California Mortgage or any other
     such Collateral Documents.

     3.4  Lockbox. The Borrowers have caused and shall continue to cause all
          -------
payments from account debtors to be remitted directly to a "lockbox" maintained
with the Bank or an affiliate of the Bank. Until further notice from the Bank,
all payments remitted to such lockbox will be deposited by the Bank into an
operating account maintained with the Bank by Matrix (subject to the Bank's
established policies on availability of uncollected funds). The Borrowers have
executed and delivered to the Bank the Lockbox Agreement.

     3.5  Collateral to be Provided Upon Default. If any Event of Default shall
          --------------------------------------
occur and remain unremedied within the applicable cure period, the Bank in its
sole discretion may require the Borrowers or any of them to pledge, mortgage or
otherwise grant the Bank a valid and enforceable first position Lien against all
of their Properties or so much thereof as the

                                       27
<PAGE>

Bank in its sole discretion shall determine necessary, and by execution of this
Agreement, the Borrowers agree to cooperate fully and promptly with the Bank and
its counsel in the execution and delivery of such Collateral Documents as may be
necessary to grant, convey and perfect such Liens.

     3.6  Further Assurances. In order to provide the Bank with and to perfect
          ------------------
the security interests required hereunder and to establish and maintain the
priority of such security interests, free and clear of all other Liens
whatsoever, each of the Borrowers has at its sole expense: (i) without any
request from the Bank, delivered or cause to be delivered to the Bank, in due
form for transfer, all Proceeds of Collateral consisting of promissory notes,
instruments, chattel paper, securities or the like, and all documents of title,
if any, at any time representing all or any portion of the Collateral; and (ii)
upon the request of the Bank, forthwith execute and deliver or cause to be
executed and delivered to the Bank, in due form for filing or recording, such
additional security agreements, instruments, agreements, assignments, financing
statements and other documents, and do such other acts and things with respect
to the Collateral, as the Bank may reasonably deem necessary or advisable.

4.   CONDITIONS OF LENDING
     ---------------------

     4.1  Closing. The Closing shall take place at the offices of the Bank in
          -------
Tulsa on September 26, 2001, at 10:00 a.m., or at such other place, date and/or
time as the parties shall agree.

     4.2  Conditions to Agreement. The obligation of the Bank to enter into and
          -----------------------
perform under this Agreement, to continue making Advances under the Revolving
Credit Facility and to make the Advance under the Term Loan is subject to the
Borrowers' satisfaction of the following conditions precedent at or as of the
Closing:

          (a) Loan Documents. This Agreement, the Revolving Note, the Term Note,
              --------------
     the Port Facility Mortgage, the California Mortgage, the Lockbox Agreement
     and any other Loan Documents contemplated by this Agreement shall have been
     duly and validly authorized, executed, acknowledged (where appropriate) and
     delivered to the Bank, all in form and substance satisfactory to the Bank.

          (b) Corporate Documents. With respect to each of the Borrowers, the
              -------------------
     Bank shall have received: (i) a true and correct copy of its Articles or
     Certificate of Incorporation, as amended; (ii) a true and correct copy of
     its Bylaws, as amended; (iii) a good standing certificate issued by the
     Secretary of State or equivalent public official of the state or
     jurisdiction of its incorporation, as to its due incorporation and good
     standing under the laws of such state or jurisdiction; and (iv) with
     respect to each Borrower not incorporated under the laws of the State of
     Oklahoma (other SLT and Coatings), a good standing certificate issued by
     the Oklahoma Secretary of State as to its due qualification and good
     standing as a foreign corporation under the laws of the State of Oklahoma.

                                       28
<PAGE>

          (c) Resolutions. With respect to each of the Borrowers, the Bank shall
              -----------
     have received a true and correct copy of the resolutions adopted by its
     Board of Directors duly authorizing the borrowings contemplated hereunder
     and the execution, delivery and performance of the Loan Documents to which
     it is a party.

          (d) Incumbency Certificates. With respect to each of the Borrowers,
              -----------------------
     the Bank shall have received a certificate executed by its duly elected and
     acting corporate secretary stating the names and titles and containing
     specimen signatures of the officers authorized to execute and deliver the
     Loan Documents to which it is a party.

          (e) Lien Searches. The Bank shall have received certified responses to
              -------------
     UCC lien search requests reflecting that there are no effective UCC
     financing statements on file in any filing office in the State of Oklahoma
     or any other states or jurisdictions in which any of the Borrowers is
     organized or maintains its principal place of business naming any of the
     Borrowers as debtor and covering the SA Collateral (or any portion thereof)
     or the Port Facility Equipment (or any portion thereof), other than (i)
     financing statements in favor of the Bank, and (ii) financing statements
     relating to Permitted Liens.

          (f) Insurance Policies. The Bank shall have received copies of such
              ------------------
     insurance policies, or binders or certificates of insurance, in form and
     substance satisfactory to the Bank, evidencing that the Borrowers have
     obtained and are maintaining the minimum insurance coverages required by
     this Agreement.

          (g) Real Estate Requirements.  The Borrowers shall have satisfied the
              ------------------------
     Real Estate Requirements with respect to the Port Facility, and the Bank
     shall have been provided with all of the documents listed in Schedule 1.2
                                                                  ------------
     attached hereto (other than the survey) with respect to the Port Facility.

          (h) Landlord Consent. The Bank shall have been provided with an
              ----------------
     acknowledgment and consent of the landlord under the Port Lease, in form
     and substance satisfactory to the Bank, providing, without limitation, that
     the landlord consents to the existence and enforcement of the Port Facility
     Mortgage.

          (i) Project Costs. The Borrowers shall have provided the Bank with a
              -------------
     preliminary cost estimate for the construction of the Project, itemizing
     the budgeted costs and expenses to be incurred in connection with the
     Project.

          (j) Other Matters. The Borrowers shall have provided the Bank with
              -------------
     such reports, information, financial statements, and other documents as the
     Bank has reasonably requested to evidence the Borrowers' compliance with
     the terms and conditions of this Agreement and the Loan Documents.

          (k)  Legal Matters. All legal matters incident to the Loan Documents
               -------------
     and the Credit Facilities shall be satisfactory to the Bank and its
     counsel.

                                       29
<PAGE>

     4.3  Conditions to Subsequent Advances Under Revolving Credit Facility.
          -----------------------------------------------------------------
The obligation of the Bank to make any Advance under the Revolving Credit
Facility is subject to the Borrowers' satisfaction of the following additional
conditions precedent:

          (a)  Disbursement Request. The Bank shall have received a properly
               --------------------
     completed and executed Disbursement Request in accordance with the
     provisions of Section 2.3.1 hereof.
                   -------------

          (b)  Borrowing Base. The making of such Advance shall not cause the
               --------------
     total outstanding principal balance of the Revolving Note, plus the total
     face amount of all outstanding Letters of Credit, to exceed the Revolving
     Commitment.

          (c)  Acquisition Information. With respect to any Advance to be used
               -----------------------
     to finance a corporate Acquisition by the Borrowers (or any one or more of
     them), (i) the Bank shall have been notified in writing of the proposed
     Acquisition, (ii) except as waived in writing by the Bank in connection
     with the Acquisition of a corporation which is incorporated or organized
     under the laws of a jurisdiction other than the United States, the
     corporation to be acquired shall have agreed to become a party to this
     Agreement and to become liable for the Indebtedness, and (iii) the
     corporation to be acquired shall have executed and delivered a Security
     Agreement and such other Loan Documents as the Bank deems necessary to
     grant in favor of the Bank a valid and perfected first priority security
     interest in and to its properties and assets to be included in the SA
     Collateral.

          (d)  Representations and Warranties. The representations and
               ------------------------------
     warranties set forth herein and in the other Loan Documents shall be true
     and accurate (except to the extent any representations or warranties as to
     the financial condition of the Borrowers relate solely to an earlier
     specified date).

          (e)  No Defaults. There shall not have occurred and be continuing any
               -----------
     Default or Event of Default.

          (f)  No Violation. The making of such Advance shall not cause the Bank
               ------------
     Bank to be in violation of any statute or regulation or any order or decree
     of any Governmental Authority.

     4.4  Additional Conditions Precedent if Port Facility Abandoned. Within 120
          ----------------------------------------------------------
120 days following the Closing, Matrix shall advise the Bank whether it intends
to proceed with construction of the Project at the Port Facility location. If
Matrix notifies the Bank that it has elected to abandon its plans to construct
the Project at the Port Facility, MSI shall satisfy the Real Estate Requirements
with respect to the California Property within 45 days after notifying the Bank
of such election. (If Matrix fails to notify the Bank within 120 days following
the Closing that it has elected to proceed with the Project at the Port
Facility, it will be presumed that Matrix has elected to abandon the Port
Facility.)

                                       30
<PAGE>

5.   REPRESENTATIONS AND WARRANTIES. In addition to the other representations
     ------------------------------
and warranties made herein, the Borrowers represent and warrant to the Bank that
the following statements are and will be true and correct at all times until the
Indebtedness is paid and satisfied in full:

     5.1  Existence. Each of the Borrowers is a corporation, duly organized,
          ---------
validly existing and in good standing under the laws of the state, province or
jurisdiction of its incorporation and is duly qualified to conduct business and
in good standing under the laws of all other states, provinces or jurisdictions
in which it does business. Each of the Borrowers is duly authorized, qualified
and licensed under all applicable laws, regulations, ordinances and orders of
public authorities to carry on its business as currently conducted and as
contemplated to be conducted, or, if not, such noncompliance does not create or
give rise to a Material Adverse Effect.

     5.2  Validity and Binding Nature. The Loan Documents to which each of the
          ---------------------------
Borrowers is a party constitute (or upon execution and delivery will constitute)
its valid and legally binding obligations, enforceable in accordance with their
respective terms (subject to any applicable bankruptcy, insolvency and similar
laws affecting the enforcement of creditors' rights generally and subject to
general principles of equity).

     5.3  Conflicting Agreements and Restrictions. None of the Borrowers is a
          ---------------------------------------
party to any contract or agreement or subject to any other restriction which has
or is likely to have a Material Adverse Effect. Neither the execution and
delivery by any of the Borrowers of the Loan Documents to which it is a party,
nor fulfillment or compliance with the terms and provisions thereof, will (i)
conflict with, or result in a breach of the terms, conditions or provisions of,
or constitute a default under, or result in any violation of any agreement,
instrument, undertaking, judgment, decree, order, writ, injunction, statute,
law, rule or regulation to which it is subject or by which its Properties are
bound which has or is likely to have a Material Adverse Effect, (ii) result in
the creation or imposition of any Lien on any Property now or hereafter owned by
it pursuant to the provisions of any mortgage, indenture, security agreement,
contract, undertaking or other agreement, except for Permitted Liens, or (iii)
require any authorization, consent, license, approval or authorization of or
other action by, or notice or declaration to, or registration with, any
Governmental Authority the failure of which would or would be likely to have a
Material Adverse Effect, or, to the extent that any such consent or other action
may be required, it has been validly procured or duly taken.

     5.4  Actions and Proceedings. There is no action or proceeding against or
          -----------------------
investigation of any of the Borrowers, pending or threatened, which questions
the validity of any of the Loan Documents or which is likely to have a Material
Adverse Effect.

     5.5  Financial Condition. The audited consolidated financial statements of
          -------------------
the Borrowers for the fiscal year ended May 31, 2001, copies of which have been
furnished to the Bank, are correct and complete and fairly present the
consolidated financial position of the Borrowers as of the dates thereof. Such
financial statements were prepared in conformity with

                                       31
<PAGE>

GAAP, and there has occurred no material adverse change in the financial
condition of any of the Borrowers from the effective dates of such financial
statements to the date hereof. None of the Borrowers has any contingent
obligations, unusual or long-term commitments, unrealized or anticipated losses
from any unfavorable commitment, or liabilities for taxes not reflected in such
financial statements or in the notes thereto which are in the aggregate
substantial in relation to the consolidated financial position of the Borrowers.

     5.6  Ownership of Properties; Liens. Each of the Borrowers has good and
          ------------------------------
marketable title to, or valid leasehold interests in, all of its Properties
owned or used in connection with the operation of its business, including,
without limitation, the Collateral, and none of such Properties is subject to
any Lien of any kind other than Permitted Liens.

     5.7  Permits. Each of the Borrowers has all Permits and has made all
          -------
governmental and regulatory filings, registrations and notifications (i) which
are presently necessary for it to carry on its business as now being conducted
or as contemplated to be conducted, (ii) which are presently necessary for it to
own and operate its Properties as now owned and operated, or (iii) which if not
obtained would have a Material Adverse Effect. All such Permits are or will be
valid and subsisting, and none of the Borrowers is or will be in material
violation of any such Permit.

     5.8  No Defaults. None of the Borrowers is in default of or in breach
          -----------
under any material contract, agreement or instrument to which it is a party or
by which it or any of its Properties may be bound.

     5.9  ERISA. None of the Borrowers has incurred any "accumulated funding
          -----
deficiency," as such term is defined in Section 302(a)(2) of ERISA, with respect
to any employee pension or other benefit plan or trust maintained by or related
to it, and none of the Borrowers has incurred any material liability to PBGC or
otherwise under ERISA in connection with any such plan. No reportable event
described in Sections 4042(a) or 4043(b) of ERISA has occurred.

     5.10 No Violation of Applicable Law. Each of the Borrowers is in
          ------------------------------
compliance in all material respects with all statutes, rules and regulations
relating to its business and operations in all states and jurisdictions where it
is currently doing business, including, without limitation, those relating to
occupational health and safety standards, equal employment practices, labor
relations and civil rights.

     5.11 Environmental Laws. Each of the Borrowers is using its best efforts
          ------------------
to comply in all material respects with all Environmental Laws in all
jurisdictions in which it is presently doing business. Except as disclosed on
Schedule 5.11, attached hereto, the Borrowers are not aware of (i) any violation
-------------
of any Environmental Law which has or is likely to have a Material Adverse
Effect, (ii) any release or discharge of Hazardous Substances on any of their
Properties (now owned or hereafter acquired), including, without limitation, any
Mortgaged Properties, or (iii) any evidence of the presence of Hazardous
Substances or similar contamination which requires clean-up or remediation under
any Environmental Law.

                                       32
<PAGE>

      5.12 Taxes. To the fullest extent required to avoid a Material Adverse
          -----
Effect, each of the Borrowers has filed all federal, state and provincial tax
returns and all local, county and foreign tax returns required by law to be
filed, and has paid all taxes, assessments and similar charges shown to be due
and payable on said returns, to the extent that such taxes and assessments have
become due, except those being diligently contested by appropriate legal
proceedings, in good faith, and against which adequate reserves have been
established in conformity with GAAP. At the date of this Agreement, no
extensions of time are in effect for assessments of deficiencies for federal
income taxes of any of the Borrowers.

     5.13 Compliance with FRB Regulations. No part of any Advance will be
          -------------------------------
used, and no part of any loan repaid or to be repaid with the proceeds of any
Advance was or will be used, directly or indirectly, for the purpose of either
(a) purchasing or carrying any margin security or margin stock within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
("FRB"), or (b) to purchase ineligible securities, as defined by applicable FRB
regulations, underwritten by the Bank or any Affiliate of the Bank during the
underwriting period and for 30 days thereafter. The Properties of the Borrowers
do not include any margin securities or margin stock, and none of the Borrowers
has any present intention of acquiring any margin securities or margin stock.

     5.14 Investment Company Act; Public Utility Holding Company Act. None of
          ----------------------------------------------------------
the Borrowers is (i) an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or (ii) a "holding company", a "subsidiary company" thereof or an
"affiliate" of a "holding company" or of such a "subsidiary company", each
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.

     5.15 Common Enterprise. The Borrowers are engaged in the business of
          -----------------
providing specialized on-site maintenance and construction services for
petrochemical processing and petroleum refining and storage facilities. Such
operations require financing on an integrated basis. Each of the Borrowers will
derive benefits from the Advances, both in its individual capacity and as a
member of the integrated group, since the successful operation and condition of
each is dependent on the continued successful performance of the integrated
group as a whole. Each of the Borrowers is solvent and after giving effect to
each Advance will be solvent.

     5.16 Survival of Representations. All representations and warranties made
          ---------------------------
herein or in any other Loan Documents shall survive the delivery of the Notes
and the making of any Advances, and any investigation at any time made by or on
behalf of the Bank shall not diminish its right to rely thereon. All statements
contained in any certificate or other instrument delivered by or on behalf of
the Borrowers under or pursuant to this Agreement or any other Loan Documents or
in connection with the transactions contemplated hereby or thereby shall
constitute representations and warranties made hereunder.

                                       33
<PAGE>

6.   AFFIRMATIVE COVENANTS. Until the Indebtedness has been paid in full and
     ---------------------
all of the Bank's obligations hereunder have been terminated, the Borrowers
agree to perform or cause to be performed the following, unless the Bank shall
otherwise consent in writing:

     6.1  Financial Statements and Other Reports.
          --------------------------------------

          (a)  Annual Financial Statements and Reports. Within 120 days after
               ---------------------------------------
     the end of each fiscal year, the Borrowers will furnish to the Bank a copy
     of the Borrowers' audited balance sheet as of the end of such year and
     audited statements of income, retained earnings, stockholders' equity and
     cash flows for such fiscal year, each prepared in conformity with GAAP on a
     consolidated basis and setting forth in each case, in comparative form,
     corresponding figures from the preceding fiscal year, all in reasonable
     detail and satisfactory in scope to the Bank. Such financial statements
     shall be duly certified by independent certified public accountants of
     recognized standing selected by the Borrowers and acceptable to the Bank.

          (b)  Quarterly Financial Reports and Reports. Within 45 days after
               ---------------------------------------
     the end of the first three fiscal quarters and 90 days after the end of the
     fourth fiscal quarter, the Borrowers will furnish to the Bank a copy of the
     Borrowers' unaudited interim consolidated and consolidating financial
     statements, prepared in conformity with GAAP (except for normal accounting
     adjustments) and presented in a manner consistent with the audited
     financial statements required under Section 6.1(a) hereof and certified
                                         --------------
     (subject to normal year-end adjustments) as to fairness of presentation,
     compliance with GAAP and consistency by the chief executive officer or
     chief financial officer of Matrix.

          (c)  Other Reports. The Borrowers will furnish to the Bank (i) as
               -------------
     soon as practicable and in any event within 120 days after the end of each
     fiscal year, copies of the Annual Report of each of the Borrowers filed
     with the Securities and Exchange Commission, or any Governmental Authority
     succeeding to any or all of its functions, on Form 10-K (including any
     financial statements incorporated by reference therein) for such fiscal
     year, (ii) as soon as practicable and in any event within 45 days after the
     end of each fiscal quarter (other than the last fiscal quarter), copies of
     the Quarterly Report of each of the Borrowers filed with the Securities and
     Exchange Commission, or any Governmental Authority succeeding to any or all
     of its functions, on Form 10-Q for such fiscal quarter, and (iii) promptly
     upon their becoming available, copies of all other regular and periodic
     reports including, without limitation, all periodic reports filed on Form
     8-K, proxy statements and other materials filed by the Borrowers with the
     Securities and Exchange Commission, or any Governmental Authority
     succeeding to any or all of its functions.

     6.2  Certificates and Reports. Within 45 days after the end of each fiscal
          ------------------------
quarter, the Borrowers will furnish to the Bank:

                                       34
<PAGE>

          (a)  Borrowing Base Certificate. A completed Borrowing Base
               --------------------------
     Certificate, prepared as of the end of such quarter and certified by the
     chief executive officer or chief financial officer of Matrix.

          (b)  Accounts Aging Report. A completed Accounts Aging Report,
               ---------------------
     prepared as of the end of such quarter and certified by the chief executive
     officer or chief financial officer of Matrix, setting forth (i) all
     Accounts of the Borrowers as of the end of such quarter, showing as to each
     account debtor (A) the total amount owing, (B) the current amount owing,
     and (C) the amounts past due (including the aging, from the initial invoice
     date, thereof), and (ii) upon request from time to time by the Bank, all
     accounts payable of the Borrowers as of the end of such quarter, showing as
     to each account payable the name of the vendor or supplier, number of days
     outstanding, and current balance.

          (c)  Compliance Certificate. A completed Compliance Certificate,
               ----------------------
     prepared as of the end of such quarter and certified by the chief executive
     officer or chief financial officer of Matrix, containing, in addition to
     the calculation of financial covenants, a computation of the Applicable
     LIBOR Rate Margin and the Applicable Prime Rate Margin as of the Margin
     Adjustment Date.

          (d)  Monthly Reporting. Notwithstanding the foregoing, if the
               -----------------
     aggregate principal (or face) amount of all Advances and Letters of Credit
     outstanding under the Revolving Credit Facility as of the last day of any
     calendar month exceeds $12,000,000, the Borrower shall furnish the Bank
     with Borrowing Base Certificates and Accounts Aging Reports on a monthly
     basis, within 30 days after the end of each calendar month, for so long as
     the usage of the Revolving Credit Facility exceeds $12,000,000.

     6.3  Other Reports and Notifications.
          -------------------------------

          (a)  Survey and Cost Breakdown. Within 20 days after completion of
               -------------------------
     the Project (if Matrix elects to proceeds with the Project), the Borrowers
     shall furnish to the Bank (i) a current "as-built" survey of the Port
     Facility meeting the requirements set forth in Paragraph 2 of the Real
     Estate Requirements, and (ii) an itemization of all the actual costs and
     expenses incurred in connection with the construction, installation and
     equipping of the Project and a comparison of the actual costs to the
     budgeted costs set forth in the construction budget delivered pursuant to
     Section 4.2(i) hereof.
     --------------

          (b)  Other Financial Information. Within 10 days after each request,
               ---------------------------
     the Borrowers will furnish the Bank with such other information concerning
     their respective businesses, operations and financial condition as may be
     reasonably requested from time to time by the Bank.

          (c)  Litigation. The Borrowers will promptly notify the Bank, but in
               ----------
     any event within seven days, after a Responsible Officer knows of any
     pending or

                                       35
<PAGE>

     threatened suit, action, investigation or administrative proceeding
     (exclusive of suits, actions or proceedings covered by workers compensation
     insurance) against or affecting any of the Borrowers or any of their
     Properties, including, without limitation, the Collateral, where the amount
     sued for (notwithstanding any insurance coverage therefor) is $500,000 or
     more.

          (d)  Notification of Liens. The Borrowers will promptly notify the
               ---------------------
     Bank, but in any event within seven days, after a Responsible Officer knows
     of the existence or asserted existence of any Lien on the Collateral or on
     any of its other assets and properties, excluding only Permitted Liens.

          (e)  Environmental Notices. The Borrowers will promptly notify the
               ---------------------
     Bank, but in any event within seven days, after a Responsible Officer knows
     of the existence or asserted existence of (i) any claimed violation of any
     Environmental Law which has or is likely to have a Material Adverse Effect,
     (ii) any release or discharge of Hazardous Substances on any Properties of
     the Borrower or its Subsidiaries, including, without limitation, any
     Mortgaged Properties, which is likely to require clean-up expenditures or
     remediation of more than $500,000, or (iii) any evidence of the presence of
     Hazardous Substances or similar contamination which is likely to require
     clean-up or remediation expenditures of more than $500,000 under applicable
     Environmental Laws.

          (f)  Events With Respect to ERISA. The Borrowers will promptly
               ----------------------------
     notify the Bank, but in any event within seven days, after a Responsible
     Officer knows that any reportable event described in Sections 4042(a) or
     4043(b) of ERISA has occurred with respect to any employee pension or other
     benefit plan or trust maintained by or related to the Borrowers or that
     PBGC has instituted or intends to institute proceedings under ERISA to
     terminate any such plan. Such notice shall contain (i) a certificate of a
     Responsible Officer setting forth details as to such event and the action
     which the Borrowers propose to take with respect thereto, and (ii) a copy
     of any notice delivered by PBGC evidencing its intent to institute such
     proceedings. The Borrowers will also furnish to the Bank (or cause each
     plan administrator to furnish to the Bank) the annual report for each plan
     covered by ERISA maintained by or related to the Borrowers as filed with
     the U.S. Secretary of Labor not later than 10 days after the receipt of a
     request from the Bank in writing for such report.

          (g)  Other Notifications. The Borrowers will promptly notify the Bank,
               -------------------
     but in any event within seven days after a Responsible Officer knows that
     any of the following has occurred: (i) a Default or an Event of Default;
     (ii) any change in the assets, liabilities, financial condition, business,
     operations, affairs or circumstances of the Borrowers which might have a
     Material Adverse Effect; (iii) any material change in the accounting
     practices and procedures of the Borrowers, including a change in fiscal
     year; (iv) any change in the principal place of business of any of the
     Borrowers; or (v) any merger, consolidation or corporate reorganization
     permitted under Section 7.3 hereof.
                     -----------

                                       36
<PAGE>

     6.4  Books and Records. Each of the Borrowers will maintain adequate and
          -----------------
accurate books and records of account in conformity with GAAP. The Bank will
have the right to examine and copy such books and records at its expense, and to
discuss the affairs, operations, finances and accounts with the Borrowers'
authorized officers, during business hours and upon reasonable notice.

     6.5  Field Audits. The Borrowers will (i) permit and assist the Bank,
          ------------
through its authorized representatives, to conduct periodic field audits of the
Borrowers and to review their operations, books and records, accounts receivable
methods and controls, and other matters relating to the value and maintenance of
the Collateral and the Borrowers' financial reporting, and (ii) afford any
authorized representative of the Bank with access to any Property owned by them,
during business hours and upon reasonable notice.

     6.6  Taxes; Other Liens. Each of the Borrowers will pay when due all taxes,
          ------------------
assessments, governmental charges or levies owing or payable by it, and will pay
when due all claims for labor, materials, supplies, rent and other obligations
which, if unpaid, might result in a Material Adverse Effect or might become a
Lien against the Collateral, except to the extent any of the foregoing are being
diligently contested in good faith by appropriate legal proceedings and against
which there are established adequate reserves in conformity with GAAP.

     6.7  Existence. Except as permitted in Section 7.3, each of the Borrowers
          ---------                         -----------
will maintain its corporate existence and will be duly qualified or licensed
(except where failure to remain so qualified or licensed does not, or is not
reasonably likely to, result in a Material Adverse Effect) to conduct business
and in good standing under the laws of each state, province or jurisdiction in
which it does business.

     6.8  Licenses and Permits. Each of the Borrowers will maintain all
          --------------------
Permits (i) which are necessary for it to carry on its business as now being
conducted or as contemplated to be conducted, (ii) which are necessary for it to
own and operate its Properties, or (iii) which, if not obtained, would have a
Material Adverse Effect; provided, however, the Bank acknowledges that in the
near future SLT, Coatings and MIC will no longer carry on their respective
businesses as now being conducted and as such may no longer be required to
maintain their respective Permits.

     6.9  Maintenance of Properties. Each of the Borrowers will maintain its
          -------------------------
Properties in good and workable condition, repair, and appearance, normal wear
and tear excepted; provided, however, the Bank acknowledges that in the near
future SLT, Coatings and MIC will no longer carry on their respective businesses
as now being conducted and as such may no longer own any Properties that would
require maintenance.

     6.10 Compliance with Laws. Each of the Borrowers will comply, to the
          --------------------
fullest extent required to prevent a Material Adverse Effect, with all statutes,
laws, rules or regulations to which it is subject or by which its Properties are
bound or affected, including, without

                                       37
<PAGE>

limitation, (i) Environmental Laws (ii) those pertaining to occupational health
and safety standards, (iii) those pertaining to equal employment practices,
labor relations and civil rights, and (iv) those pertaining to its business or
operations, except to the extent that any of the foregoing are being diligently
contested in good faith by appropriate legal proceedings and against which there
are established adequate reserves in conformity with GAAP.

     6.11 Further Assurances. Each of the Borrowers will upon request cure or
          ------------------
cause to be cured any defects or omissions in the execution and delivery of, or
the compliance with, the Loan Documents or the conditions described in Section 4
                                                                       ---------
hereof.

     6.12 Reimbursement of Expenses. The Borrowers will pay or reimburse the
          -------------------------
Bank, either at the Closing or within 10 days after the Bank presents a
statement therefor, for (i) all reasonable and customary out-of-pocket expenses
incurred by the Bank in connection with the negotiation and preparation of this
Agreement and the Loan Documents and the consummation of the transactions herein
contemplated, including, without limitation, travel expenses, filing fees,
recording costs, examinations of and certifications as to public records, and
attorneys' fees and expenses, (ii) all reasonable out-of-pocket expenses of the
Bank incurred in the performance of each periodic field audit conducted pursuant
to Section 6.5 hereof, (iii) all appraisal fees, environmental assessment fees,
   -----------
title insurance fees, survey costs and other expenses incurred in connection
with the California Property and the Port Facility, (iv) all reasonable and
customary out-of-pocket expenses incurred by the Bank in connection with the
administration of this Agreement and the Loan Documents, including, without
limitation, attorneys' fees and expenses incurred in connection with (A) any
amendment, modification, interpretation, termination, waiver or consent with
respect to this Agreement or the other Loan Documents, or (B) any action taken
by the Bank to protect or defend the Collateral, and (v) upon the occurrence of
any Event of Default, all amounts reasonably expended, advanced or incurred by
the Bank (A) after notice to the Borrowers, to satisfy any obligation of the
Borrowers under the Loan Documents, or (B) to collect upon the Notes or any
other obligations included in the Indebtedness, or (C) to enforce the rights of
the Bank under the Collateral Documents or to collect, foreclose, or otherwise
realize upon the Collateral, which amounts will include all court costs,
attorneys' fees, fees of auditors and accountants, and investigation expenses
reasonably incurred by the Bank in connection with any such matters. All of the
foregoing charges and expenses shall be considered Indebtedness for purposes of
this Agreement and if not paid when due shall thereafter bear interest at the
Prime Rate, plus 2%, until paid.

     6.13 Access. Upon reasonable request and at any reasonable time, each of
          ------
the Borrowers will permit any officer, employee or authorized representative of
the Bank to enter upon its premises and inspect the Collateral or any of its
other Properties.

     6.14 Insurance. The Borrowers will at all times maintain in full force and
          ---------
effect, with insurance companies satisfactory to the Bank, insurance policies in
amounts and against risks consistent with insurance coverage customarily or
typically maintained by similar businesses which are similarly situated. Without
limiting the foregoing, such insurance coverage: (i) will provide the Borrowers
with comprehensive general liability insurance against loss or damage

                                       38
<PAGE>

from hazards and risks to the person, rights and property of others in amounts
not less than $10,000,000 per occurrence, (ii) will name the Bank as an
additional named insured or loss-payee, as may be appropriate, and (iii) will
provide that no adverse alteration or cancellation thereof shall be effective as
against the Bank until 30 days after written notice of such alteration or
cancellation is given to the Bank. If requested, the Borrowers will furnish the
Bank with copies of all insurance policies in effect and evidence of premium
payment thereon. The Borrowers will not commit or suffer to be committed any act
whereby any insurance required hereunder will or may be suspended, impaired or
defeated, nor suffer or permit its Properties to be used in a manner not
permitted under any applicable insurance policy then in effect. The Borrowers
will notify the Bank within five (5) Business Days after making any change in
the insurance company or companies providing the insurance coverage required
hereunder.

     6.15 Environmental Compliance. Each of the Borrowers will operate and
          ------------------------
maintain its Properties and conduct its business and operations in compliance
with all applicable Environmental Laws to the fullest extent required to avoid a
Material Adverse Effect. Each of the Borrowers agrees to protect, indemnify and
hold harmless the Bank and its directors, officers, employees, and agents from
and against all loss, damage, cost, expense or liability (including attorney's
fees and costs) directly or indirectly arising out of or attributable to the
use, generation, manufacture, production, storage, release, threatened release,
discharge, disposal or presence of a Hazardous Substance on or about any of
their Properties. The obligation of the Borrowers to indemnify the Bank under
this Section 6.15 shall survive the repayment of the Indebtedness, the release
     ------------
of the Loan Documents or the release of any Lien.

7.   NEGATIVE COVENANTS. Until the Indebtedness has been paid in full and all
     ------------------
of the Bank's obligations hereunder have been terminated, the Borrowers will not
perform or permit to be performed any of the following acts, unless the Bank
shall otherwise consent in writing:

     7.1  Negative Pledge; Creation or Existence of Liens. None of the
          -----------------------------------------------
Borrowers will create, assume or suffer to exist any Lien on any of the
Properties (or any portion thereof) from time to time included in or comprising
the Collateral or any of its other Properties, except for (i) Permitted Liens
and and (ii) Liens which are in existence on the date hereof and which are
described on Schedule 7.1 attached hereto.
             ------------

     7.2  Sale of Assets. Except as to the sale of assets relating to SLT,
          --------------
Coatings or MIC, none of the Borrowers will sell, transfer, convey or otherwise
dispose of (or enter into any agreement to sell, transfer or otherwise dispose
of), whether pursuant to a single transaction or a series of transactions: (i)
the Collateral, or any portion thereof; or (ii) during any 12-month period, more
than five percent in value of its other Properties. Notwithstanding the
foregoing, (i) the Borrowers may sell their Inventory and collect their Accounts
in the ordinary course of business; and (ii) the Borrowers may sell Properties
not included in the Collateral if (A) such Properties are no longer used or
useful in their respective businesses, including, without limitation, the
Properties located at 4300 E. 36th St. North, Tulsa, Oklahoma, 10701 E. Ute,
Tulsa, Oklahoma, and 1045 Keystone Avenue, Tulsa, Oklahoma, (B) any such sale,
transfer or other disposition is for a price not less than the fair market value
of any such Properties and is

                                       39
<PAGE>

made pursuant to commercially reasonable terms and conditions, and (C) such
sales, transfers and dispositions do not create a Default or Event of Default
under any other provision of this Agreement.

     7.3  Mergers and Consolidations. Except as to mergers or consolidations of
          --------------------------
SLT, Coatings or MIC, none of the Borrowers will acquire, merge or consolidate
with any Person (or enter into any merger or consolidation agreement or plan),
or permit any such Acquisition, merger or consolidation with it, where the total
value of the consideration required to accomplish such Acquisitions, mergers or
consolidations (calculated in the aggregate for all Acquisitions, mergers or
consolidation occurring during the term of this Agreement) exceeds $5,000,000;
provided, however, that this Section 7.3 shall not prohibit one or more of the
--------  -------            -----------
Borrowers from merging or consolidating with each other or otherwise effecting
an internal corporate reorganization so long as the surviving or resulting
corporation(s) continues the respective businesses and operations of the
Borrowers and remains liable for the Indebtedness and compliance with the
provisions of this Agreement.

     7.4  Changes in Nature of Business. Except as permitted under Section 7.3
          -----------------------------                            -----------
hereof, and except as to changes in the nature of business conducted by SLT,
Coatings or MIC, none of the Borrowers will discontinue its business or enter
into any business or line of business which is not related to any business or
line of business currently conducted by the Borrowers.

     7.5  Dividends and Distributions. None of the Borrowers will: (i) declare,
          ---------------------------
make or pay any dividends on shares of any class of its capital stock, or set
apart any sum of money or any assets for the payment of dividends, or make any
other distribution, by reduction of capital or otherwise, in respect of any
class of its capital stock; (ii) purchase, redeem, retire, or otherwise acquire,
either directly or indirectly, any shares of any class of its capital stock, or
set apart any sum of money or any of its assets therefor, or (iii) make any
other type of payment or distribution of cash, property or assets to or among
any of its shareholders (in their capacities as shareholders). Notwithstanding
the foregoing, any Subsidiary of Matrix may declare and pay dividends to its
parent corporation, and further, Matrix may declare and pay dividends, redeem
shares of its capital stock and make other payments and distributions to its
shareholders so long as (A) no Default or Event of Default has occurred and is
continuing as of the date any such payment, redemption or other distribution is
to be made, and (B) the making of such payment, redemption or other distribution
would not create or give rise to a Default or Event of Default under any other
provision of this Agreement (including, without limitation, the financial
covenants set forth in Section 7.6 hereof).
                       -----------

     7.6  Financial Covenants.
          -------------------

          7.6.1  Consolidated Current Ratio. The Borrowers will not permit
                 --------------------------
     their Consolidated Current Ratio, calculated as of each Calculation Date,
     to be less than 1.50 to 1:00.

                                       40
<PAGE>

          7.6.2  Consolidated Debt to Tangible Net Worth Ratio. The Borrowers
                 ---------------------------------------------
     will not permit their Consolidated Debt to Tangible Net Worth Ratio,
     calculated as of each Calculation Date, to be more than 1.50 to 1.00.

          7.6.3  Consolidated Funded Debt to EBITDA Ratio. The Borrowers will
                 ----------------------------------------
     not permit their Consolidated Funded Debt to EBITDA Ratio, calculated as of
     each Calculation Date on a rolling four (4) quarter basis, to be greater
     than 2.5 to 1.0.

          7.6.4  Consolidated Debt Service Coverage Ratio. The Borrowers will
                 ----------------------------------------
     not permit their Consolidated Debt Service Coverage Ratio, calculated as of
     each Calculation Date for the four preceding fiscal quarters, to be less
     than 1.20 to 1.00.

8.   EVENTS OF DEFAULT. The occurrence of any of the following events or
     -----------------
existence of any of the following circumstances, unless waived in writing by the
Bank, shall constitute an "Event of Default":

     8.1  Nonpayment. If the Borrowers shall fail to pay any principal of or
          ----------
interest on any Note as and when such payment shall become due and payable
(whether at the stated maturity, upon a mandatory prepayment, or otherwise); or

     8.2  Nonpayment of Letter of Credit. If the Borrowers shall fail to provide
          ------------------------------
funds to the Bank sufficient to pay any draft presented on a Letter of Credit
within three days after such draft has been paid, unless an Advance shall have
been made under the Revolving Credit Facility upon the request of the Borrowers
in accordance with the terms of this Agreement; or

     8.3  Other Nonpayment. If the Borrowers shall fail to pay any other amount
          ----------------
due and payable to the Bank or any Affiliate of the Bank, under the terms of the
Loan Documents or otherwise, within five days after the date such payment shall
become due and payable; or

     8.4  Representations and Warranties. If any representation, statement,
          ------------------------------
certificate, schedule or report made or furnished to the Bank by or on behalf of
any of the Borrowers shall prove to have been false or erroneous in any material
respect as of the date on which such warranty or representation was made, or if
any warranty shall cease to be complied with in any material respect; or

     8.5  Breach of Covenants. If any of the Borrowers shall fail to perform or
          -------------------
observe any of the covenants or agreements contained in Section 6 of this
                                                        ---------
Agreement (other than Sections 6.3, 6.4, 6.5, 6.7, 6.11, 6.12, 6.13 and 6.15)
                      ------------------------------------------------------
and continuance thereof for 30 days after written notice thereof from the Bank,
or (ii) if the Borrowers shall fail to perform or observe any of the covenants
or agreements contained in Sections 6.3, 6.4, 6.5, 6.7, 6.11, 6.12, 6.13 or 6.15
                           -----------------------------------------------------
or in Section 7 of this Agreement; or
      ---------

     8.6  Other Breach of Covenants. If any of the Borrowers shall fail to
          -------------------------
perform or observe any covenants or agreements contained in any other Loan
Documents and continuance thereof beyond the expiration of any applicable grace
period expressly stated therein; or

                                      41
<PAGE>

     8.7  Insolvency. If any of the Borrowers shall (i) apply for or consent to
          ----------
the appointment of a custodian, receiver, trustee or liquidator for itself or
any of its Properties, (ii) admit in writing the inability to pay, or generally
fail to pay, its debts as they become due, (iii) make a general assignment for
the benefit of creditors, (iv) commence any proceeding relating to the
bankruptcy, reorganization, liquidation, receivership, conservatorship,
insolvency, readjustment of debt, dissolution or liquidation, or if corporate
action is taken for the purpose of effecting any of the foregoing, (v) suffer
any such appointment or commencement of a proceeding as described in clause (i)
or (iv) of this Section 8.7, which appointment or proceeding is not terminated
                -----------
or discharged within 60 days, or (vi) become insolvent; or

     8.8  Settlements/Judgments/Penalties. Except as to the matters set forth on
          -------------------------------
Schedule 8.8 hereof, if any of the Borrowers shall enter into any binding
------------
settlement or settlements or have entered against them by any court a final
judgment, judgments or penalties (including any settlement, judgment or penalty
against any such Borrower arising out of or relating to any violation of any
Environmental Law or release or discharge of any Hazardous Substance) for
amounts not covered by insurance for an aggregate amount in excess of
$1,000,000; or

     8.9  Default on Other Funded Debt. If any of the Borrowers shall fail to
          ----------------------------
pay any principal or interest on any Funded Debt owing to any Person other than
the Bank or an Affiliate of the Bank as and when the same shall become due and
payable and such default shall continue beyond the expiration of any applicable
grace period expressly provided, or if any default or event of default shall
occur under the terms of any agreement or other document which would entitle the
holder or holders thereof to accelerate the maturity thereof; or

     8.10 Breach of Other Agreements. If any of the Borrowers shall be in breach
          --------------------------
of or default under any material agreement with any Person and such breach or
default shall remain unremedied for a period of 10 days; or

     8.11 ERISA Non-Compliance. If any employee pension or other benefit plan or
          --------------------
trust maintained by or related to the Borrowers shall incur any "accumulated
funding deficiency," as such term is defined in Section 302(a)(2) of ERISA
(whether or not waived by the Internal Revenue Service), or a reportable event,
as such term is defined in Section 4043(b) of ERISA, shall occur with respect to
any such plan or trust as a result of which the Borrowers could be obligated to
make payments to PBGC aggregating in excess of five percent of their Tangible
Net Worth, or in connection with the termination of any such plan or trust the
Borrowers shall incur a liability to PBGC under Section 4062, 4063 or 4064 of
ERISA; or

     8.12 Change in Nature of Business. If any of the Borrowers shall
          ----------------------------
discontinue its business or make any material change in the nature of or manner
in which it conducts its business, except as permitted under Section 7.3 hereof;
                                                             -----------
or

     8.13 Permits. If any of the Borrowers shall fail to maintain, or if any
          -------
action, suit, proceeding or investigation shall be commenced seeking to cancel,
terminate or alter, any Permit (i) which is necessary for it to carry on its
business as now being conducted or as

                                      42
<PAGE>

contemplated to be conducted, (ii) which is necessary for it to own and operate
its Properties, or (iii) which if not obtained would have a Material Adverse
Effect; or

     8.14 Unenforceability of Loan Documents. If any Loan Document or any
          ----------------------------------
provision thereof shall for any reason cease to be a valid, binding and
enforceable obligation of any of the Borrowers, or if any of the Borrowers shall
so state in writing, or if any Collateral Document shall cease to create a
perfected, first priority security interest or mortgage lien in the Collateral
covered thereby (or intended to be covered thereby), or if any of the Borrowers
shall so state in writing; or

     8.15 Port Lease. If, after advising the Bank that it has elected to proceed
          ----------
with construction of the Project at the Port Facility, Matrix should default
under the terms of the Port Lease or receive notification from the City of
Tulsa-Rogers County Port Authority that the leasehold interest of Matrix under
the Port Lease is being terminated.

9.   REMEDIES
     --------

     9.1  Acceleration of Indebtedness. If any Event of Default specified in
          ----------------------------
Section 8.7 hereof shall occur, the obligations of the Bank hereunder (including
-----------
the Revolving Commitment) shall automatically be terminated and the Notes and
all other Indebtedness (including contingent Reimbursement Obligations under
outstanding Letters of Credit) shall become immediately due and payable, all
without notice or demand. If any other Event of Default shall occur, the Bank
may, at its option, without notice or demand, terminate its obligations
hereunder (including the Revolving Commitment) and declare the Notes and all
other Indebtedness (including contingent Reimbursement Obligations under
outstanding Letters of Credit) to be immediately due and payable, whereupon the
same shall become forthwith due and payable.

     9.2  Remedies. Upon the occurrence and during the continuation of any Event
          --------
of Default, the Bank shall be entitled to exercise all remedies available to it
under the Loan Documents or otherwise under applicable law.

     9.3  Cumulative Remedies. No failure on the part of the Bank to exercise,
          -------------------
and no delay in exercising, any right or remedy under the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise by the
Bank of any right thereunder preclude any other or further right or exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not alternative.

     9.4  Waiver of Default. The Bank may, by an instrument in writing, waive
          -----------------
any Default or Event of Default and any of the consequences of such Default or
Event of Default, but no such waiver shall extend to any subsequent or other
Default or Event of Default or impair any consequence of such subsequent or
other Default or Event of Default.

     9.5  Deposits; Setoff. Regardless of the adequacy of any collateral
          ----------------
security held by the Bank, any deposits or other sums credited by or due from
the Bank to any of the Borrowers

                                      43

<PAGE>

shall at all times constitute collateral security for the Indebtedness, and may
be set off against the Indebtedness and any and all liabilities, direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, of the Borrowers to the Bank. The rights granted by this
Section 9.5 shall be in addition to the rights of the Bank under any statutory
-----------
banker's lien or the common law right of set off. This Section 9.5 shall not
                                                       -----------
apply to any monies of which the Borrowers are not the beneficial owners,
regardless of the name in which the money is deposited, nor shall this Section
                                                                       -------
9.5 apply to any monies which the Borrowers are contractually obligated to spend
---
in whole or in part for the account of others, provided that the Borrowers shall
                                               --------
have established special accounts or given the Bank written notice that
particular funds are beneficially owned by others, are dedicated for particular
expenditures, or are subject to the Borrowers' contractual obligation to spend
for others. If the Borrowers fail to establish such special accounts and fail to
give such notice, the Bank may assume that funds on deposit to the account of
any of the Borrowers belong solely to the named depositor and are subject to
this Section 9.5.
     -----------

     9.6  Application of Payments. During the continuation of any Event of
          -----------------------
Default, all payments received by the Bank in respect of the Indebtedness,
whether from the Borrowers, recoveries upon any portion of the Collateral or
otherwise, may be applied by the Bank to any liabilities, obligations or
indebtedness included in the Indebtedness selected by the Bank in its sole and
exclusive discretion.

10.  GENERAL PROVISIONS. It is further agreed as follows:
     ------------------

     10.1 Participating Lender. The Borrowers understand that although the Notes
          --------------------
and other Loan Documents name the Bank as the holder thereof, the Bank may from
time to time sell one or more participation interests in the Notes to one or
more other financial institutions. The Borrowers agree that, subject to the
terms of the agreements of participation, each participating lender will be
entitled to rely on the terms of this Agreement and the other Loan Documents as
fully as if such participating lender had been named as the holder of the
applicable Note and the other Loan Documents.

     10.2 Hold Harmless. Except for a successful claim against the Bank by the
          -------------
Borrowers, the Borrowers will indemnify and hold the Bank and each participant
in any of the Notes harmless from all liability, loss, damages or expense,
including reasonable attorney's fees, that the Bank or any such participant may
incur in good faith as a result of entering into the Loan Documents or
establishing the Credit Facilities, or in compliance with or in the enforcement
of the terms of the Loan Documents.

     10.3 Notices. All notices, requests and demands required or authorized
          -------
hereunder (other than Disbursement Requests) shall be served in person,
delivered by certified mail, return receipt requested, or transmitted by
telefacsimile, addressed as follows:

                                      44
<PAGE>

          Any Borrower:  -    c/o Matrix Service Company
                              10701 East Ute Street
                              Tulsa, Oklahoma 74116-1517
                              Attn: Michael J. Hall, Vice President of Finance
                              and Chief Financial Officer
                              Fax: (918) 838-8810

          The Bank:      -    Bank One, Oklahoma, N.A.
                              15 E. Fifth Street
                              Tulsa, Oklahoma 74103
                              Attn: David G. Page, First Vice President
                              Fax: (918) 586-5474

     or at such other address as any party hereto shall designate for such
     purpose in a written notice to the other party hereto. Each of the
     Borrowers (other than Matrix) expressly agrees that any notice given
     hereunder to Matrix shall also constitute effective notice to each of them.
     Notices served in person shall be effective and deemed given when
     delivered, notices sent by certified mail shall be effective and deemed
     given three (3) Business Days after being deposited in the U.S. mail,
     postage prepaid, and notices transmitted by telefacsimile will be deemed
     given when sent, as indicated by the sender's written confirmation of
     transmission.

     10.4 Construction; Applicable Law. This Agreement and all other Loan
          ----------------------------
Documents have been delivered to and accepted by the Bank in the State of
Oklahoma, are to be performed in the State of Oklahoma and shall be deemed
contracts made under the laws of the State of Oklahoma, and all rights and
Indebtedness hereunder, including matters of construction, validity and
performance, shall be governed by the laws of the State of Oklahoma. Nothing in
this Agreement shall be construed to constitute the Bank as a joint venturer
with the Borrowers or to constitute a partnership. The descriptive headings of
the Sections of this Agreement are for convenience only and shall not be used in
the construction of the content of this Agreement.

     10.5 Binding Effect. This Agreement and the other Loan Documents shall be
          --------------
binding on, and shall inure to the benefit of, the parties hereto and their
respective successors and assigns, provided that without the prior, written
                                   --------
consent of the Bank, the Borrowers will not assign or transfer any of their
interest, rights or obligations arising out of or relating to the Loan
Documents.

     10.6 Exhibits and Schedules. Exhibits and Schedules attached to this
          ----------------------
Agreement and the Existing Credit Agreement, as applicable, are incorporated
herein for all purposes and shall be considered a part of this Agreement.

     10.7 Entire Agreement; Conflicting Provisions. This Agreement constitutes
          ----------------------------------------
the entire agreement of the parties hereto with respect to the Credit
Facilities, and all matters arising out of or related thereto. In the event of
any direct conflict between or among the provisions of this

                                      45

<PAGE>

Agreement and the provisions of any other Loan Documents, the provisions of this
Agreement shall control.

     10.8  Waivers. No act, delay, omission or course of dealing between or
           -------
among the parties hereto will constitute a waiver of their respective rights or
remedies under this Agreement or the other Loan Documents. No waiver, change,
modification or discharge of any of the rights and duties of the parties hereto
will be effective unless contained in a written instrument signed by the party
sought to be bound.

     10.9  WAIVER OF JURY. THE BORROWERS AND THE BANK (BY ITS ACCEPTANCE HEREOF)
           --------------
FULLY, VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT
TO A TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN ANY DISPUTE, ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED (OR WHICH MAY IN THE FUTURE BE DELIVERED) IN CONNECTION
HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AGREEMENT, THE NOTES, ANY COLLATERAL DOCUMENTS AND/OR ANY OTHER LOAN
DOCUMENTS, THE BORROWERS AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY. THIS PROVISION IS A MATERIAL INDUCEMENT TO
THE BANK TO PROVIDE THE FINANCING AND COMMITMENT DESCRIBED HEREIN OR IN THE
OTHER LOAN DOCUMENTS.

     10.10 Jurisdiction and Venue. All actions or proceedings with respect to
           ----------------------
this Agreement or any of the other Loan Documents may be instituted in any state
or federal court sitting in Tulsa, Oklahoma, as the Bank may elect, and by
execution and delivery of this Agreement, the Borrowers irrevocably and
unconditionally (i) submit to the non-exclusive jurisdiction (both subject
matter and person) of each such court, and (ii) waive (A) any objection that the
Borrowers may now or hereafter have to the laying of venue in any of such
courts, and (B) any claim that any action or proceeding brought in any such
court has been brought in an inconvenient forum.

     10.11 Counterpart Execution. This Agreement may be executed in any number
           ---------------------
of counterparts, all of which taken together shall constitute one and the same
instrument. This Agreement shall be binding only when a counterpart hereof has
been executed by an authorized officer or representative of the Bank at its
principal office in Tulsa, Oklahoma.

                                      46
<PAGE>

       IN WITNESS WHEREOF, the Borrowers and the Bank have caused this Agreement
to be duly executed in multiple counterparts, each of which shall be considered
an original, effective the date and year first above written.

                         MATRIX SERVICE COMPANY
                         MATRIX SERVICE, INC.
                         MIDWEST INDUSTRIAL CONTRACTORS, INC.
                         MATRIX SERVICE MID-CONTINENT, INC.
                         SAN LUIS TANK PIPING CONSTRUCTION CO., INC.
                         MATRIX COATINGS, INC. (f/k/a West Coast Industrial
                            Coatings, Inc.)
                         MATRIX SERVICE, INC. (CANADA)

                         By: ______________________________________________
                         Name: Michael J. Hall
                         Title: Vice President of each of the foregoing

                         BANK ONE, OKLAHOMA, N.A.

                         By: ______________________________________________
                         Name: David G. Page
                         Title: First Vice President

                                      47
<PAGE>

                                 SCHEDULE 1.2
                          (Real Estate Requirements)

With respect to the Port Facility (or any replacement Property on which the
Project is to be constructed), the California Property, or any other Mortgaged
Property in which the Bank is to be granted a mortgage lien pursuant to the
Credit Agreement, the following items shall be provided to the Bank:

1.   A recent "as built" appraisal of such Mortgaged Property conducted by an
     independent appraiser selected by the Bank and conforming to the appraisal
     standards promulgated by the Comptroller of the Currency under FIRREA.

2.   A current ALTA/ASCM pin survey of such Mortgaged Property, certified to the
     Bank and prepared by a licensed civil engineer or surveyor satisfactory to
     the Bank, which (A) includes a legal description identical to the legal
     description identified in the title insurance commitment referred to in
     Paragraph 3 below) for such Mortgaged Property; (B) locates all property
     corners by "pin," (C) locates the perimeter of such Mortgaged Property; (D)
     locates any improvements (e.g., water, gas, electric and sewer lines,
     walks, alleys, drives); (E) locates and identifies (by reference to book
     and page number and/or instrument of record) all easements, rights of way,
     setback lines and other matters affecting such Mortgaged Property and set
     forth in the title insurance commitment, (F) shows other physical matters
     affecting the title and use of such Mortgaged Property required by the Bank
     and the title insurance company issuing the title insurance commitment; and
     (G) otherwise is in form and substance satisfactory to the Bank.

3.   An original mortgagee's title insurance commitment in favor of the Bank,
     issued by a title insurer and agent satisfactory to the Bank, committing to
     issue an ALTA mortgagee's title insurance policy insuring the applicable
     Mortgage to be a first and prior lien on such Mortgaged Property and
     improvements described therein, containing only such exceptions which are
     acceptable to the Bank, and subject to the following additional
     requirements: (A) the insured amount must be satisfactory to the Bank; (B)
     the legal description must be identical with the description of such
     Mortgaged Property identified in the survey delivered pursuant to Paragraph
     2 above; (C) the legal description must show as separately insured parcels
     any off-premises easements that benefit such Mortgaged Property; (D) the
     title insurance commitment must list and identify by reference to book and
     page number all easements, rights of way and other instruments or matters
     affecting title to such Mortgaged Property or any off-premises easements
     that benefit such Mortgaged Property; (E) legible copies of all instruments
     affecting title to such Mortgaged Property must be submitted with the title
     insurance commitment; and (F) the "standard" exceptions regarding matters
     which a survey would disclose, mechanics' and materialmen' liens, and
     possessory interests must be deleted.

4.   Evidence satisfactory to the Bank that such Mortgaged Property is not
     located in an area designated by the Secretary of Housing and Urban
     Development as an area having special

<PAGE>

     flood or mudslide hazards, and that flood hazard insurance is not required
     for the credit to be extended under the Credit Agreement pursuant to the
     terms of any law, rule or regulation governing the Bank's activities.

5.   If requested by the Bank, evidence satisfactory to the Bank that such
     Mortgaged Property is zoned for its current use and is in full compliance
     with all municipal and private ordinances, codes, rules, regulations,
     restrictions and covenants.

6.   A favorable "Phase I" environmental assessment report covering such
     Mortgaged Property prepared by an environmental engineering firm acceptable
     to the Bank, in form and substance satisfactory to the Bank, and stating
     that (i) such Mortgaged Property is free of any Hazardous Substances, and
     (ii) that there has not been any release or discharge of any Hazardous
     Substances on, under or about such Mortgaged Property.

7.   An environmental indemnity of the Borrowers with respect to such Mortgaged
     Property, in form and substance satisfactory to the Bank.

                             Schedule 1.2 - Page 2
<PAGE>

                                SCHEDULE 3.3.1
                     (Legal Description of Port Facility)

           Legal Description of the Land Covered by the Ground Lease
           ---------------------------------------------------------

     A tract of land that is part of the Southeast Quarter (SE/4) of Section Six
     (6), part of the Northeast Quarter (NE/4) of Section Seven (7) and part of
     the Northwest Quarter (NW/4) of Section Eight (8), all in Township Twenty
     (20) North, Range Fifteen (15) East of the Indian Base and Meridian, Rogers
     County, Oklahoma, said tract of land being described as follows, to-wit:

     Starting at the Southeast corner of said Section 6; thence due West for
     1,268.58 feet; thence due South for 877.98 feet to the Point of Beginning
     of said tract of land; thence North 08(Degrees)23'24" East for 2,075.19
     feet; thence South 36(Degrees)59'43" East for 2,675.12 feet to a point of
     curve; thence Southeasterly along a curve to the right with a central angle
     of 22(Degrees)22'51" and a radius of 611.62 feet, for 238.91 feet; thence
     North 81(Degrees)36'36" West for 2,037.69 feet to the Point of Beginning of
     said tract of land, containing 49.995 acres.
<PAGE>

                                 SCHEDULE 7.1
                               (Existing Liens)
As of September 25, 2001:

Matrix Service Company issued a Letter of Credit to Mutual Indemnity in Bermuda
for approximately $2.4 million, and provided a Surety Bond for $2.1 million to
secure payments under a workers' compensation policy issued by Legion Insurance
Company.  Matrix also Company has a working capital escrow fund with Legion
Insurance of about $750,000 out of which payments are made.

Matrix has a $425,000 Surety Bond issued to the State of Washington to secure
payments under a Washington workers' compensation self-insurers permit.  No
known deposits are outstanding to secure payments.

No liens for "property taxes not yet due" have been filed against Matrix.
Matrix's property tax obligations are paid annually or semi-annual on prescribed
due dates.

No statutory liens against established reserves have been filed against Matrix.

Outstanding capital leases obligations:
             Property                          Lessor          Current Liability
             --------                          ------          -----------------
     1997 Dodge Ram 1500 Pick-up          Chrysler Financial       $ 7,880.95
     1997 Dodge Ram 1500 Pick-up          Chrysler Financial       $16,513.49
     1997 Dodge Ram 1500 Pick-up          Chrysler Financial       $16,449.60
     1997 Dodge Ram 1500 Pick-up          Chrysler Financial       $16,917.00
     1997 Dodge Ram 1500 Pick-up          Chrysler Financial       $14,867.42
                                                                   ----------
                                                             Total $72,628.46
                                                             =====

No known liens in favor of the Bank have been filed against Matrix.

Matrix has outstanding performance, payment and maintenance bonds in a total
amount of $25,890,249.

No known liens in respect to easements, rights-of-way, etc. have been filed
against Matrix in respect to any of the borrowers' property?

No known title defects "effect on the ownership, use, operation" exist against
Matrix.

No known liens to secure purchase money have been filed against Matrix.

No known rights are reserved to or vested in municipality, governmental or
regulate any of the borrowers' property.
<PAGE>

                                SCHEDULE 3.3.2
                  (Legal Description of California Property)

     Parcel 1 as shown on a map filed in Book 5, Page 23 of Parcel Maps in the
     Office of the County Recorder of Orange County, California

     Street Address:  500 West Collins Avenue, Orange, California 92867
<PAGE>

                                 SCHEDULE 5.11
                          (Environmental Disclosures)

1)   In connection with the Company's sale of Brown and affiliated entities in
     1999, an environmental assessment was conducted at Brown's Newnan, Georgia
     facilities. The assessment turned up a number of deficiencies relating to
     storm water permitting, air permitting and waste handling and disposal. An
     inspection of the facilities also showed friable asbestos that needed to be
     removed. In addition, Phase II soil testing indicated a number of VOC's,
     SVOC's and metals above the State of Georgia notification limits. Ground
     water testing also indicated a number of contaminants above the State of
     Georgia notification limits.

     In February 2001, the first of two properties in Newnan, Georgia was
     certified remediated by the State of Georgia. Final transfer of title to
     this property was completed in a transaction that resulted in Matrix
     receiving $0.5 million, the carrying value of property.

     Appropriate State of Georgia agencies have been notified of the findings
     and corrective and remedial actions have been completed, are currently
     underway, or plans for such actions have been submitted to the State of
     Georgia for approval on the remaining property. The current estimated total
     cost for cleanup and remediation is $1.9 million, $0.4 million of which
     remains accrued at May 31, 2001. Additional testing, however, could result
     in greater costs for cleanup and remediation than is currently accrued.

     Matrix closed or sold the business operations of its San Luis Tank Piping
     Construction Company, Inc. and West Coast Industrial Coatings, Inc.
     subsidiaries, which are located in California. Although Matrix does not own
     the land or building, it would be liable for any environmental exposure
     while operating at the facility, a period from June 1, 1991 to the present.
     At the present time, the environmental liability that could result from the
     testing is unknown, however, Matrix has purchased a pollution liability
     insurance policy with $5.0 million of coverage.

2)   On August 9, 2001, Matrix was informed that contaminated soil samples were
     identified on the property of one of its customers (site: Selby Property)
     as a result of the operations performed by Matrix Service Company. The
     estimated cost for testing, site remediation, and any additional follow-up
     actions that may be experienced by Matrix is estimated at $34,835.
<PAGE>

                                 SCHEDULE 8.8
                       (Settlements/Judgments/Penalties)

                                     NONE
<PAGE>

RECORDING REQUESTED BY:                  FOR RECORDER'S USE ONLY:
     Crowe & Dunlevy
     500 Kennedy Building
     321 S. Boston Avenue
     Tulsa, Oklahoma 74103

WHEN RECORDED, MAIL TO:
     Crowe & Dunlevy
     500 Kennedy Building
     321 S. Boston Avenue
     Tulsa, Oklahoma 74103
     Attn: Gary L. Betow

________________________________________________________________________________

                   DEED OF TRUST (FEE), SECURITY AGREEMENT,
                    FINANCING STATEMENT AND FIXTURE FILING
                    --------------------------------------

     THIS DEED OF TRUST (FEE), SECURITY AGREEMENT, FINANCING STATEMENT AND
FIXTURE FILING ("Deed of Trust") is made this 26th day of September, 2001, by
MATRIX SERVICE, INC., an Oklahoma corporation ("Trustor"), to FIRST AMERICAN
TITLE INSURANCE COMPANY ("Trustee"), for the use and benefit of BANK ONE,
OKLAHOMA, N.A., a national banking association ("Beneficiary").

     1.   Deed of Trust. For good and valuable consideration, Trustor hereby
          -------------
irrevocably and unconditionally grants, transfers and assigns to Trustee, in
trust, with power of sale and right of reentry and possession, all that certain
real property located in the City of Orange, County of Orange County, State of
California, and more particularly described in Exhibit A attached hereto and
incorporated herein (the "Land"), together with all right, title and interest of
Trustor in all buildings and improvements now located or hereafter to be
constructed thereon and all materials intended for construction, reconstruction,
alteration and repair of such buildings and improvements (collectively, the
"Improvements");

          a.   TOGETHER with all right, title and interest of Trustor in the
appurtenances, privileges, easements, franchises, tenements and development
rights, including all minerals, oil, gas and other hydrocarbon substances
thereon or therein, air rights, water rights and any land lying in the streets,
roads or avenues, open or proposed, in front of or adjoining the Land and the
Improvements;

          b.   TOGETHER with all right, title and interest of Trustor in
fixtures and goods which are to become fixtures, and any additions to,
substitutions for, changes in or replacements of the whole or any part thereof
now or at any time hereafter affixed to or attached to the Land and/or the
Improvements or any portion thereof (collectively, the "Fixtures");

          c.   TOGETHER with all right, title and interest of Trustor to all
proceeds (including claims or demands thereto) from the conversion, voluntary or
involuntary, or any of
<PAGE>

the Land, Improvements or Fixtures into cash or liquidated claims, including
proceeds of all present and future fire, hazard or casualty insurance policies
and all condemnation awards or payments in lieu thereof made by any public body
or decree by court of competent jurisdiction for taking or for degradation of
the value in any condemnation or eminent domain proceeding, and all causes of
action and the proceeds thereof of all types for any damage or injury to the
Land, Improvements or Fixtures or any part thereof, including causes of action
arising in tort or contract and causes of action for fraud or concealment of a
material fact (collectively "Proceeds").

          d.   IN ADDITION, Trustor absolutely and irrevocably assigns to
Beneficiary all right, title and interest of Trustor in and to all rents,
issues, proceeds, royalties and profits and all leases, rental agreements and
other contracts and agreements relating to the use and possession (collectively
"Leases and Rents" and individually, respectively, "Rents" and "Leases") of any
of the Land or Improvements, together with all guarantees thereof and all
deposits (to the full extent permitted by law) and other security therefor. (The
Land, Improvements, Fixtures, Proceeds and all other right, title and interest
of Trustor described above are hereinafter collectively referred to as the
"Property.")

     2.   Obligations Secured.
          -------------------

          a.   Trustor makes this grant, transfer and assignment of the Property
for the purpose of securing the prompt and punctual payment and performance of
the following liabilities, obligations and indebtedness (collectively, the
"Secured Obligations"):

               (i)  all liabilities, obligations and indebtedness (including
principal, interest, fees and other charges) due and owing or to become due and
owing by Trustor, whether jointly, severally or jointly and severally, to
Beneficiary arising under or in connection with that certain Third Amended and
Restated Credit Agreement of even date herewith (the "Credit Agreement") by and
among Matrix Service Company, a Delaware corporation, Trustor and others as
borrowers and Beneficiary as lender, or any of the "Loan Documents" (as such
term is defined in the Credit Agreement and used hereinafter with the same
meaning) from time to time delivered thereunder, including, without limitation,
all principal, interest, liabilities, obligations and indebtedness from time to
time arising under or evidenced by (A) the "Revolving Note" referred to in the
Credit Agreement in the maximum principal amount of $20,000,000.00 (the same, as
amended, modified, increased or extended from time to time, together with any
promissory notes accepted in renewal, substitution or replacement thereof or
therefor, is hereinafter called the "Revolving Note"), (B) the "Term Note"
referred to in the Credit Agreement in the amount of $5,900,000.01 (the same, as
amended, modified, increased or extended from time to time, together with any
promissory notes accepted in renewal, substitution or replacement thereof or
therefor, is hereinafter called the "Term Note"), and (C) any "Acquisition Note"
from time to time delivered pursuant to the Credit Agreement (the same, as
amended, modified, increased or extended from time to time, together with any
promissory notes accepted in renewal, substitution or replacement thereof or
therefor, are hereinafter collectively called the "Acquisition Notes"; the
Revolving Note, the Term Note and any Acquisition Notes are hereinafter
collectively called the "Notes");
<PAGE>

               (ii)  all other currently existing liabilities, obligations and
indebtedness of Trustor to Beneficiary or any affiliate of Beneficiary,
including, without limitation, (A) all "Reimbursement Obligations" (as such term
is defined in the Credit Agreement), and (B) any and all obligations, contingent
or otherwise, of Trustor to Beneficiary arising under or in connection with any
"Rate Management Transactions" (as such term is defined in the Credit
Agreement);

               (iii) any sums which may hereafter be advanced by Beneficiary
under the terms hereof; and

               (iv)  any and all extensions and renewals of any of the
foregoing.

          b.   This Deed of Trust is also executed and delivered by Trustor to
secure Trustor's prompt and punctual performance and observance of and
compliance with all covenants, conditions and agreements contained herein.

          c.   If Trustor shall pay all of the Secured Obligations arising under
or evidenced by the Term Note in accordance with its terms and shall punctually
perform and comply with and observe all the covenants, conditions and agreements
contained herein, and if no Event of Default shall have occurred under the terms
of the Credit Agreement, then, and in that event only, this Deed of Trust shall
be and become null and void, and the Property shall be reconveyed of record in
accordance with Section 34 hereof, at the cost of Trustor.

          d.   All persons who may have or acquire an interest in the Property
shall be deemed to have notice of, and shall be bound by, the terms of the Loan
Documents and each of the Secured Obligations.

     3.   Assignment of Leases and Rents.
          ------------------------------

          a.   Neither the assignment of the Leases and Rents set forth above
nor any other provision of any of the Loan Documents shall impose upon
Beneficiary any duty to produce rents from the Property or cause Beneficiary to
be (i) a "mortgagee in possession" for any purpose, (ii) responsible for
performing any of the obligations of the lessor under any Lease or (iii)
responsible or liable for any waste by any lessees or any other parties, for any
dangerous or defective condition of the Property, for any negligence in the
management, upkeep, repair or control of the Property or for any other act or
omission by any other person. The foregoing assignment is an absolute assignment
and not an assignment for security only and Beneficiary's right to rents, issues
and profits is not contingent upon its possession of the Property.

          b.   Trustor irrevocably appoints Beneficiary as its true and lawful
attorney-in-fact, at the option of Beneficiary, at any time and from time to
time after revocation by Beneficiary of Trustor's authority to collect the
Rents, to demand, receive and enforce payment, to give receipts, releases and
satisfactions and to sue, in the name of Trustor or Beneficiary, for all such
Leases and Rents and apply the same to the Secured Obligations; provided,
however, Beneficiary confers upon Trustor the authority to collect and retain
the Rents as they become due and payable, subject, however, to the right of
Beneficiary to revoke said authority at any time
<PAGE>

after the occurrence of an "Event of Default," as hereafter defined, and without
taking possession of all or any part of the Property.

          c.   Except with Beneficiary's prior written consent (which consent
shall not be unreasonably withheld or delayed) or as otherwise permitted by any
provision of the Credit Agreement, Trustor shall not (i) enter into any Lease
after the date of this Deed of Trust (other than a contemplated Lease of
approximately one acre of the Land, the proposed terms of which have been
disclosed to the Beneficiary), (ii) execute any other assignment relating to any
of the Leases and Rents, (iii) terminate any Lease or in any manner release or
discharge the parties obligated thereunder (except as a result of a default by
tenant thereunder), (iv) accept any deposit or prepayment of rental in excess of
one (1) month in advance, or (v) consent to any material modification or
amendment to any Lease. Beneficiary at any time may require that all prepayments
and copies of all Leases be delivered to Beneficiary. Trustor shall (i) fulfill
or perform each covenant of each Lease to be fulfilled or performed by the
lessor thereunder, (ii) give prompt written notice to Beneficiary of any written
notice of Event of Default by the lessor or the lessee thereunder received by
Trustor, together with a complete copy of any such notice, and (iii) enforce the
performance or observance of each and every covenant and condition thereof by
the lessee thereunder to be performed or observed.

          d.   Trustor shall furnish to Beneficiary, within thirty (30) days
after a request by Beneficiary, a written statement containing the names of all
lessees of the Property, the terms of their respective Leases, the spaces
occupied and the rentals payable thereunder and a copy of each Lease.

          e.   All Leases shall provide for the subordination, in form and
substance satisfactory to Beneficiary, of such Leases to this Deed of Trust and
all extensions, renewals and modifications thereof. Beneficiary shall have the
option, subject to its reasonable discretion, to execute a nondisturbance and
attornment agreement with respect to any of the Leases which provide for such
subordination. In addition, each Lease shall provide that, in the event of the
enforcement by Trustee or Beneficiary of the remedies provided at law or by this
Deed of Trust, each lessee under a Lease shall, if requested by Beneficiary as a
result of such enforcement, automatically become the lessee of Beneficiary,
without any change in the terms or other provisions of the respective Lease;
provided, Beneficiary shall not be (i) bound by any payment of rent or other sum
more than one (1) month in advance, (ii) bound by any material amendment or
modification to the respective Lease made without the consent of Beneficiary,
(iii) liable for damages or any act or omission of any prior lessor or (iv)
subject to any offsets or defenses which such lessee might have against any
prior lessor.

     4.   Title. Trustor represents, warrants and covenants that Trustor is the
          -----
lawful owner of the Property subject only to the matters that have been approved
by Beneficiary in writing, with good right, full power and lawful authority to
mortgage and encumber the Property.

     5.   Taxes and Assessments. Trustor shall pay prior to delinquency all
          ---------------------
taxes, assessments, levies and charges imposed by any governmental or quasi-
public authority or utility company which are (or, if not paid, may become) a
lien upon or cause a loss in value of any interest in any of the Property. If,
after the date hereof, taxes, assessments, levies or charges shall
<PAGE>

be imposed or assessed by any governmental authority upon Beneficiary measured
by or based in whole or in part upon the amount of any outstanding Secured
Obligation or by reason of any payment made to Beneficiary hereunder or pursuant
to any Secured Obligation, then Trustor shall pay and discharge the same prior
to delinquency, provided that Beneficiary shall have notified Trustor thereof;
but Trustor shall have no obligation to pay or discharge taxes which are
measured by and imposed upon Beneficiary's net income. Trustor shall furnish
Beneficiary, within ten (10) days after the date such payments are due and
payable, official receipts of the appropriate authority or other proofs
satisfactory to Beneficiary evidencing the payment thereof.

     6.   Insurance. Trustor, at its sole cost and expense, shall obtain and
          ---------
keep in full force and effect the policies of insurance referenced in and/or
required by the terms of the Credit Agreement.

     7.   Insurance and Condemnation Proceeds. All awards of damages and all
          -----------------------------------
other compensation payable directly or indirectly by reason of a condemnation
for public or private use affecting any interest in any of the Property and all
proceeds of any insurance policies payable by reason of loss of or damage to any
part of the Property shall be governed by the terms of the Credit Agreement and
paid to Beneficiary. Trustor hereby waives all rights of a property owner under
the provisions of California Code of Civil Procedure (S) 1265.225(a), or any
successor statute, providing for the allocation of condemnation proceeds between
a property owner and a lienholder.

     8.   Liens and Encumbrances. Trustor shall not, directly or indirectly,
          ----------------------
create, suffer or permit to be created or to remain, and shall promptly
discharge, any deed of trust or other lien, encumbrance or charge on or security
interest in the Property or any portion thereof, whether such deed of trust,
lien, encumbrance, charge or security interest is senior to, upon a parity with
or junior to the lien of this Deed of Trust; and Trustor shall not suffer any
other matter whereby any of the interest of Beneficiary hereunder or in the
Property or in the lien hereof or any part of any of the foregoing may be
impaired.

     9.   Permitted Contest. Trustor shall have the right, at Trustor's expense
          -----------------
and in Trustor's name, to contest or object in good faith to any claim, demand,
levy or assessment filed against or asserted against the Property (other than in
respect of any indebtedness or contractual obligations of Trustor to Beneficiary
hereunder or under any of the other Loan Documents), by appropriate legal
proceedings which are not prejudicial to Beneficiary's rights (but the foregoing
shall not be deemed or construed as in any way relieving, modifying or providing
any extension of time with respect to Trustor's covenant to pay and comply with
any such claim, demand, levy or assessment) if (i) Trustor shall have
demonstrated to Beneficiary's satisfaction that such legal proceedings shall
conclusively operate to prevent enforcement prior to final determination of any
such proceedings and (ii) Trustor shall have furnished such bond, surety,
undertaking or other security in connection therewith as is requested by and
satisfactory to Beneficiary. In the event that, by non-payment of any such
items, the security afforded pursuant to this Deed of Trust is endangered or the
Property or any part thereof is subject to imminent loss or forfeiture, such
taxes, assessment or charges shall be immediately paid. Trustor shall indemnify
and save Beneficiary harmless against any liability, costs or expense of any
kind that may be imposed in connection with any such contest and any resulting
loss.
<PAGE>

     10.  Impound Account. "Costs," as used in this section, means taxes, bond
          ---------------
installments, assessments, levies, insurance premiums. At any time after the
occurrence and during the continuance of an "Event of Default" (as hereinafter
defined), and upon Beneficiary's demand, each time a payment is due under the
Notes, Trustor shall pay to Beneficiary an additional amount ("Payment")
estimated by Beneficiary to be equal to the total of the amount next due for all
Costs, divided by, in each instance, the number of payments required under the
Notes before that Cost will become due, less one. Beneficiary shall use these
amounts for, or at Beneficiary's sole option, Beneficiary may release these
amounts to Trustor for, payment of the Costs. Beneficiary shall maintain an
account showing all Payments received and all Costs paid by Beneficiary and/or
amounts released to Trustor and shall give Trustor reports on the account as
required by law, but not less than annually. Beneficiary, at its sole option,
may refund any amount in the account which exceeds the amount due or may
continue to hold the excess and reduce proportionately the Payments for the next
year. Trustor grants Beneficiary a security interest in the account to secure
payment and performance of the Secured Obligations. Beneficiary, at its sole
option, may apply all or any part of the account to payment or performance of
any Secured Obligation to the extent permitted by law. The existence of the
account shall not limit Beneficiary's rights under any other provision of this
Deed of Trust or any other agreement or statute or rule of law. Trustor shall
not receive interest on the account except to the extent and in the amount
required by law. The relationship between Beneficiary and Trustor with respect
to the account shall be one of debtor-creditor; and Beneficiary shall not be a
trustee, special depository or any other fiduciary acting for the benefit of
Trustor.

     11.  Maintenance and Preservation of the Property. Trustor covenants:
          --------------------------------------------

          a.   To keep the Property in good condition and repair and to complete
in accordance with the Loan Documents the improvements now or at any time in
process of erection or installation;

          b.   Not to remove or demolish any of the Improvements without
Beneficiary's prior written consent;

          c.   Not to make any capital improvements in or to any of the
Improvements, other than (i) current construction projects and (ii) repairs and
maintenance which enhance or preserve the value of the Improvements;

          d.   To complete or restore promptly and in good and workmanlike
manner any of the Property which may be damaged or destroyed or which may be
affected by any condemnation or eminent domain proceeding;

          e.   Not to violate any, and to comply with all, (i) laws, ordinances,
regulations and standards, (ii) covenants, conditions, restrictions and
equitable servitudes, whether public or private, of every kind and character,
and (iii) requirements of insurance companies for insurability, which laws,
covenants or requirements affect any of the Property or pertain to acts
committed or conditions existing thereon;
<PAGE>

          f.   Not to initiate or acquiesce in any change in any zoning or other
land use or legal classification which affects any of the Property without
Beneficiary's prior written consent;

          g.   To use the Property (other than any portion leased to others) for
purposes related to the core businesses now conducted by Trustor and its
affiliates;

          h.   Not to commit or permit waste of the Property or to conduct or
permit any nuisance thereon;

          i.   To do all other acts which from the character or use of the
Property may be reasonably necessary to maintain and preserve its value as
security for the Secured Obligations;

          j.   To make no further assignment of Leases and Rents without
Beneficiary's prior written consent;

          k.   To pay when due all installments owing upon leases or conditional
sales or like agreements with respect to any Fixtures; and

          l.   Not to permit any of the Fixtures to be removed at any time from
the Property except in the ordinary course of business without the prior written
consent of Beneficiary unless actually replaced by articles of equal suitability
and value owned by Trustor free and clear of any liens, encumbrances, security
interests, ownership interests, claims of title (contingent or otherwise) or
charges of any kind except as may be approved in writing by Beneficiary.

     12.  Defense and Notice of Losses, Claims and Actions. Trustor shall
          ------------------------------------------------
protect, preserve and defend the Property and title to and right of possession
of the Property, the security hereof and the rights and powers of Beneficiary
hereunder at Trustor's sole expense against all adverse claims. Trustor shall
give Beneficiary prompt notice in writing of the assertion of any claim, of the
filing of any action or proceeding, of the occurrence of any damage to any of
the Property, of any condemnation offer or action and of any other Event of
Default.

     13.  Inspection. Beneficiary, its agents and employees may enter the
          ----------
Property at any reasonable time with prior reasonable notice for the purpose of
inspecting the Property and ascertaining Trustor's compliance with the terms of
the Loan Documents.

     14.  Exculpation. Beneficiary shall not directly or indirectly be liable to
          -----------
Trustor or any other person as a consequence of (i) the exercise of the rights,
remedies or powers granted to Beneficiary under this Deed of Trust, (ii) the
failure or refusal of Beneficiary to perform or discharge any obligation or
liability of Trustor under any agreement related to the Property or under this
Deed of Trust or (iii) any loss sustained by Trustor or any third party
resulting from Beneficiary's failure to lease the Property after an Event of
Default or from any other act or omission of Beneficiary in managing the
Property after an Event of Default unless the loss is caused by the gross
negligence or willful misconduct of Beneficiary.
<PAGE>

     15.  General Indemnity. Trustor shall indemnify Beneficiary and
          -----------------
Beneficiary's officers, directors, shareholders, employees and agents against,
and shall hold it harmless from, all losses, damages, liabilities, claims,
causes of action, judgments, court costs, attorneys' fees and other legal
expenses, cost of evidence of title, cost of evidence of value, and other
expenses which Beneficiary may suffer or incur (i) by reason of this Deed of
Trust or any of the other Loan Documents, (ii) in performance of any act
required or permitted hereunder, under any of the other Loan Documents or by
law, (iii) as a result of any failure of Trustor to perform any of Trustor's
obligations or (iv) by reason of any alleged obligation or undertaking on
Beneficiary's part to perform or discharge any of the representations,
warranties, conditions, covenants, or other obligations contained in any other
document related to any of the Property.

     16.  Statement. Trustor shall, at any time and from time to time upon not
          ---------
less than ten (10) days prior written notice, execute, acknowledge and deliver
to Beneficiary a statement (i) certifying that this Deed of Trust and the other
Secured Obligations are unmodified and in full force and effect or, if modified,
stating the nature thereof and certifying that each Secured Obligation, as so
modified, is in full force and effect and the date to which principal, interest
and other sums secured hereby have been paid and (ii) acknowledging that there
are no uncured Events of Default under this Deed of Trust or any other Secured
Obligation or specifying such Events of Default if any are claimed. Any such
certificate may be conclusively relied upon by the party requesting it and any
prospective purchaser or assignee of any Secured Obligation. Trustor's failure
to deliver such certificate within such time shall be conclusive upon such party
that (A) the Secured Obligations are in full force and effect, without
modification, and (B) there are no uncured Events of Default hereunder.

     17.  Further Assurances. Trustor shall do, execute, acknowledge and
          ------------------
deliver, at the sole cost and expense of Trustor, all and every such further
acts, deeds, conveyances, mortgages, assignments, estoppel certificates, notices
of assignment, transfers and assurances as Beneficiary may reasonably require
from time to time in order to better assure, convey, assign, transfer and
confirm unto Beneficiary, the rights now or hereafter intended to be granted
Beneficiary under this Deed of Trust, and other instruments executed in
connection with this Deed of Trust, or any other instrument under which Trustor
may be or may hereafter become bound to convey, mortgage or assign to
Beneficiary for carrying out the intention of facilitating the performance of
the terms of this Deed of Trust.

     18.  Expenses and Fees. All reasonable expenses, costs and other
          -----------------
liabilities, including attorney's fees, which Beneficiary may incur (i) in
enforcing, defending, or construing this Deed of Trust (or its priority) or any
of the other Loan Documents, (ii) for any inspection, evaluation, appraisal,
survey or other service in connection with any of the Property, (iii) for any
title examination or title insurance policy relating to the title to any of the
Property or (iv) in the exercise by Beneficiary of any rights or remedies
granted by this Deed of Trust or any of the other Loan Documents shall be paid
upon demand by Trustor to Beneficiary, together with interest thereon, from the
date of expenditure until payment in full, at the Default Rate set forth in the
Credit Agreement following a default.
<PAGE>

     19.  Beneficiary's Powers. Beneficiary may commence, appear in, defend or
          --------------------
prosecute any assigned claim or action, and Beneficiary may adjust, compromise,
settle and collect all claims and awards assigned to Beneficiary, but shall not
be responsible for any failure to collect any claim or award regardless of the
cause of the failure. Without affecting the liability of any other person liable
for the payment of any obligation herein mentioned, and without affecting the
lien or charge of this Deed of Trust upon any portion of the Property not then
or theretofore released as security for the full amount of the Secured
Obligations, Beneficiary may, from time to time and without notice (i) release
any person so liable, (ii) extend the maturity or alter any of the terms of any
such obligation, (iii) grant other indulgences, (iv) release or reconvey, or
cause to be released or reconveyed, at any time and at Beneficiary's option, any
parcel, portion or all of the Property, (v) take or release any other or
additional security for any Secured Obligation or (vi) compromise or make other
arrangements with debtors in relation thereto.

     20.  Trustee's Powers. At any time, or from time to time, without liability
          ----------------
therefor and without notice, upon written request of Beneficiary and without
affecting the effect of this Deed of Trust upon the remainder of the Property,
Trustee may (i) reconvey any part of the Property, (ii) consent in writing to
the making of any map or plat thereof, (iii) join in granting any easement
thereon or (iv) join in any extension agreement or any agreement subordinating
the lien or charge hereof. The Grantee in any reconveyance may be described as
the "person or persons legally entitled thereto," and the recitals therein of
any matters or facts shall be conclusive proof of the truthfulness thereof.
Trustor agrees to pay a reasonable capital Trustee's fee for full or partial
reconveyance, together with a recording fee if the Trustee, at its option,
elects to record said reconveyance.

     21.  Security Agreement; Fixture Filing.
          ----------------------------------

          a.   Trustor hereby grants, assigns and transfers to Beneficiary a
security interest in and to that portion of the Improvements, Fixtures,
Proceeds, Leases and Rents constituting personal property and fixtures
(collectively, the "UCC Collateral"), and this Deed of Trust shall constitute a
security agreement pursuant to the California Uniform Commercial Code ("UCC")
with respect thereto. For purposes of treating this Deed of Trust as a security
agreement, Trustor shall be deemed to be the "Debtor" and Beneficiary the
"Secured Party."

          b.   Trustor represents that Trustor maintains a place of business in
the State of California at the address set forth in this Deed of Trust; and
Trustor will immediately notify Beneficiary in writing of any change in its
place of business.

          c.   In addition to Beneficiary's rights under the UCC, Beneficiary
may, but shall not be obligated to, at any time and at the expense of Trustor
(i) give notice to any person of Beneficiary's rights hereunder and enforce such
rights; (ii) insure, protect, defend and preserve the UCC Collateral and any
rights or interests of Beneficiary therein; and (iii) inspect the UCC
Collateral.

          d.   Upon the occurrence of any Event of Default, Beneficiary shall
have and may exercise all of the rights and remedies of a secured party under
the UCC. Without limiting the generality of the foregoing:
<PAGE>

               (i)   Beneficiary, at its option, may proceed as to both the real
and personal property covered by this Deed of Trust in accordance with its
rights and remedies in respect of said real property, in which event (i) the
other provisions of the UCC shall not apply to disposition of the UCC
Collateral, and (ii) the sale of the UCC Collateral in conjunction with and as
one parcel with said real estate shall be deemed to be a commercially reasonable
manner of sale; or

               (ii)  Beneficiary, at its option, may proceed as to the UCC
Collateral separately from said real property, in which event the requirement of
reasonable notice shall be met by mailing notice of the sale, postage prepaid,
to Trustor or any other person entitled thereto at least ten (10) days before
the time of the sale or other disposition of any of the UCC Collateral.

          e.   This Deed of Trust constitutes a financing statement filed as a
fixture filing under the UCC in the official records of the county in which the
Property is located with respect to any and all fixtures included within the
term "Property" and with respect to any goods or other personal property that
may now be or hereafter become such a fixture. PARTS OF THE UCC COLLATERAL ARE,
OR ARE TO BECOME, FIXTURES ON THE PROPERTY.

          f.   Beneficiary has no responsibility for, and does not assume any
of, Trustor's obligations or duties under any agreement or obligation relating
to the UCC Collateral or any obligation relating to the acquisition,
preparation, custody, use, enforcement or operation of any of the Property.

          g.   Trustor and Beneficiary agree that the filing of a financing
statement in the records normally having to do with personal property shall
never be construed as in any way derogating from or impairing this Deed of Trust
and the intention of the parties that everything used in connection with the
production of income from the Property or adapted for use therein or which is
described or reflected in this Deed of Trust is, and at all times and for all
purposes and in all proceedings both legal or equitable shall be regarded as,
part of the real estate subject to the lien hereof, irrespective of whether (i)
any such item is physically attached to improvements located on such real
property or (ii) any such item is referred to or reflected in any financing
statement so filed at any time. Similarly, the mention in any such financing
statement of (A) the rights in or the proceeds of any fire or hazard insurance
policy or (B) any award in eminent domain proceedings for taking or for loss of
value or for any cause of action or proceeds thereof in connection with any
damage or injury to the Property or any part thereof shall never be construed as
in any way altering any of the rights of Beneficiary as determined by this
instrument or impugning the priority of Beneficiary's lien granted hereby or by
any other recorded document, but such mention in such financing statement is
declared to be for the protection of Beneficiary in the event any court shall at
any time hold with respect to matters (A) and (B) above that notice of
Beneficiary's priority of interest, to be effective against a particular class
of persons, including, without limitation, the Federal government and any
subdivision or entity of the Federal government, must be filed in the personal
property records or other commercial code records.
<PAGE>

          h.   Trustor shall not permit any of the UCC Collateral to be removed
from the Improvements without the prior written consent of Beneficiary unless
(i) the replacements for such items are of equivalent value and quality and (ii)
Trustor has good and clear title to such replacements free and clear of any and
all liens, encumbrances, security interests, ownership interests, claims of
title (contingent or otherwise) or charges of any kind or the rights of any such
conditional sellers, vendors or any other third parties have been expressly
subordinated, at no cost to Beneficiary, to the lien and security interest
granted hereby in a manner satisfactory to Beneficiary.

          i.   It is understood and agreed that, in order to protect Beneficiary
from the effect of the provisions of the UCC relating to priorities of security
interests in Fixtures, in the event that (A) Trustor intends to purchase any
goods which may become Fixtures, and (B) such goods will be subject to a
security interest held by a seller or any other party, Trustor shall, before
executing any security agreement or other document evidencing such security
interest, obtain the prior written approval of Beneficiary, and all requests for
such written approval shall be in writing and contain the following information:

               (i)   A description of the Fixtures to be replaced, added to,
installed or substituted;

               (ii)  The address at which the Fixtures will be replaced, added
to, installed or substituted; and

               (iii) The name and address of the proposed holder and proposed
amount of the security interest;

and any failure of Trustor to obtain such approval shall be a material breach of
Trustor's covenants under this Deed of Trust, and shall, at the option of
Beneficiary, entitle Beneficiary to all rights and remedies provided for herein
upon default. No consent by Beneficiary pursuant to this section shall be deemed
to constitute an agreement to subordinate any right of Beneficiary in fixtures
or other property covered by this Deed of Trust.

     22.  Transfers. Neither Trustor nor any partner of Trustor (nor any partner
          ---------
of such partner) shall directly or indirectly sell, transfer, convey or further
pledge, encumber or hypothecate, whether voluntary, involuntary or by operation
of law, all or any part of the Property, any interest therein or any legal or
beneficial ownership interest in Trustor or in any partner of Trustor (nor in
any partner thereof) except in strict compliance with the terms and conditions
of the Credit Agreement.

     23.  Subordinate Deed of Trust. Trustor will not execute or deliver any
          -------------------------
pledge, security agreement, mortgage or deed of trust covering all or any
portion of the Property ("Subordinate Deed of Trust"). In the event the
foregoing prohibition is determined by a court of competent jurisdiction to be
unenforceable, Trustor will not execute or deliver any Subordinate Deed of Trust
unless there shall have been delivered to Beneficiary not less than ten (10)
days prior to the date thereof a copy thereof which shall contain express
covenants to the effect that:
<PAGE>

          a.   The Subordinate Deed of Trust is in all respects subject and
subordinate to this Deed of Trust.

          b.   If any action or proceeding shall be brought to foreclose the
Subordinate Deed of Trust (regardless of whether the same is a judicial
proceeding or pursuant to a power of sale contained therein), no lessee of any
Lease will be named as a party defendant, nor will any action be taken with
respect to the Property which would terminate any Lease without the consent of
Beneficiary.

          c.   The Rents, if collected through a receiver or by the holder of
the Subordinate Deed of Trust, shall be applied first to the Secured
Obligations, including principal and interest due and owing on or to become due
and owing on the Notes, and then to the payment of maintenance, operating
charges, taxes, assessments and disbursements incurred in connection with the
ownership, operation and maintenance of the Property.

          d.   If any action or proceeding shall be brought to foreclose the
Subordinate Deed of Trust, prompt notice of the commencement thereof will be
given to Beneficiary.

          e.   The holder of the Subordinate Deed of Trust shall not acquire by
subrogation, contract or otherwise any lien upon any other estate, right or
interest in the Property (including any lien which may arise in respect to real
estate taxes, assessments or other governmental charges) which is or may be
prior in right to this Deed of Trust or any extension, consolidation,
modification or supplement thereto unless within ninety (90) days following
written notice of such intention from the holder of the Subordinate Deed of
Trust the then holder of this Deed of Trust shall fail or refuse to purchase or
acquire by subrogation or otherwise such prior lien, estate, right or interest,
or shall fail within such period to commence and thereafter proceed diligently
to purchase or acquire the same.

          f.   The Subordinate Deed of Trust and the lien thereof shall be
expressly subject and subordinate to any and all advances hereunder, in whatever
amounts and whenever made, with interest thereon, and to any expenses, charges
and fees incurred thereby, including any and all of such advances, interest,
expenses, charges and fees which may increase the indebtedness secured by this
Deed of Trust above the original principal amount thereof.

          g.   The holder of the Subordinate Deed of Trust shall agree to assign
and release unto the holder of this Deed of Trust all of its right, title,
interest or claim, if any, in and to the proceeds of all policies of insurance
covering the Property and all awards or other compensation made for any taking
of any part of the Property for application in accordance with the provisions of
this Deed of Trust.

     24.  Events of Default. Each of the following events is an "Event of
          -----------------
Default" hereunder:

          a.   The occurrence of any "Event of Default" specified in the Credit
Agreement;
<PAGE>

          b.   Any breach or default of any covenant of this Deed of Trust which
Beneficiary does not cure within the "Applicable Cure Period," as defined below,
or in the event such Event of Default cannot reasonably be cured within such
time, which Trustor does not commence to cure within the Applicable Cure Period
and thereafter diligently and continuously proceed with such cure to completion
and complete the same within a period determined to be reasonable by
Beneficiary. As used herein, the Applicable Cure Period is, unless otherwise
specifically set forth in this Deed of Trust, the 30-day period commencing on
the date of the occurrence of the breach or default;

          c.   The condemnation, seizure or appropriation of, or the occurrence
of an uninsured casualty which was required by the terms of the Credit Agreement
to be insured with respect to, any material (as determined by Beneficiary)
portion of the Land or the Improvements;

          d.   The entry of any judgment or arbitration award against Trustor
which is not paid or stayed pending appeal, or the sequestration or attachment
of, or any levy or execution upon (i) any of the Property, (ii) any other
collateral provided by Trustor or any other person under any of the Loan
Documents, or (iii) any significant portion of the other assets of Trustor which
is not released, expunged or dismissed prior to the earlier of fifteen (15) days
after such sequestration, attachment or execution or fifteen (15) days before
the sale of any such assets; or

          e.   The enactment of any law which deducts from the value of the
Property for the purpose of taxation any lien thereon or imposes upon
Beneficiary the payment of the whole or any part of the taxes, assessments,
charges or liens herein required to be paid by Trustor or changing in any way
the laws relating to the taxation of deeds of trust or debts secured by deeds of
trust or Beneficiary's interest in the Land or the Improvements or the manner of
collection of taxes so as to adversely affect Beneficiary's interest under this
Deed of Trust or any other Secured Obligation or the holder thereof or imposing
a tax, other than a Federal or state income tax, on or payable by Trustee or
Beneficiary by reason of their ownership of the Secured Obligations and, in such
event, Trustor, after demand by Beneficiary, does not pay such taxes or
assessments or reimburse Beneficiary therefor or, in the opinion of counsel for
Beneficiary, it might be unlawful to require Trustor to make such payment or the
making of such payment might result in the imposition of interest costs beyond
the maximum amount permitted by applicable law.

     25.  Remedies. Upon the occurrence of any Event of Default, Beneficiary may
          --------
at any time, at its option and in its sole discretion, declare all Secured
Obligations to be due and payable and the same shall thereupon become
immediately due and payable; provided, if any provision in the Credit Agreement
or any other Loan Document provides for the automatic acceleration of the
indebtedness evidenced by the Notes upon the occurrence of any act or event,
such provision shall control and preempt any contrary provision herein.
Beneficiary may also do any or all of the following, although it shall have no
obligation to do any of the following:

          a.   Either in person or by agent, with or without bringing any action
or proceeding, or by a receiver appointed by a court and without regard to the
adequacy of Beneficiary's security, enter upon and take possession of the
Property, or any part thereof, and do any acts which Beneficiary deems necessary
or desirable to preserve the value, marketability or
<PAGE>

rentability of the Property, or to increase the income therefrom or to protect
the security hereof and, with or without taking possession of any of the
Property, sue for or otherwise collect all rents and profits, including those
past due and unpaid, and apply the same, less costs and expenses of operation
and collection, including attorney's fees and expenses, upon the Secured
Obligations, all in such order as Beneficiary may determine. The collection of
rents and profits and the application thereof shall not cure or waive any Event
of Default or notice thereof or invalidate any act done in response thereto or
pursuant to such notice.

          b.   Bring an action in any court of competent jurisdiction to
foreclose this instrument or to enforce any of the covenants hereof.

          c.   Exercise any or all of the remedies available to a secured party
under the UCC, including, but not limited to the following:

               (i)   either personally or by means of a court appointed
receiver, take possession of all or any of the personal property, fixtures and
proceeds thereof and exclude therefrom Trustor and all others claiming under
Trustor and thereafter hold, store, use, operate, manage, maintain and control,
make repairs, replacements, alterations, additions and improvements to and
exercise all rights and powers of Trustor in respect to such personal property,
fixtures and proceeds thereof; and in the event Beneficiary demands or attempts
to take possession of such personal property, fixtures and proceeds thereof in
the exercise of any of its rights hereunder, Trustor promises and agrees
promptly to turn over and deliver complete possession thereof to Beneficiary.

               (ii)  without notice to or demand upon Trustor, make such
payments and do such acts as Beneficiary may deem necessary to protect its
security interest in such personal property, fixtures and proceeds thereof,
including, without limitation, paying, purchasing, contesting or compromising
any encumbrance, charge or lien which is prior or superior to the security
interest granted hereunder, and in exercising any such powers or authority, to
pay all expenses incurred in connection therewith.

               (iii) require Trustor to assemble such personal property or any
portion thereof at a place designated by Beneficiary and promptly deliver such
personal property to Beneficiary or an agent or representative designated by it.
Beneficiary, its agents and representatives, shall have the right to enter upon
any or all of Trustor's premises and property to exercise Beneficiary's rights
hereunder.

               (iv)  sell, lease or otherwise dispose of such personal property
and/or fixtures at public sale, with or without having the same at the place of
sale, and upon such terms and in such manner as Beneficiary may determine; and
Beneficiary may be a purchaser at any such sale. Beneficiary shall not be deemed
to have accepted any property other than cash in satisfaction of any Secured
Obligation unless Beneficiary shall make an express written election of said
remedy under the UCC or other applicable law.

          d.   Elect to sell by power of sale the Property which is Land and
Improvements or which Beneficiary has elected to treat as Land and Improvements
and, upon
<PAGE>

such election, such notice of default and election to sell shall be given as may
then be required by law. Thereafter, upon the expiration of such time and the
giving of such notice of sale as may then be required by law, at the time and
place specified in the notice of sale, Trustee shall sell such property, or any
portion thereof specified by Beneficiary, at public auction to the highest
bidder for cash in lawful money of the United States. Trustee may, and upon
request of Beneficiary shall, from time to time, postpone the sale by public
announcement thereof at the time and place noticed therefor. If the Property
consists of several lots, parcels or interests, Beneficiary may designate the
order in which the same shall be offered for sale or sold. Trustor waives all
rights to direct the order in which any of the Property will be sold in the
event of any sale under this Deed of Trust, and also any right to have any of
the Property marshaled upon any sale. In the case of a sale under this Deed of
Trust, the said property, real, personal and mixed, may be sold in one parcel or
more than one parcel. Should Beneficiary desire that more than one such sale or
other disposition be conducted, Beneficiary may, at its option, cause the same
to be conducted simultaneously, or successively on the same day, or at such
different days or times and in such order as Beneficiary may deem to be in its
best interest. Any person, including Trustor, Trustee or Beneficiary, may
purchase at the sale. Upon any sale, Trustee shall execute and deliver to the
purchaser or purchasers a deed or deeds conveying the property so sold, but
without any covenant or warranty whatsoever, express or implied, whereupon such
purchaser or purchasers shall be let into immediate possession. Beneficiary,
from time to time before the Trustee's sale pursuant to this section, may
rescind any notice of breach or default and of election to cause to be sold the
Property by executing and delivering to Trustee a written notice of such
rescission, which notice shall also constitute a cancellation of any prior
declaration of default and demand for sale. The exercise by Beneficiary of such
right of rescission shall not constitute a waiver of any breach or default then
existing or subsequently occurring or impair the right of Beneficiary to execute
and deliver to Trustee, as above provided, other declarations of default and
demand for sale and notices of breach or default, nor otherwise affect any
provision, covenant or condition of the Notes and/or of this Deed of Trust or
any of the rights, obligations or remedies of the parties thereunder or
hereunder.

          e.   Exercise each of its other rights and remedies under this Deed of
Trust and each of the other Loan Documents.

          f.   Except as otherwise required by law, apply the proceeds of any
foreclosure of disposition hereunder to payment of the following: (i) the
expenses of such foreclosure or disposition, (ii) the cost of any search or
other evidence of title procured in connection therewith and revenue stamps on
any deed or conveyance, (iii) all sums expended under the terms hereof not then
repaid, with accrued interest in the amount provided herein, (iv) all other sums
secured hereby and (v) the remainder, if any, to the person or persons legally
entitled thereto.

          g.   Upon any sale or sales made under or by virtue of this section,
whether made under the power of sale or by virtue of judicial proceedings or of
a judgment or decree of foreclosure and sale, Beneficiary
may bid for and acquire the Property or any part thereof. In lieu of paying cash
for the Property, Beneficiary may make settlement for the purchase price by
crediting against the Secured Obligations the sales price of the Property, as
adjusted for the
<PAGE>

expenses of sale and the costs of the action and any other sums for which
Trustor is obligated to reimburse Trustee or Beneficiary under this Deed of
Trust.

          h.  In the event that Trustor has an equity of redemption and the
Property is sold pursuant to the power of sale or otherwise under or by virtue
of this section, the purchaser may, during any redemption period allowed, make
such repairs or alterations on said property as may be reasonably necessary for
the proper operation, care, preservation, protection and insuring thereof. Any
sum so paid together with interest thereon from the time of such expenditures at
the Default Rate shall be added to and become a part of the amount required to
be paid for redemption from such sale.

     26.  Environmental Matters.
          ---------------------

          a.  As used herein: the term "Hazardous Substance" shall mean any
substance, material, or waste that is (i) included within the definitions of
"hazardous substances," "hazardous materials," "hazardous waste," "toxic
substances," "toxic materials," "toxic waste," or words of similar import in any
Environmental Law, (ii) listed as hazardous substances by the United States
Department of Transportation or by the Environmental Protection Agency, or (iii)
petroleum, petroleum-related, or a petroleum by-product, asbestos or asbestos-
containing material, polychlorinated biphenyls, flammable, explosive,
radioactive, freon gas, radon, or a pesticide, herbicide, or any other
agricultural chemical; and the term "Environmental Law" shall mean any federal,
state or local law, rule, regulation, decision, policy or guideline, pertaining
to Hazardous Substances, or protection of the environment, and all present and
future amendments thereto.

          b.  Except as disclosed in writing by Trustor to Beneficiary, Trustor
represents and warrants to Beneficiary that (i) neither the Property nor Trustor
is in violation of any Environmental Law applicable to the Property, or is
subject to any existing, pending or threatened governmental investigation
pertaining to the Property, or are subject to any remedial obligation or lien
under or in connection with any Environmental Law, (ii) Trustor has no actual
knowledge or notice of the presence or release of Hazardous Substances in, on or
around any part of the Property or the soil, groundwater or soil vapor on or
under the Property, or the migration of any Hazardous Substance, from or to any
other property in the vicinity of the Property; and (iii) Trustor's intended
future use of Property will not result in the release of any Hazardous Substance
in, on or around any part of the Property or in the soil, groundwater or soil
vapor on or under the Property, or the migration of any Hazardous Substance from
or to any other property in the vicinity of the Property.

          c.  Trustor shall neither use nor authorize any third party to use,
generate, manufacture, produce, store, or release, on, under or about the
Property, or transfer to or from the Property, any Hazardous Substance, except
in compliance with all Environmental Laws, and shall otherwise comply, at
Trustor's sole expense and responsibility, with all Environmental Laws, provided
that if any such occurrence shall nevertheless happen, Trustor shall promptly
remedy such condition, at its sole expense and responsibility. Trustor shall not
permit any environmental liens to be placed on any portion of the Property.
Trustor shall promptly notify Beneficiary in writing if (i) any of the
representations and warranties herein are no longer
<PAGE>

accurate, (ii) there may be any Hazardous Substance in, on or around the
Property or the soil, groundwater or soil vapor on or under the Property, or
(iii) any violation of any Environmental Law on or affecting or otherwise in
respect of the Property has occurred. Beneficiary and its agents shall have the
right, and are hereby authorized, at any reasonable time to enter upon the
Property for the purposes of observing the Property, taking and removing soil or
groundwater samples, and conducting tests and/or site assessments on the
Property, or taking such other actions as Beneficiary deems necessary or
advisable to cleanup, remove, resolve, or minimize the impact of, or otherwise
deal with, any Hazardous Substances on or affecting the Property following
receipt of any notice from any person or entity asserting the existence or
possible existence of any Hazardous Substances pertaining to the Property, that,
if true, could jeopardize Beneficiary's security for the Secured Obligations.
All reasonable costs and expenses paid or incurred by Beneficiary in the
exercise of any such rights shall be secured hereby and shall be payable by
Trustor upon demand.

          d.  Trustor shall indemnify and hold Beneficiary harmless from, for
and against any and all actions, causes of action, claims, liabilities, damages
(including foreseeable and unforeseeable consequential damages), losses, fines,
penalties, judgments, awards, settlements, and costs and expenses (including,
without limitation, reasonable attorneys' fees, experts', engineers' and
consultants' fees, and costs and expenses of investigation, testing, remediation
and dispute resolution) (collectively referred to as "Environmental Costs") that
directly or indirectly arise out of or relate in any way to: (i) any
investigation, cleanup, removal, remediation, or restoration work of site
conditions of the Property relating to Hazardous Substances; (ii) any resulting
damages, harm, or injuries to the person or property of any third parties or to
any natural resources involving Hazardous Substances relating to the Property;
(iii) any actual or alleged past or present disposal, generation, manufacture,
presence, processing, production, release, storage, transportation, treatment,
or use of any Hazardous Substance on, under, or about the Property; (iv) any
actual or alleged past or present violation of any Environmental Law relating to
the Property; (v) any lien on any part of the Property under any Environmental
Law; or (vi) the breach of any representation or warranty by or covenant of
Trustor herein. Notwithstanding anything contained herein to the contrary, the
foregoing indemnity shall not apply to (i) matters resulting from the gross
negligence or willful misconduct of Beneficiary, or matters resulting solely
from the actions of Beneficiary taken after Beneficiary has taken title to, or
exclusive possession of the Property, provided that, in both cases, such matters
shall not arise from or be accumulated with any condition of the Property, which
condition was not caused by Beneficiary, or (ii) matters resulting solely from
the actions (or failure to act) of third parties over whom Trustor has and
exercises no control which may result in a release of Hazardous Substances onto
the Property. The foregoing indemnity is expressly intended to include, and does
include, any Environmental Costs arising as a result of any strict liability
imposed or threatened to be imposed on Beneficiary in connection with any of the
indemnified matters described in this section or arising as a result of the
negligence of Beneficiary in connection with such matters. This indemnity shall
continue in full force and effect and shall survive the payment and performance
of the Secured Obligations, the reconveyance of the Property, any foreclosure
(or action in lieu thereof) of this Deed of Trust, the exercise by Trustee or
Beneficiary of any other remedy under this Deed of Trust or any other document
or instrument evidencing or securing the Secured Obligations, and any suit,
proceeding or judgment against Trustor by Trustee or Beneficiary hereon.
<PAGE>

     27.  Subrogation. Beneficiary shall be subrogated, notwithstanding the
          -----------
release of record, to any mechanic's or vendor's lien, superior titles,
mortgages, deeds of trust, encumbrances, rights, equities and charges of all
kinds heretofore or hereafter existing on the Property to the extent that the
same are paid or discharged from the proceeds of the loan evidenced by the
Notes.

     28.  Releases, Extensions, Modifications and Additional Security. Without
          -----------------------------------------------------------
notice to or the consent, approval or agreement of Trustor, any subsequent owner
of any part of the Property, any maker, surety, guarantor, or endorser of this
Deed of Trust or any other Secured Obligation, or any holder of a lien or other
claim on all or any part of the Property, whether senior or subordinate hereto,
Beneficiary may, from time to time, do one or more of the following: release any
person's liability for the payment of any Secured Obligation, take any action or
make any agreement extending the maturity or otherwise altering the terms or
increasing the amount of any Secured Obligation or accept additional security or
release all or a portion of the Property and other security for any Secured
Obligation. No such release of liability, taking of additional security, release
of security, change in terms or conditions of any Secured Obligation, or other
action shall release or reduce the personal liability of Trustor (if any),
subsequent purchasers of all or any part of the Property, or makers, sureties,
guarantors or endorsers of this Deed of Trust or any other Secured Obligation,
under any covenant of this Deed of Trust or any other Secured Obligation, or
release or impair the priority of the lien of this Deed of Trust upon any of the
Property.

     29.  No Waiver. Any failure by Beneficiary to insist upon the strict
          ---------
performance by Trustor of any of the terms and provisions of any of the Loan
Documents shall not be deemed to be a waiver of any of the terms and provisions
of any of the Loan Documents; and Beneficiary, notwithstanding any such failure,
shall have the right thereafter to insist upon the strict performance by Trustor
of any and all of the terms and provisions of each of the Loan Documents. The
acceptance by Beneficiary of any sum after any Event of Default shall not
constitute a waiver of the right to require prompt performance of all of the
covenants and conditions contained in any of the Loan Documents. The acceptance
by Beneficiary of any sum less than the sum then due shall be deemed an
acceptance on account only and shall not constitute a waiver of the obligation
of Trustor to pay the entire sum then due and Trustor's failure to pay said
entire sum due shall be and continue to be an Event of Default notwithstanding
such acceptance of such lesser amount on account and Beneficiary shall be
entitled to exercise all rights conferred upon it following an Event of Default
notwithstanding such acceptance.

     30.  Stamps. If at any time the United States of America, any state thereof
          ------
or any governmental subdivision of such state shall require revenue stamps to be
affixed to the Notes or any of the other Loan Documents, or the payment of any
other tax paid on or in connection therewith, Trustor shall pay the same with
any interest or penalties imposed in connection therewith if Trustor is
permitted by law to pay such amount and, if not so permitted, then the Secured
Obligations shall immediately be due and payable. Trustor will not claim nor
demand nor be entitled to any credit or credits against the indebtedness secured
hereby for so much of the taxes assessed against the Property or any part
thereof, and no deduction shall otherwise be made
<PAGE>

or claimed from the taxable value of the Property or any part thereof by reason
of this Deed of Trust or the indebtedness.

     31.  Joint and Several. If Trustor consists of more than one party, such
          -----------------
parties shall be jointly and severally liable under any and all obligations,
covenants and agreements of Trustor contained herein.

     32.  Cumulative. The rights of Beneficiary arising under this Deed of Trust
          ----------
and the other Loan Documents shall be separate, distinct and cumulative, and
none of them shall be in exclusion of the others. No act of Beneficiary shall be
construed as an election to proceed under any one provision to the exclusion of
any other provision, notwithstanding anything herein or otherwise to the
contrary. Any specific enumeration of powers of Beneficiary, or of acts to be
done or not to be done by Trustor, shall not be deemed to exclude or limit the
general. All covenants hereof shall be construed as affording to Beneficiary
rights additional to and not exclusive of the rights conferred under any
applicable law.

     33.  Statement of Condition. Beneficiary shall furnish any statement
          ----------------------
required by law regarding the obligations secured hereby or regarding the
amounts held in any trust or reserve fund hereunder. For any such statement,
Beneficiary may charge a reasonable fee, not to exceed the maximum amount
permitted by law at the time of the request therefor.

     34.  Reconveyance. Upon written request of Beneficiary stating that all
          ------------
sums secured hereby have been paid, and upon surrender of this Deed of Trust and
the Notes to Trustee for cancellation, and upon payment of its fees, Trustee
shall reconvey, without warranty, the Property then held hereunder. The recitals
in any such reconveyance of any matters or facts shall be conclusive proof of
the truth thereof. The grantee in such reconveyance may be described as "the
person or persons legally entitled thereto."

     35.  Substitution. Beneficiary may substitute Trustee hereunder in any
          ------------
manner now or hereafter provided by law or, in lieu thereof, Beneficiary may
from time to time, by an instrument in writing, substitute a successor or
successors to any Trustee named herein or acting hereunder, which instrument,
executed and acknowledged by Beneficiary and recorded in the office of the
recorder of the county or counties in which the Land and Improvements are
situated, shall be conclusive proof of proper substitution of such successor
Trustee, who shall thereupon and without conveyance from the predecessor Trustee
succeed to all its title, estate, rights, powers and duties.

     36.  Law. This Deed of Trust shall be governed by and construed in
          ---
accordance with the laws of the state in which the Land is located, except that
Federal law shall apply to the extent that Beneficiary may have greater rights
under Federal laws.

     37.  Severable. If any provision of this Deed of Trust or its application
          ---------
to any person or circumstance is held invalid, the validity of the other
provisions hereof shall not be affected and shall remain in full force and
effect.
<PAGE>

     38.  Captions. The captions or headings at the beginning of each section
          --------
hereof are for the convenience of the parties and are not a part of this Deed of
Trust.

     39.  Notice. Any notice required or permitted to be given hereunder shall
          ------
be deemed given when personally delivered or when deposited in the United States
certified or registered mail, postage prepaid, or when transmitted by telegraph
or telex, charges prepaid, addressed as set forth below. Unless otherwise
specified, notice shall be deemed given when received, but if delivery is not
accepted, on the earlier of the date delivery is refused or the third day after
same is deposited in any official Unites States Postal Delivery. Any party from
time to time, by notice to the other parties given as above set forth, may
change its address for purposes of receipt of any such communication.

     Trustor:     Matrix Service Company
                  10701 East Ute Street
                  Tulsa, Oklahoma 74116-1517
                  Attn: Michael J. Hall, Vice President of Finance
                  and Chief Financial Officer
                  Fax: (918) 838-8810

     Trustee:     First American Title Insurance Company
                  Attention: Jeffrey J. Emenaker
                  ______________________________
                  ______________________________
                  ______________________________

     Beneficiary: Bank One, Oklahoma, N.A.
                  15 E. Fifth Street
                  Tulsa, Oklahoma 74103
                  Attn: David G. Page, First Vice President
                  Fax: (918) 586-5474

     40.  No Third Party Beneficiaries. This Deed of Trust is made and entered
          ----------------------------
into for the sole protection and benefit of the parties hereto and, in the case
of Beneficiary, any affiliates of Beneficiary, and no other person or entity
shall be a direct or indirect beneficiary of, or shall have any direct or
indirect cause of action or claim in connection with this Deed of Trust or any
of the other Loan Documents.

     41.  Amendments. This Deed of Trust contains (or incorporates) the entire
          ----------
agreement of the parties with respect to the matters discussed herein and may be
modified or amended only by a written instrument executed by each of the parties
hereto.

     42.  Survival. All representations, warranties, covenants and agreements of
          --------
Trustor hereunder shall survive the delivery of this Deed of Trust and shall
continue in full force and effect until the full and final payment and
performance of all of the Secured Obligations.

     43.  Time. Time is of the essence of each provision of this Deed of Trust.
          ----
<PAGE>

     44.  Waivers. To the fullest extent permitted by law, Trustor expressly
          -------
waives and relinquishes any and all rights and remedies which Trustor may have
or be able to assert by reason of any laws pertaining to the rights and remedies
of sureties or any law pertaining to the marshaling of assets, the
administration of estates of decedents and any exemption from execution or sale
of the Property or any part thereof.

     45.  Continuation of Payments. Notwithstanding any taking by eminent domain
          ------------------------
or other governmental action causing injury to, or decrease in value of, the
Property and creating a right to compensation therefor, Trustor shall continue
to make the required payments of principal and interest on the Notes. If, prior
to the receipt by Beneficiary of such award or compensation, the Property shall
have been sold in any action or proceeding to foreclose this Deed of Trust,
Beneficiary shall have the right to receive said award or compensation to the
extent of any deficiency found to be due upon such sale, with interest thereon,
whether or not a deficiency judgment on this Deed of Trust shall have been
sought or recovered, together with reasonable counsel fees and the costs and
disbursements incurred by Beneficiary in connection with the collection of such
award or compensation.

     46.  Specific Performance. At any time, Beneficiary may commence and
          --------------------
maintain an action in any court of competent jurisdiction for specific
performance of any of the covenants and agreements contained herein, and may
obtain the aid and direction of the court in the performance of any of the
covenants and agreements contained herein, and may obtain orders or decrees
directing the execution of the same and, in case of any sale hereunder,
directing, confirming or approving its or Trustee's acts and granting it such
relief as may be warranted in the circumstances.

     47.  Usury Savings. All agreements between Trustor and Beneficiary are
          -------------
expressly limited so that in no event whatsoever shall the amount paid or agreed
to be paid to the holder of the Notes for the use, forbearance or detention of
the money advanced thereunder or hereunder exceed the highest lawful rate
permissible. If, from any circumstances whatsoever, fulfillment of any
provisions of this Deed of Trust or the Notes or any other Loan Document at the
time performance of such provision shall be due shall involve transcending the
limit of validity prescribed by law which a court of competent jurisdiction may
deem applicable thereto or hereto, then the obligations to be fulfilled shall be
reduced to the limit of such validity and, if from any circumstances Beneficiary
shall ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the unpaid principal balance due hereunder and not to the payment
of interest. This provision shall control every other provision of all
agreements between Trustor and Beneficiary.
<PAGE>

     48.  Counterparts. This Deed of Trust may be executed and acknowledged in
          ------------
two or more counterparts, each of which shall constitute an original, but all of
which, when taken together, shall constitute but one agreement.

     49.  Effective Date. The date of this Deed of Trust is for reference
          --------------
purposes only. The effective date of delivery and transfer to Lender of the
security under the Loan Documents and of Trustor's obligations under the Loan
Documents is the date this Deed of Trust is recorded in the office of the County
Recorder where the Land is located.

                 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
                           [SIGNATURE PAGE FOLLOWS]
<PAGE>

     IN WITNESS WHEREOF, this Deed of Trust has been duly executed and
acknowledged by Trustor as of the day and year first above written.

     TRUSTOR PLEASE NOTE: UPON THE OCCURRENCE OF A EVENT OF DEFAULT, CALIFORNIA
PROCEDURE PERMITS THE TRUSTEE TO SELL THE PROPERTY AT A SALE HELD WITHOUT
SUPERVISION BY ANY COURT AFTER EXPIRATION OF A PERIOD PRESCRIBED BY LAW. UNLESS
YOU PROVIDE AN ADDRESS FOR THE GIVING OF NOTICE, YOU MAY NOT BE ENTITLED TO
NOTICE OF THE COMMENCEMENT OF SALE PROCEEDINGS. BY EXECUTION OF THIS DEED OF
TRUST, YOU CONSENT TO SUCH PROCEDURE. BENEFICIARY URGES YOU TO GIVE PROMPT
NOTICE OF ANY CHANGE IN YOUR ADDRESS SO THAT YOU MAY RECEIVE PROMPTLY ANY NOTICE
GIVEN PURSUANT TO THIS DEED OF TRUST.

                                   MATRIX SERVICE COMPANY,
                                   a Delaware corporation

                                   By: ______________________________
                                   Name:  Michael J. Hall
                                   Title: Vice President

                                          "Trustor"
<PAGE>

                                   EXHIBIT A
                                   ---------

                              (Legal Description)

Parcel 1 as shown on a map filed in Book 5, Page 23 of Parcel Maps in the Office
of the County Recorder of Orange County, California

Street Address: 500 West Collins Avenue, Orange, California 92867
<PAGE>

                            MORTGAGE TAX AFFIDAVIT
                            ----------------------

To:   County Treasurer of Rogers County, Oklahoma:

      The undersigned, Michael J. Hall, being first duly sworn, does hereby
state under oath as follows:

      1.   He is the duly elected and acting Vice President of Matrix Service
Company, a Delaware corporation (hereinafter called the "Mortgagor").

      2.   Simultaneously herewith, there is being presented to the County Clerk
of Rogers County, Oklahoma, for filing and recording a Mortgage, Security
Agreement, Financing Statement and Fixture Filing dated September 26, 2001
(hereinafter called the "Mortgage"), executed by the Mortgagor in favor of Bank
One, Oklahoma, N.A. (hereinafter called the "Mortgagee"), covering the real
property located in Rogers County, Oklahoma, described on Exhibit "A" attached
thereto (the "Mortgaged Premises").

      3.   This Affidavit is presented to the County Treasurer of Rogers County,
Oklahoma, for the purpose of computing the Oklahoma mortgage tax payable in
connection with the filing and recording of the Mortgage.

      4.   The Mortgage was given to secure the Secured Indebtedness (as such
term is defined in the Mortgage) of the Mortgagor to the Mortgagee.

      5.   The maximum amount of indebtedness secured by the Mortgage is not
expressed in the Mortgage.

      6.   Title 68, Oklahoma Statutes, Section 1906, provides that where the
maximum amount secured or which by any contingency may be secured by a mortgage
is not expressed in the mortgage or in a sworn statement so authorized by said
Section 1906, the county treasurer at the time such mortgage is offered for
taxation may require the mortgagor or the mortgagee to furnish him with proof as
to such facts as he deems necessary for the propose of computing the value of
the property covered by the mortgage.

      7.   The undersigned is familiar with the value of the Mortgaged Premises.
The value of the land comprising the Mortgaged Premises, together with all
improvements situated or to be constructed thereon, is $6,985,000.

      8.   The Mortgage being for a period of more than four (4) years, but less
than five (5) years, the Oklahoma mortgage tax, calculated at the rate of $0.08
per $100.00 of value attributable to the Mortgaged Premises, is $5,588.00.
<PAGE>

     IN WITNESS WHEREOF, the undersigned has executed this Affidavit this 26th
day of September, 2001.

                                          ______________________________
                                          Name: Michael J. Hall
                                          Title:  Vice President

STATE OF OKLAHOMA  )
                   )  ss:
COUNTY OF TULSA    )

     Subscribed and sworn to before me on this 26/th/ day of September, 2001.

                              __________________________________________
                                        Notary Public

                              Print or Type Name:_______________________

My commission expires:

_______________________

(SEAL)
<PAGE>

                                PROMISSORY NOTE
                                  (Term Note)

$5,900,000.01                                                    Tulsa, Oklahoma
                                                              September 26, 2001

     FOR VALUE RECEIVED, the undersigned ("Makers") jointly and severally
promise to pay to the order of BANK ONE, OKLAHOMA, N.A. ("Bank"), on or before
the Term Loan Maturity Date, the principal sum of Five Million Nine Hundred
Thousand and 01/00 Dollars ($5,900,000.01), or so much thereof as shall be
advanced and remain outstanding hereunder.

     Makers also promise to pay principal and interest on the unpaid balance
hereof from time to time outstanding from the date hereof until maturity
(whether at the stated maturity date, by acceleration or otherwise) and after
maturity until paid in full at the times and at the rates per annum specified in
the Credit Agreement (as hereinafter defined).

     All payments of principal and interest hereunder shall be made on the dates
and in the amounts specified in the Credit Agreement to Bank at its principal
office in Tulsa, Oklahoma, on or before 2:00 p.m. (Tulsa time), on the date due,
in immediately available funds. Whenever a payment is due on a day other than a
Business Day, the due date shall be extended to the next succeeding Business Day
and interest (if any) shall accrue during such extension.

     This Note is executed and delivered by Makers pursuant to, and is entitled
to the benefits of, that certain Third Amended and Restated Credit Agreement,
dated effective as of the date hereof (the same, as it may be further amended,
supplemented or otherwise modified from time to time, is referred to herein as
the "Credit Agreement"), between Makers and Bank. Reference is hereby made to
the Credit Agreement for a complete statement of the repayment terms of this
Note, including the prepayment rights and obligations of Makers and the right of
the holder of this Note to accelerate the maturity hereof on the occurrence of
certain Events of Default (as defined therein), and for all other pertinent
purposes. Capitalized terms used herein and not otherwise defined have the
respective meanings assigned to them in the Credit Agreement. This Note is the
"Term Note" referred to in the Credit Agreement.

     Payment of this Note is secured by various Security Agreements and other
Collateral Documents referred to in the Credit Agreement. Reference is made to
the Credit Agreement for a complete statement of the collateral securing payment
of this Note.

     Upon the occurrence and during the continuation of any Event of Default,
the holder of this Note may apply payments received on any amount due hereunder
or under the terms of any instrument now or hereafter evidencing or securing any
said indebtedness as said holder may determine.

     It is the intent of Bank and Makers to conform strictly to all applicable
usury laws, and any interest on the principal balance hereof in excess of that
allowed by said usury laws shall
<PAGE>

be subject to reduction to the maximum amount of interest allowed under said
laws. If any interest in excess of the maximum amount of interest allowable by
said usury laws is inadvertently paid to the holder hereof, at any time, any
such excess interest shall be refunded by the holder to the party or parties
entitled to the same after receiving notice of payment of such excess interest.

     The records of the holder of this Note shall be prima facie evidence of the
amount owing on this Note.

     If, and as often as, this Note is placed in the hands of an attorney for
collection or to defend or enforce any of the holder's rights hereunder, Makers
will pay to the holder hereof its reasonable attorneys' fees, together with all
court costs and other expenses paid by such holder.

     Makers, endorsers, sureties, guarantors and all other parties who may
become liable for all or any part of this Note severally waive demand,
presentment, notice of dishonor, protest, notice of protest, and notice of non-
payment, and consent to: (a) any and all extensions of time for any term or
terms regarding any payment due under this Note, including partial payments or
renewals before or after maturity; (b) changes in interest rates; (c) any
substitutions or release of collateral; and (d) the addition, substitution or
release of any party liable for payment of this Note.

     No waiver of any payment or other right under this Note or any related
agreement shall operate as a waiver of any other payment or right. All of the
holder's rights hereunder are cumulative and not alternative. This Note shall
inure to the benefit of the successors and assigns of Bank or other holder and
shall be binding upon the successors and assigns of Makers.

     This Note has been delivered to and accepted by the Bank in the State of
Oklahoma, is to be performed in the State of Oklahoma, shall be deemed a
contract made under the laws of the State of Oklahoma, and shall be governed by,
and construed and enforced in accordance with, the laws of the State of
Oklahoma. All actions or proceedings with respect to this Note may be instituted
in any state or federal court sitting in Tulsa County, Oklahoma, as Bank may
elect, and by execution and delivery of this Note, Makers irrevocably and
unconditionally (i) submit to the non-exclusive jurisdiction (both subject
matter and person) of each such court, and (ii) waive (a) any objection that
Makers might now or hereafter have to the laying of venue in any of such courts,
and (b) any claim that any action or proceeding brought in any of such courts
has been brought in an inconvenient forum.
<PAGE>

     IN WITNESS WHEREOF, the undersigned have executed this instrument effective
as of the date first above written.

                            MATRIX SERVICE COMPANY,
                            a Delaware corporation
                            MATRIX SERVICE, INC.,
                            an Oklahoma corporation
                            MIDWEST INDUSTRIAL CONTRACTORS, INC.,
                            a Delaware corporation
                            MATRIX SERVICE MID-CONTINENT, INC.,
                            an Oklahoma corporation
                            SAN LUIS TANK PIPING CONSTRUCTION CO., INC., a
                            Delaware corporation
                            MATRIX COATINGS, INC. (f/k/a/ West Coast
                            Industrial Coatings, Inc.), a California corporation
                            MATRIX SERVICE, INC. (CANADA),
                            an Ontario corporation

                            By:_________________________________________________
                            Name: Michael J. Hall
                            Title: Vice President of each of the foregoing
<PAGE>

                                PROMISSORY NOTE
                               (Revolving Note)

                            Due:  October 31, 2004

$20,000,000.00                                                   Tulsa, Oklahoma
                                                              September 26, 2001

     FOR VALUE RECEIVED, the undersigned ("Makers") jointly and severally
promise to pay to the order of BANK ONE, OKLAHOMA, N.A. ("Bank"), on or before
October 31, 2004, the principal sum of Twenty Million and No/100 Dollars
($20,000,000.00), or so much thereof as shall be advanced and remain outstanding
hereunder.

     Makers also promise to pay interest on the unpaid principal amount hereof
from time to time outstanding from the date hereof until maturity (whether at
the stated maturity date, by acceleration or otherwise) and after maturity until
paid in full at the rates per annum specified in the Credit Agreement (as
hereinafter defined).

     All payments of principal and interest hereunder shall be made on the dates
and in the amounts specified in the Credit Agreement to Bank at its principal
office in Tulsa, Oklahoma, on or before 2:00 p.m. (Tulsa time), on the date due,
in immediately available funds. Whenever a payment is due on a day other than a
Business Day, the due date shall be extended to the next succeeding Business Day
and interest (if any) shall accrue during such extension.

     This Note is executed and delivered by Makers pursuant to, and is entitled
to the benefits of, that certain Third Amended and Restated Credit Agreement,
dated effective as of the date hereof (the same, as it may be further amended,
supplemented or otherwise modified from time to time, is referred to herein as
the "Credit Agreement"), between Makers and Bank. Reference is hereby made to
the Credit Agreement for a complete statement of the repayment terms of this
Note, including the prepayment rights and obligations of Makers and the right of
the holder of this Note to accelerate the maturity hereof on the occurrence of
certain Events of Default (as defined therein), and for all other pertinent
purposes. Capitalized terms used herein and not otherwise defined have the
respective meanings assigned to them in the Credit Agreement. This Note is the
"Revolving Note" referred to in the Credit Agreement.

     Payment of this Note is secured by various Security Agreements and other
Collateral Documents referred to in the Credit Agreement. Reference is made to
the Credit Agreement for a complete statement of the collateral securing payment
of this Note.

     This Note is made, executed and delivered by Makers and accepted by Bank in
renewal and extension of and substitution for, but not in payment or
satisfaction of (or as a novation of), that certain Promissory Note (Revolving
Note) of Makers dated as of October 31, 2000, payable to the order of Bank in
the principal amount of $20,000,000.00 (the "Prior Revolving Note"). All
Security Agreements and other Collateral Documents securing payment of the Prior
Revolving Note shall continue in full force and effect as security for payment
of the indebtedness evidenced hereby.
<PAGE>

     Upon the occurrence and during the continuation of any Event of Default,
the holder of this Note may apply payments received on any amount due hereunder
or under the terms of any instrument now or hereafter evidencing or securing any
said indebtedness as said holder may determine.

     It is the intent of Bank and Makers to conform strictly to all applicable
usury laws, and any interest on the principal balance hereof in excess of that
allowed by said usury laws shall be subject to reduction to the maximum amount
of interest allowed under said laws. If any interest in excess of the maximum
amount of interest allowable by said usury laws is inadvertently paid to the
holder hereof, at any time, any such excess interest shall be refunded by the
holder to the party or parties entitled to the same after receiving notice of
payment of such excess interest.

     The records of the holder of this Note shall be prima facie evidence of the
amount owing on this Note.

     If, and as often as, this Note is placed in the hands of an attorney for
collection or to defend or enforce any of the holder's rights hereunder, Makers
will pay to the holder hereof its reasonable attorneys' fees, together with all
court costs and other expenses paid by such holder.

     Makers, endorsers, sureties, guarantors and all other parties who may
become liable for all or any part of this Note severally waive demand,
presentment, notice of dishonor, protest, notice of protest, and notice of non-
payment, and consent to: (a) any and all extensions of time for any term or
terms regarding any payment due under this Note, including partial payments or
renewals before or after maturity; (b) changes in interest rates; (c) any
substitutions or release of collateral; and (d) the addition, substitution or
release of any party liable for payment of this Note.

     No waiver of any payment or other right under this Note or any related
agreement shall operate as a waiver of any other payment or right.  All of the
holder's rights hereunder are cumulative and not alternative.  This Note shall
inure to the benefit of the successors and assigns of Bank or other holder and
shall be binding upon the successors and assigns of Makers.

     This Note has been delivered to and accepted by the Bank in the State of
Oklahoma, is to be performed in the State of Oklahoma, shall be deemed a
contract made under the laws of the State of Oklahoma, and shall be governed by,
and construed and enforced in accordance with, the laws of the State of
Oklahoma.  All actions or proceedings with respect to this Note may be
instituted in any state or federal court sitting in Tulsa County, Oklahoma, as
Bank may elect, and by execution and delivery of this Note, Makers irrevocably
and unconditionally (i) submit to the non-exclusive jurisdiction (both subject
matter and person) of each such court, and (ii) waive (a) any objection that
Makers might now or hereafter have to the laying of venue in any of such courts,
and (b)
<PAGE>

any claim that any action or proceeding brought in any of such courts has been
brought in an inconvenient forum.

     IN WITNESS WHEREOF, the undersigned have executed this instrument effective
as of the date first above written.

                            MATRIX SERVICE COMPANY,
                            a Delaware corporation
                            MATRIX SERVICE, INC.,
                            an Oklahoma corporation
                            MIDWEST INDUSTRIAL CONTRACTORS, INC.,
                            a Delaware corporation
                            MATRIX SERVICE MID-CONTINENT, INC.,
                            an Oklahoma corporation
                            SAN LUIS TANK PIPING CONSTRUCTION CO., INC., a
                            Delaware corporation
                            MATRIX COATINGS, INC. (f/k/a/ West Coast
                            Industrial Coatings, Inc.), a California corporation
                            MATRIX SERVICE, INC. (CANADA),
                            an Ontario corporation

                            By:_________________________________________________
                            Name:  Michael J. Hall
                            Title: Vice President of each of the foregoing
<PAGE>

A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW THE
--------------------------------------------------------------------------------
MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A
--------------------------------------------------------------------------------
FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR UNDER THIS MORTGAGE.
--------------------------------------------------------------------

                         MORTGAGE, SECURITY AGREEMENT,
                    FINANCING STATEMENT AND FIXTURE FILING

     THIS MORTGAGE, SECURITY AGREEMENT, FINANCING STATEMENT AND FIXTURE FILING
(this "Mortgage") is made this 26th day of September, 2001, by MATRIX SERVICE
COMPANY, a corporation organized and existing under the laws of the State of
Delaware, duly authorized to do business in the State of Oklahoma, having its
principal office at 10701 E. Ute Street, Tulsa, Oklahoma, and local offices and
place of business at 5605 N. Verdigris Road, Catoosa, Oklahoma (hereinafter
called the "Mortgagor"), in favor of BANK ONE, OKLAHOMA, N.A., a national
banking association, having its principal office at 15 E. Fifth Street, Tulsa,
Oklahoma (hereinafter called the "Mortgagee").

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

     WHEREAS, the Mortgagor and various subsidiaries of the Mortgagor, as
borrowers (hereinafter collectively called the "Borrowers"), and the Mortgagee,
as lender, have entered into that certain Third Amended and Restated Credit
Agreement of even date herewith (the same, as amended or modified from time to
time, is hereinafter called the "Credit Agreement"), pursuant to which the
Mortgagee has agreed to establish and continue certain credit facilities in
favor of the Borrowers;

     WHEREAS, the Credit Agreement provides that the Mortgagor shall enter into
and grant this Mortgage.

     NOW, THEREFORE, to secure to the Mortgagee, and its successors and assigns,
the prompt payment and performance of the Secured Indebtedness (as hereinafter
defined), the Mortgagor does hereby grant, bargain, sell, convey and mortgage
unto the Mortgagee, together with power of sale, and does hereby grant to the
Mortgagee a security interest in, all of the
<PAGE>

Mortgagor's right, title and interest in and to the following properties
(hereinafter collectively called the "Mortgaged Premises"):

          (i)   the leasehold estate created by the lease described on Exhibit
"A" attached hereto (hereinafter, together with any and all modifications,
extension and renewals thereof, called the "Ground Lease") in and to the real
property located in Rogers County, State of Oklahoma, described on said Exhibit
"A" (hereinafter called the "Land");

          (ii)  all buildings, structures and other improvements now or
hereafter located on or about the Land (hereinafter collectively called the
"Improvements");

          (iii) all bridge cranes and other fixtures (or goods which are to
become fixtures), whether now owned or hereafter acquired by the Mortgagor,
which are now or at any time hereafter located upon or affixed to the Land and
the Improvements;

          (iv)  all rents, royalties, issues, profits, revenues, income and
other benefits now or hereafter accruing with respect to the foregoing
properties; and

          (v)   all proceeds of any sale, transfer, financing, refinancing or
conversion into cash or liquidated claims, whether voluntary or involuntary, of
any part of the foregoing properties, including all insurance proceeds resulting
from damage thereto or destruction thereof and all awards resulting from any
taking with respect thereto.

     TO HAVE AND TO HOLD the Mortgaged Premises with all the rights and
appurtenances thereunto belonging, or in any way appertaining, unto the
Mortgagee, and its successors and assigns, forever.

     The Mortgagor covenants that it is well seized of a valid leasehold estate
under the Ground Lease in and to the Land and of fee simple title to the
Improvements; that the Mortgagor has good right to mortgage the Mortgaged
Premises; that the Mortgagor shall maintain a valid leasehold interest to the
remainder of the Mortgaged Premises, free and clear of all liens, charges,
claims, security interests, and encumbrances except for (i) the matters, if any,
set forth under the heading "Permitted Encumbrances" in Schedule 1 hereto, which
are Permitted Encumbrances only to the extent the same are valid and subsisting
and affect the Mortgaged Premises, (ii) Permitted Liens (as such term is defined
in the Credit Agreement), (iii) the liens and security interests evidenced by
this Mortgage, (iv) statutory liens for ad valorem taxes and standby fees on the
Mortgaged Premises which are not yet delinquent, and (v) other liens and
security interests (if any) in favor of the Mortgagee (the matters described in
the foregoing clauses (i), (ii), (iii), (iv) and (v) being herein called the
"Permitted Encumbrances"). The Mortgagor and the Mortgagor's successors and
 ----------------------
assigns, will warrant and forever defend title to the Mortgaged Premises,
subject as aforesaid, to the Mortgagee and its successors or substitutes and
assigns, against the claims and demands of all persons claiming or to claim the
same or any part thereof.

     This Mortgage is executed and delivered subject to the covenants,
agreements, terms and conditions hereinafter set forth.
<PAGE>

1.   SECURED INDEBTEDNESS.
     --------------------

     (a)  This Mortgage is executed and delivered by the Mortgagor to secure
unto the Mortgagee the prompt and punctual payment of the following liabilities,
obligations and indebtedness (hereinafter collectively called the "Secured
Indebtedness"):

          (i)   all liabilities, obligations and indebtedness (including
principal, interest, fees and other charges) due and owing or to become due and
owing by the Borrowers, whether jointly, severally or jointly and severally, to
the Mortgagee arising under or in connection with the Credit Agreement by and
among the Mortgagor and others as borrowers and the Mortgagee as lender, or any
of the Loan Documents (as such term is defined in the Credit Agreement and used
hereinafter with the same meaning) from time to time delivered thereunder,
including, without limitation, all principal, interest liabilities, obligations
and indebtedness from time to time arising under or evidenced by (A) the
"Revolving Note" referred to in the Credit Agreement (the same, as amended,
modified, increased or extended from time to time, together with any promissory
notes accepted in renewal, substitution or replacement thereof or therefor, is
hereinafter called the "Revolving Note"), (B) the "Term Note" referred to in the
Credit Agreement (the same, as amended, modified, increased or extended from
time to time, together with any promissory notes accepted in renewal,
substitution or replacement thereof or therefor, is hereinafter called the "Term
Note"), and (C) any "Acquisition Note" from time to time delivered pursuant to
the Credit Agreement (the same, as amended, modified, increased or extended from
time to time, together with any promissory notes accepted in renewal,
substitution or replacement thereof or therefor, are hereinafter collectively
called the "Acquisition Notes"; the Revolving Note, the Term Note and any
Acquisition Notes are hereinafter collectively called the "Notes");

          (ii)  all other currently existing liabilities, obligations and
indebtedness of the Borrowers to the Mortgagee or any affiliate of the
Mortgagee, including, without limitation, (A) all "Reimbursement Obligations"
(as such term is defined in the Credit Agreement), and (B) any and all
obligations, contingent or otherwise, of the Borrowers to the Mortgagee arising
under or in connection with any "Rate Management Transactions" (as such term is
defined in the Credit Agreement);

          (iii) any sums which may hereafter be advanced by the Mortgagee under
the terms hereof; and

          (iv)  any and all extensions and renewals of any of the foregoing.

     (b)  This Mortgage is also executed and delivered by the Mortgagor to
secure the Mortgagor's prompt and punctual performance and observance of and
compliance with all covenants, conditions and agreements contained herein.

     (c)  If the Mortgagor shall pay all of the Secured Indebtedness arising
under or evidenced by the Term Note in accordance with its terms and shall
punctually perform and comply with and observe all the covenants, conditions and
agreements contained herein, and if
<PAGE>

no Event of Default shall have occurred under the terms of the Credit Agreement,
then, and in that event only, this Mortgage shall be and become null and void,
and discharged of record at the cost of the Mortgagor.

2.   PERFORMANCE OF GROUND LEASE. The Mortgagor covenants and agrees as follows:
     ---------------------------

     (a)  The Mortgagor shall promptly perform and observe or cause to be
performed and observed all of the terms, covenants and conditions required to be
performed and observed by the Mortgagor under the Ground Lease and shall do or
cause to be done all things necessary to preserve and keep unimpaired the
Mortgagor's rights under the Ground Lease. The Mortgagor shall promptly (in any
event within ten (10) days after the occurrence thereof) notify the Mortgagee of
the receipt of any notice from the City of Tulsa-Rogers County Port Authority,
as lessor under the Ground Lease (the "Lessor"), claiming that the Mortgagor is
in default in the performance or observance of any of the terms, covenants or
conditions of the Ground Lease; shall correct or cause to be corrected any such
default within the time provided in the Ground Lease for correction thereof by
the Mortgagor; shall cause a copy of each such notice from such Lessor to be
promptly delivered to the Mortgagee; and, shall correct or cause to be corrected
any such default within one-half (1/2) of the time provided in the Ground Lease
for correction thereof by the Mortgagor.

     (b)  In the event the Mortgagor, subsequent to the recording of the Ground
Lease or a Memorandum thereof, acquires the fee simple title or any other estate
or interest in the real property subject to the Ground Lease, such acquisition
shall not merge the leasehold estate created by the Ground Lease, but such other
estate or interest shall immediately become subject to the lien of this
Mortgage, and the Mortgagor agrees to execute, acknowledge and deliver any
instruments which the Mortgagee may reasonably require for accomplishing the
purposes hereof immediately upon the request of the Mortgagee therefor.

     (c)  Upon receipt by the Mortgagee from the Lessor of any written notice of
default by the Mortgagor under the terms of the Ground Lease, the Mortgagee may
rely thereon and, at the Mortgagee's option, take any such action as the
Mortgagee deems necessary or desirable to cure such default, even though the
existence of such default or the nature thereof be questioned or denied by the
Mortgagor or by any party on behalf of the Mortgagor. The Mortgagor hereby
expressly grants to the Mortgagee the absolute and immediate right to enter in
and upon the Mortgaged Premises or any part thereof to such extent and as often
as the Mortgagee, in its sole discretion, deems necessary or desirable in order
to prevent or cure any such default by the Mortgagor. The Mortgagee may pay and
expend such sums of money as the Mortgagee in its sole discretion deems
necessary for the purpose of curing defaults of the Mortgagor under the Ground
Lease and hereby agrees to pay to the Mortgagee, immediately and without demand,
all such sums so paid and expended by the Mortgagee, together with interest
thereon from the date of each such payment at the rate of ten (10%) per annum.
All sums so paid and expended by the Mortgagee, and the interest thereon, shall
become a part of the Secured Indebtedness secured by the lien of this Mortgage.
<PAGE>

     (d)   The Mortgagor will not: (i) surrender the leasehold estate created by
the Ground Lease; (ii) terminate or cancel the Ground Lease; or (iii) without
the express written consent of the Mortgagee, modify, change, supplement, alter,
or amend the Ground Lease, either orally or in writing, in any manner which
would have a material and adverse effect on the Mortgagor's use or operation of
the Mortgaged Premises or which would be material and adverse to the interests
of the Mortgagee or to the value of the Mortgaged Premises as security. As
further security for the repayment of the Secured Indebtedness and for the
performance of the covenants contained herein and in the Ground Lease, the
Mortgagor hereby assigns to the Mortgagee all of the Mortgagor's rights and
privileges as lessee under the Ground Lease to terminate, cancel, modify,
change, supplement, alter, amend or extend the Ground Lease, and any such
alteration, amendment or extension of the Ground Lease without the prior written
consent thereto by the Mortgagee shall be void and of no force and effect.

     (e)   It is intended and agreed hereby that the leasehold estate of the
Mortgagor under the Ground Lease and the interest and estate of the fee owner
and lessor under the Ground Lease shall at all times remain separate and apart
and retain their separate identities, and without the written consent of the
Mortgagee, no merger of the leasehold estate of the Mortgagor with the estate in
fee of the owner and lessor shall result in respect to the Mortgagee or in
respect of any purchaser acquiring the Mortgaged Premises at any sale on
foreclosure of the leasehold estate encumbered by this Mortgage.

3.   MORTGAGOR'S SUCCESSORS. If the ownership of the Mortgaged Premises or any
     ----------------------
part thereof becomes vested in a person other than the Mortgagor, the Mortgagee
may, without notice to Mortgagor, deal with such successor or successors in
interest with reference to this Mortgage and to the indebtedness secured hereby
in the same manner as with the Mortgagor, without in any way vitiating or
discharging the Mortgagor's liability hereunder or for the payment of the
indebtedness or performance of the obligations secured hereby. No transfer of
the Mortgaged Premises shall operate to release, discharge, modify, change or
affect, in whole or in part, the liability of the Mortgagor hereunder for the
payment of the indebtedness or performance of the obligations secured hereby or
the liability of any other person hereunder for the payment of the indebtedness
secured hereby. The Mortgagor agrees that it shall be bound by any modification
of this Mortgage or any of the other Loan Documents made by the Mortgagee and
any subsequent owner of the Mortgaged Premises, with or without notice to the
Mortgagor, and no such modifications shall impair the obligations of the
Mortgagor under this Mortgage or any other Loan Document.

4.   CONDEMNATION. The Mortgagor covenants and agrees that if at any time all or
     ------------
any portion of the Mortgaged Premises shall be taken or damaged under the power
of eminent domain, then the award received by condemnation proceedings for any
property so taken or any payment received in lieu of such condemnation
proceedings will be paid directly to the Mortgagee, and all or any portion of
such award or payment shall, at the option of the Mortgagee, be applied to the
Secured Indebtedness in such order and manner as the Mortgagee shall determine
or paid over wholly or in part to the Mortgagor, subject to such reasonable
conditions as the Mortgagee may determine, for the purpose of altering,
restoring or rebuilding any part of the Mortgaged Premises which has been
altered, damaged or destroyed as a result of
<PAGE>

such taking or damage; provided, that the Mortgagee shall not be obligated to
see to the application of any amount paid over to the Mortgagor.

5.   INDULGENCES, EXTENSIONS, RELEASES AND WAIVERS.
     ---------------------------------------------

     (a)   The Mortgagee may at any time, without notice to any other person,
grant any indulgence, forbearance or any extension of time for the payment of
any of the Secured Indebtedness or allow any change or substitution of or for
any of the Mortgaged Premises or any other collateral which may be held as
security for payment of the Secured Indebtedness, without in any manner
affecting, disturbing or impairing in any manner whatsoever the validity or
priority of the lien of this Mortgage upon the remainder of the Mortgaged
Premises or the validity or priority of any lien on or security interest in any
other collateral which is not changed or substituted.

     (b)   Any failure by the Mortgagee to insist upon the strict performance by
the Mortgagor of any of the terms and provisions hereof shall not be deemed to
be a waiver of any of the terms and provisions hereof, and the Mortgagee,
notwithstanding any such failure, shall have the right thereafter to insist upon
the strict performance by the Mortgagor of any and all of the terms and
provisions of this Mortgage to be performed or observed by the Mortgagor.

6.   EVENTS OF DEFAULT; MORTGAGEE'S RIGHTS.  The following shall constitute
     -------------------------------------
"Events of Default" under this Mortgage:

     (a)   The occurrence of any "Default" or "Event of Default" under the
Credit Agreement; or

     (b)   If the Mortgagor shall fail to pay any other amount due and payable
to the Mortgagee; or

     (c)   If the Mortgagor shall default in the due observance or performance
of any of the covenants, conditions or agreements contained herein and such
default shall continue beyond the applicable grace period (if any) provided for
herein or in such other Loan Document; or

     (d)   If there shall be a seizure by a receiver, trustee or other officer
appointed by any court, or any sheriff, constable, marshal, or other similar
governmental officer, under color of legal authority, of all or any portion of
the Mortgaged Premises; or

     (e)   If all or any portion of the Mortgaged Premises or any interest
therein is sold, transferred or otherwise assigned; or

     (f)   If the Mortgagor's title to the Mortgaged Premises, or any
substantial part thereof, shall become the subject of actual or threatened
litigation which would or might, in the Mortgagee's good faith and reasonable
opinion, on final determination result in substantial impairment or loss of the
security provided for herein; or
<PAGE>

     (g)   If, without the prior written consent of the Mortgagee, the Mortgagor
shall make or suffer to be made any lease, sale, or conveyance of the Mortgaged
Premises, or any part thereof, for oil, gas or other mining purposes, or shall
grant, assign or convey, or attempt to grant, assign or convey, any mineral
interest (or right to explore for minerals) of any nature in respect of the
Mortgaged Premises, or any part thereof.

7.   REMEDIES UPON DEFAULT.
     ---------------------

     (a)   Upon the occurrence of any Event of Default specified in Subsection
8.7 of the Credit Agreement, the whole amount of the Secured Indebtedness
remaining unpaid shall forthwith immediately mature and become immediately due
and payable. Upon the occurrence of any other Event of Default, then, and in
each and every such case, the whole amount of the Secured Indebtedness remaining
unpaid shall, at the option of any holder or holders thereof or of any part
thereof, immediately mature and become due and payable.

     (b)   Upon any Event of Default, or at any time thereafter while the
Secured Indebtedness or any part thereof remains unpaid, the Mortgagee shall
have the right to proceed by a suit or suits in equity or at law, whether for
the specific performance of any covenant, agreement or condition contained
herein or in the Notes or the Credit Agreement or in aid of the execution of any
power herein granted, or for any foreclosure or the sale of the Mortgaged
Premises, or any part thereof, under the judgment or decree of any court of
competent jurisdiction (whether or not proceedings have commenced by the
exercise of the power of sale herein given), or for the enforcement of any other
appropriate legal or equitable remedy.

     (c)   With respect to any sale or sales by virtue of judicial proceedings,
the Mortgagor agrees as follows:

           (i)   It shall not be necessary for the Mortgagee or any public
officer acting under execution or order of court to have physically present or
constructively in his possession any of the Mortgaged Premises. Upon the sale by
virtue of judicial proceedings, the receipt of the Mortgagee, or of the officer
making a sale under judicial proceedings, shall be a sufficient discharge to the
purchaser or purchasers at any sale for his or their purchase money, and such
purchaser or purchasers, his or their successors, assigns or personal
representatives, shall not, after paying such purchase money and receiving such
receipt of the Mortgagee or of such officer therefor, be obliged to see to the
application of such purchase price, or be in any manner answerable for any loss,
misapplication or non-application thereof.

          (ii)   The purchaser at any such sale shall not, nor shall his or its
heirs, legal representatives, successors or assigns, by reason of the
acquisition of all or any portion of the Mortgaged Premises, be deemed to have
assumed any liability or obligation of the Mortgagor in respect of the Mortgaged
Premises, or any part thereof, arising by reason of any occurrence taking place
prior to such sale.

          (iii)  No single sale or series of such sales shall extinguish the
lien of this Mortgage or the priority thereof except with respect to the items
of property sold, but such lien
<PAGE>

shall exist for so long as, and may be exercised in any manner by law as often
as, the circumstances require to give the Mortgagee full relief hereunder.

          (iv)   The Mortgagee, if it be the highest bidder, shall have the
right to become the purchaser at any foreclosure sale, and the Mortgagee
purchasing at any such sale shall have the right to be credited on the amount of
the bid made therefor with the amount of Secured Indebtedness payable to the
Mortgagee.

          (v)    The proceeds of sale of the Mortgaged Premises or any part
thereof and all other monies received by the Mortgagee in any proceedings for
the enforcement hereof, whose application has not elsewhere herein been
specifically provided for, shall be applied as follows: First, to the payment of
all necessary costs and expenses incident to the enforcement of this Mortgage,
including but not limited to, a reasonable compensation to the agents, attorneys
and counsel of the Mortgagee; Second, in payment to the Mortgagee of the
principal of and interest accrued on advances made for the account of the
Mortgagor pursuant to the terms hereof, the Notes or the Credit Agreement for
the protection, preservation or operation of the Mortgaged Premises, application
to be made first to interest and then to principal; Third, in payment of the
principal and interest due and unpaid on the Notes, as well as other Secured
Indebtedness, application to be made in such order or manner as the Mortgagee
may elect; and Fourth, after all Secured Indebtedness has been paid in full, to
the payment of any balance over to the Mortgagor, or its legal representatives,
successors or assigns.

          (vi)   The Mortgagor waives all rights of marshalling of assets or
sale in inverse order of alienation in the event of foreclosure.

          (vii)  Appraisement of the Mortgaged Premises is hereby expressly
waived or not waived at the option of the Mortgagee, such option to be exercised
prior to or at the time judgment is rendered in any foreclosure hereof.

          (viii) The Mortgaged Premises may be sold in one parcel and as an
entirety or in such parcels, manner or order as the Mortgagee in its sole
discretion may elect.

     (d)  In lieu of foreclosure of the Mortgaged Premises, upon the occurrence
of any Event of Default, the Mortgagee, personally or by its agents or
attorneys, shall have the right and power, which is hereby conferred under the
terms of this Mortgage, with or without first taking possession, to sell the
Mortgaged Premises and all of the Mortgagor's estate, right, title and interest,
claim and demand therein and right of redemption thereof, to the extent
permitted by law, at one or more sales, as an entirety or in parcels, as the
Mortgagee may elect, all at such place or places and otherwise in such manner
and upon such notice as may be required by Title 46, Oklahoma Statutes, Sections
40-49 (the "Oklahoma Power of Sale Mortgage Foreclosure Act") or other
applicable law, or, in the absence of any such requirement, as the Mortgagee may
deem appropriate, and to make conveyance to the purchaser or purchasers. Any
statutory cure period shall run concurrently with any contractual provision for
notice and/or cure. The Mortgagee may postpone the sale of all or any portion of
such property by public announcement at the time and place of such sale, and
from time to time thereafter may further postpone such sale by public
announcement made at the time of sale fixed by the preceding postponement. The
<PAGE>

right of sale hereunder shall not be exhausted by one or any sale, and the
Mortgagee may make other successive sales until all of the Mortgaged Premises
have been sold. No action of the Mortgagee based upon the provisions contained
herein or contained in the Oklahoma Power of Sale Mortgage Foreclosure Act,
including, without limitation, the giving of the Notice of Intent to Foreclose
by Power of Sale or the Notice of Sale, shall constitute an election of remedies
which would preclude the Mortgagee from pursuing judicial foreclosure before or
at any time after commencement of the power of sale foreclosure procedure.

     (e)   If the Mortgagor should fail to comply with any of the covenants,
agreements or obligations of the Mortgagor hereunder, then the Mortgagee may
perform the same for the account and at the expense of the Mortgagor, but shall
not be obligated so to do, and any and all expenses (including, without
limitation, the fees and expenses of counsel) incurred or paid in so doing shall
be payable by the Mortgagor to the Mortgagee, with interest at the Default Rate
(as defined in the Credit Agreement), and the amount thereof shall be payable on
demand and shall be secured by and under this Mortgage, and the amount and
nature of such expense and the time when paid shall be prima facie established
by the affidavit of the Mortgagee or any officer or agent thereof; provided,
however, that the exercise of the privileges granted in this subsection 6(e)
shall not in any manner be considered or constitute a waiver of the right of the
Mortgagee upon the happening of an Event of Default hereunder to declare the
Secured Indebtedness to be at once due and payable, but is cumulative of such
right and all other rights herein given.

     (f)   Upon the occurrence of any Event of Default, then in each and every
such case the Mortgagee or any holder of the Secured Indebtedness, or any part
thereof, shall be authorized, whether or not the Secured Indebtedness shall have
been declared due and payable and whether or not any of the other remedies
provided for herein shall have been exercised, to enter into and upon the
Mortgaged Premises, or any part thereof, and to take possession of the Mortgaged
Premises, or any part thereof, and all books and records relating thereto, and
to exclude the Mortgagor, and its agents and servants, wholly therefrom.

     (g)   The Mortgagor agrees that, if any condition of this Mortgage has not
been performed or if any other Event of Default shall have occurred, the
Mortgagee shall be entitled as a matter of right, without regard to the adequacy
of the security for the Secured Indebtedness or the solvency of the Mortgagor,
to the appointment of a receiver or receivers of its choice, except as may be
prohibited by law, of all or any part of the Mortgaged Premises and the rents,
issues, profits, revenues and other income thereof, in any action for the
foreclosure of this Mortgage (whether by judicial proceedings or exercise of the
power of sale), and the Mortgagor hereby consents to the appointment of such
receiver or receivers and agrees not to oppose any application therefor by the
Mortgagee or any appointment pursuant thereto.

8.   FEES AND EXPENSES. It is agreed that if, and as often as, this Mortgage
     -----------------
and/or the Notes are placed in the hands of an attorney for collection, or to
protect the priority or validity of the lien of this Mortgage, or to defend any
suit affecting the title to the Mortgaged Premises, or any part thereof, or to
enforce or defend any of the Mortgagee's rights hereunder, the Mortgagor shall
pay to the Mortgagee its attorney's fees and expenses, together with all court
costs, expenses for title examination, title insurance or other disbursements
relating to the Mortgaged Premises, which sums shall be secured hereby.
<PAGE>

9.   NOTICES.  Any notice, demand, request or consent required or authorized
     -------
hereunder shall be in person, delivered by U.S. mail, or sent by telecopier,
addressed as follows:

     The Mortgagor:   -        MATRIX SERVICE COMPANY
                               10701 E. Ute Street
                               Tulsa, Oklahoma 74116-1517
                               Attn: Michael J. Hall, Vice President of Finance
                                     and Chief Financial Officer
                               Fax:  (918) 838-8810

     The Mortgagee:   -        BANK ONE, OKLAHOMA, N.A.
                               15 E. 5th Street
                               Tulsa, Oklahoma 74103
                               Attn: David G. Page, First Vice President
                               Fax:  (918) 586-5474

or at such other address as any party hereto shall designate for such purpose in
a written notice to the other party hereto.  Notices served in person shall be
effective and deemed given when delivered; notices sent by fax shall be
effective and deemed given when transmitted, as evidenced by the sender's
confirmation thereof; and notices sent by mail shall be effective and deemed
given three (3) business days after being when deposited in the U.S. mail,
postage prepaid.

10.  MINERAL INTERESTS.  The Mortgagor agrees that the making of any oil, gas or
     -----------------
mining lease or the sale or conveyance of any mineral interests or right to
explore for minerals under, through or upon the Mortgaged Premises or the
exercise of any such rights by the owner of any mineral interests affecting the
Mortgaged Premises would impair the value of the Mortgaged Premises as security
for payment of the Secured Indebtedness, and the Mortgagor shall have no right,
power or authority to lease the Mortgaged Premises or any part thereof, for oil,
gas or other mining purposes, or to grant, assign or convey any mineral interest
of any nature, or the right to explore for oil, gas or other minerals, without
the prior written consent of the Mortgagee, which consent may be denied by the
Mortgagee in its sole discretion and in any event will not be valid until and
unless recorded.  Whether or not the Mortgagee consents to such lease, sale,
conveyance, grant or exercise of oil, gas or mineral rights, the Mortgagee will
receive the entire consideration to be paid to the Mortgagor therefor
(including, without limitation, all awards for damages to the Mortgaged Premises
arising from the exercise thereof), with the same to be applied to the payment
of the Secured Indebtedness as it becomes due and payable; provided, however,
that the acceptance of such consideration will in no way impair the lien of this
Mortgage on the entire Mortgaged Premises and all rights therein, including all
oil, gas and mineral rights.

11.  SECURITY AGREEMENT AND FINANCING STATEMENT. This Mortgage also constitutes,
     ------------------------------------------
and shall be construed as, a security agreement and a financing statement with
respect to any of the properties and items described herein which may be subject
to a security interest pursuant to the Uniform Commercial Code as adopted in the
State of Oklahoma, and the
<PAGE>

Mortgagor hereby grants to the Mortgagee a security interest in said properties
and items (hereinafter referred to as the "Collateral"). The Mortgagor agrees
that this instrument may be filed by the Mortgagee in the appropriate records or
index as a financing statement or fixture filing for the purpose of perfecting
the aforesaid security interest. Upon the occurrence of any Event of Default
hereunder and acceleration of the Secured Indebtedness: (i) the Mortgagee may,
at its discretion, require the Mortgagor to assemble the Collateral and make it
available to the Mortgagee at a place reasonably convenient to both parties to
be designated by the Mortgagee, and (ii) all or any part of the Collateral may,
at the Mortgagee's discretion, be combined with the real property covered hereby
and sold together with such real property as an entirety, or the Collateral (or
any part of the Collateral not sold together with the real property) may be sold
separately, as one parcel or in such parcels, manner or order as the Mortgagee,
in its discretion, may elect. The Mortgagee shall give the Mortgagor notice of
the time and place of any public sale of any Collateral or of the time after
which any private sale or other intended disposition thereof is to be made by
sending notice to the Mortgagor at least ten (10) days before the time of the
sale or other disposition, which provisions for notice the Mortgagor and the
Mortgagee agree are reasonable. The Mortgagor will, from time to time, within
fifteen (15) days after request by the Mortgagee, execute, acknowledge and
deliver any financing statement, renewal affidavit, certificate, continuation
statement, inventory or other similar documents as the Mortgagee may request in
order to protect, preserve, continue, extend or maintain the security interest
under the priority of this Mortgage and will, upon demand, pay any expenses
incurred by the Mortgagee in the preparation, execution and filing of any such
documents.

12.  ENVIRONMENTAL MATTERS.
     ---------------------

     (a)  As used herein: the term "Hazardous Substance" shall mean any
substance, material, or waste that is (i) included within the definitions of
"hazardous substances," "hazardous materials," "hazardous waste," "toxic
substances," "toxic materials," "toxic waste," or words of similar import in any
Environmental Law, (ii) listed as hazardous substances by the United States
Department of Transportation or by the Environmental Protection Agency, or (iii)
petroleum, petroleum-related, or a petroleum by-product, asbestos or asbestos-
containing material, polychlorinated biphenyls, flammable, explosive,
radioactive, freon gas, radon, or a pesticide, herbicide, or any other
agricultural chemical; and the term "Environmental Law" shall mean any federal,
state or local law, rule, regulation, decision, policy or guideline, pertaining
to Hazardous Substances, or protection of the environment, and all present and
future amendments thereto.

     (b)  Except as disclosed in writing by the Mortgagor to the Mortgagee, the
Mortgagor represents and warrants to Mortgagee that (i) neither the Mortgaged
Premises nor the Mortgagor are in violation of any Environmental Law applicable
to the Mortgaged Premises, or is subject to any existing, pending or threatened
governmental investigation pertaining to the Mortgaged Premises, or are subject
to any remedial obligation or lien under or in connection with any Environmental
Law, (ii) the Mortgagor has no actual knowledge or notice of the presence or
release of Hazardous Substances in, on or around any part of the Mortgaged
Premises or the soil, groundwater or soil vapor on or under the Mortgaged
Premises, or the migration of any Hazardous Substance, from or to any other
property in the vicinity of the Mortgaged Premises; and (iii) the Mortgagor's
intended future use of Mortgaged Premises will not result in the release
<PAGE>

of any Hazardous Substance in, on or around any part of the Mortgaged Premises
or in the soil, groundwater or soil vapor on or under the Mortgaged Premises, or
the migration of any Hazardous Substance from or to any other property in the
vicinity of the Mortgaged Premises.

     (c)   The Mortgagor shall neither use nor authorize any third party to use,
generate, manufacture, produce, store, or release, on, under or about the
Mortgaged Premises, or transfer to or from the Mortgaged Premises, any Hazardous
Substance, except in compliance with all Environmental Laws, and shall otherwise
comply, at the Mortgagor's sole expense and responsibility, with all
Environmental Laws, provided that if any such occurrence shall nevertheless
happen, the Mortgagor shall promptly remedy such condition, at its sole expense
and responsibility. The Mortgagor shall not permit any environmental liens to be
placed on any portion of the Mortgaged Premises. The Mortgagor shall promptly
notify the Mortgagee in writing if (i) any of the representations and warranties
herein are no longer accurate, (ii) there may be any Hazardous Substance in, on
or around the Mortgaged Premises or the soil, groundwater or soil vapor on or
under the Mortgaged Premises, or (iii) any violation of any Environmental Law on
or affecting or otherwise in respect of the Mortgaged Premises has occurred. The
Mortgagee and its agents shall have the right, and are hereby authorized, at any
reasonable time to enter upon the Mortgaged Premises for the purposes of
observing the Mortgaged Premises, taking and removing soil or groundwater
samples, and conducting tests and/or site assessments on the Mortgaged Premises,
or taking such other actions as the Mortgagee deems necessary or advisable to
cleanup, remove, resolve, or minimize the impact of, or otherwise deal with, any
Hazardous Substances on or affecting the Mortgaged Premises following receipt of
any notice from any person or entity asserting the existence or possible
existence of any Hazardous Substances pertaining to the Mortgaged Premises,
that, if true, could jeopardize the Mortgagee's security for the Secured
Indebtedness. All reasonable costs and expenses paid or incurred by the
Mortgagee in the exercise of any such rights shall be secured hereby and shall
be payable by the Mortgagor upon demand.

     (d)   The Mortgagor shall indemnify and hold the Mortgagee harmless from,
for and against any and all actions, causes of action, claims, liabilities,
damages (including foreseeable and unforeseeable consequential damages), losses,
fines, penalties, judgments, awards, settlements, and costs and expenses
(including, without limitation, reasonable attorneys' fees, experts', engineers'
and consultants' fees, and costs and expenses of investigation, testing,
remediation and dispute resolution) (collectively referred to as "Environmental
Costs") that directly or indirectly arise out of or relate in any way to: (i)
any investigation, cleanup, removal, remediation, or restoration work of site
conditions of the Mortgaged Premises relating to Hazardous Substances; (ii) any
resulting damages, harm, or injuries to the person or property of any third
parties or to any natural resources involving Hazardous Substances relating to
the Mortgaged Premises; (iii) any actual or alleged past or present disposal,
generation, manufacture, presence, processing, production, release, storage,
transportation, treatment, or use of any Hazardous Substance on, under, or about
the Mortgaged Premises; (iv) any actual or alleged past or present violation of
any Environmental Law relating to the Mortgaged Premises; (v) any lien on any
part of the Mortgaged Premises under any Environmental Law; or (vi) the breach
of any representation or warranty by or covenant of the Mortgagor herein.
Notwithstanding anything contained herein to the contrary, the foregoing
indemnity shall not apply to (i) matters resulting from the gross negligence or
willful misconduct of the Mortgagee, or matters resulting solely
<PAGE>

from the actions of the Mortgagee taken after the Mortgagee has taken title to,
or exclusive possession of the Mortgaged Premises, provided that, in both cases,
such matters shall not arise from or be accumulated with any condition of the
Mortgaged Premises, which condition was not caused by the Mortgagee, or (ii)
matters resulting solely from the actions (or failure to act) of third parties
over whom the Mortgagor has and exercises no control which may result in a
release of Hazardous Substances onto the Mortgaged Premises. The foregoing
indemnity is expressly intended to include, and does include, any Environmental
Costs arising as a result of any strict liability imposed or threatened to be
imposed on Mortgagee in connection with any of the indemnified matters described
in this Section or arising as a result of the negligence of Mortgagee in
connection with such matters. This indemnity shall continue in full force and
effect and shall survive the payment and performance of the Secured
Indebtedness, the release of record of the lien of this Mortgage or any
foreclosure (or deed in lieu thereof) of this Mortgage, the exercise by the
Mortgagee of any other remedy under this Mortgage or any other document or
instrument evidencing or securing the Secured Indebtedness, and any suit,
proceeding or judgment against the Mortgagor by the Mortgagee hereon.

13.  MISCELLANEOUS.
     -------------

     (a)   The rights of the Mortgagee arising under the clauses and covenants
contained in this Mortgage shall be separate, distinct and cumulative, and none
of them shall be in exclusion of the others. No act of the Mortgagee shall be
construed as an election to proceed under any one provision herein to the
exclusion of any other provisions, anything herein or otherwise to the contrary
notwithstanding.

     (b)   Whether or not expressly provided herein, the covenants and
agreements contained herein are binding upon the Mortgagor and its successors
and assigns, and shall inure to the benefit of the Mortgagee and its successors
and assigns.

     (c)   Wherever used in this Mortgage, unless the context clearly indicates
a contrary intent or unless otherwise specifically provided herein, the word
"Mortgagor" shall mean the Mortgagor and/or any subsequent owner or owners of
the Mortgaged Premises; the word "Mortgagee" shall mean the Mortgagee or any
subsequent holder or holders of this Mortgage; and the word "person" shall mean
an individual, corporation, partnership, limited liability company or
unincorporated association.

     (d)   This Mortgage cannot be changed except by an agreement in writing,
signed by the party against whom enforcement of the change is sought and in
recordable form.

     (e)   This Mortgage is to be governed by the laws of the State of Oklahoma.

     (f)   Should any clause or provision of this Mortgage be invalid or void
for any reason, such invalid or void clause shall not affect the whole of this
instrument, and the balance of the provisions hereof shall remain in full force
and effect.

     (g)   This Mortgage may be executed in several original counterparts. Each
counterpart shall be deemed to be an original for all purposes, and the
Mortgagee may exercise
<PAGE>

all rights and remedies available to the Mortgagee as though each counterpart
were a separate Mortgage.

     IN WITNESS WHEREOF, the Mortgagor has executed and delivered this Mortgage
on the day and month first above written.

                                          MATRIX SERVICE COMPANY
                                          a Delaware corporation

                                          By: ______________________________
                                          Name:  Michael J. Hall
                                          Title: Vice President

                                 ACKNOWLEDGMENT

STATE OF OKLAHOMA            )
                             )  SS:
COUNTY OF TULSA              )

     This instrument was acknowledged before me on this ___ day of September,
2001, by Michael J. Hall, as Vice President of Matrix Service Company, a
Delaware corporation.

                                           ______________________________
                                           Notary Public
My Commission Expires:

_________________________________

(SEAL)
<PAGE>

                                   EXHIBIT A

                        Description of the Ground Lease
                        -------------------------------

That certain Ground Lease dated as of March 1, 2001, between The City of Tulsa-
Rogers County Port Authority, Oklahoma, as Lessor, and the Matrix Service
Company, as Lessee.  A copy of said Ground Lease is recorded in Book ____ at
Pages _______ of the real estate records of Rogers County, Oklahoma.

           Legal Description of the Land Covered by the Ground Lease
           ---------------------------------------------------------

     A tract of land that is part of the Southeast Quarter (SE/4) of Section Six
     (6), part of the Northeast Quarter (NE/4) of Section Seven (7) and part of
     the Northwest Quarter (NW/4) of Section Eight (8), all in Township Twenty
     (20) North, Range Fifteen (15) East of the Indian Base and Meridian, Rogers
     County, Oklahoma, said tract of land being described as follows, to-wit:

     Starting at the Southeast corner of said Section 6; thence due West for
     1,268.58 feet; thence due South for 877.98 feet to the Point of Beginning
     of said tract of land; thence North 08(Degrees)23'24" East for 2,075.19
     feet; thence South 36(Degrees)59'43" East for 2,675.12 feet to a point of
     curve; thence Southeasterly along a curve to the right with a central angle
     of 22(Degrees)22'51" and a radius of 611.62 feet, for 238.91 feet; thence
     North 81(Degrees)36'36" West for 2,037.69 feet to the Point of Beginning of
     said tract of land, containing 49.995 acres.
<PAGE>

                                  SCHEDULE I

                  Title Exceptions and Permitted Encumbrances

                                     NONEEXECUTION COPY

                    RESIDENTIAL ASSET SECURITIES CORPORATION,
                                   Depositor,
                        RESIDENTIAL FUNDING CORPORATION,
                                Master Servicer,
                                       And
                             BANKERS TRUST COMPANY,
                                     Trustee

                         POOLING AND SERVICING AGREEMENT
                          Dated as of September 1, 2001

           Home Equity Mortgage Asset-Backed Pass-Through Certificates
                                 Series 2001-KS3

<PAGE>

<TABLE>
<CAPTION>

                                TABLE OF CONTENTS

                                                                                          Page

ARTICLE I DEFINITIONS........................................................................3

<S>               <C>                                                                       <C>
   Section 1.01   Definitions.  Whenever used in this Agreement, the following words and
                  phrases, unless the context otherwise requires, shall have the meanings
                  specified in this Article..................................................3
                  Accrued Certificate Interest...............................................3
                  Adjustable Group II Loan...................................................4
                  Adjustable Rate Certificates...............................................4
                  Adjusted Mortgage Rate.....................................................4
                  Adjustment Date............................................................4
                  Advance....................................................................4
                  Affiliate..................................................................4
                  Agreement..................................................................5
                  Allocated Loss Amount......................................................5
                  Amount Held for Future Distribution........................................5
                  Applicable Spread..........................................................5
                  Appraised Value............................................................5
                  Assignment.................................................................6
                  Assignment Agreement.......................................................6
                  Available Distribution Amount..............................................6
                  Bankruptcy Code............................................................6
                  Bankruptcy Loss............................................................6
                  Basic Principal Amount.....................................................7
                  Book-Entry Certificate.....................................................7
                  Business Day...............................................................7
                  Buydown Funds..............................................................7
                  Buydown Mortgage Loan......................................................7
                  Calendar Quarter...........................................................7
                  Cash Liquidation...........................................................7
                  Certificate................................................................7
                  Certificate Account........................................................7
                  Certificate Account Deposit Date...........................................7
                  Certificateholder or Holder................................................7
                  Certificate Owner..........................................................8
                  Certificate Principal Balance..............................................8
                  Certificate Register and Certificate Registrar.............................8
                  Class......................................................................8
                  Class A Certificate........................................................8
                  Class A-I Certificate......................................................8
                  Class A-I-6 Lockout Distribution Amount....................................9
                  Class A-I-6 Lockout Percentage.............................................9

                                        i
<PAGE>

                  Class A-I-6 Lockout Pro Rata Distribution Amount...........................9
                  Class A-II Certificate.....................................................9
                  Class A Principal Distribution Amount......................................9
                  Class M-I Certificates.....................................................9
                  Class M-1 Principal Distribution Amount....................................9
                  Class M-2 Certificates....................................................10
                  Class M-2 Principal Distribution Amount...................................10
                  Class M-3 Certificates....................................................10
                  Class M-3 Principal Distribution Amount...................................10
                  Class M-I Certificates....................................................10
                  Class M-II Certificates...................................................10
                  Class M Certificates......................................................10
                  Class R Certificate.......................................................11
                  Class R-I Certificate.....................................................11
                  Class R-IA Certificate....................................................11
                  Class R-II Certificate....................................................11
                  Class R-III Certificate...................................................11
                  Class SB Certificate......................................................11
                  Class SB-I Certificate....................................................11
                  Class SB-II Certificate...................................................11
                  Closing Date..............................................................11
                  Code......................................................................11
                  Combined Loan-to-Value Ratio..............................................11
                  Compensating Interest.....................................................12
                  Converted Mortgage Loan...................................................12
                  Convertible Mortgage Loan.................................................12
                  Corporate Trust Office....................................................12
                  Curtailment...............................................................12
                  Custodial Account.........................................................12
                  Custodial Agreement.......................................................12
                  Custodian.................................................................12
                  Cut-off Date..............................................................12
                  Cut-off Date Principal Balance............................................13
                  Debt Service Reduction....................................................13
                  Deficient Valuation.......................................................13
                  Definitive Certificate....................................................13
                  Deleted Mortgage Loan.....................................................13
                  Delinquent................................................................13
                  Depository................................................................13
                  Depository Participant....................................................13
                  Destroyed Mortgage Note...................................................13
                  Determination Date........................................................14
                  Disqualified Organization.................................................14
                  Distribution Date.........................................................14
                  Due Date..................................................................14

                                        ii
<PAGE>

                  Due Period................................................................14
                  Eligible Account..........................................................14
                  Event of Default..........................................................15
                  Excess Fraud Loss.........................................................15
                  Excess Losses.............................................................15
                  Excess Special Hazard Loss................................................15
                  Excess Subordinated Amount................................................15
                  Expense Fee...............................................................15
                  Extraordinary Events......................................................15
                  Extraordinary Losses......................................................16
                  FASIT.....................................................................16
                  FDIC......................................................................16
                  FHLMC.....................................................................16
                  Final Distribution Date...................................................16
                  Fitch.....................................................................16
                  Fixed Rate Certificates...................................................16
                  FNMA......................................................................16
                  Foreclosure Profits.......................................................16
                  Fraud Loss Amount.........................................................17
                  Fraud Losses..............................................................17
                  Gross Margin..............................................................17
                  Group I Available Excess Cash Flow........................................17
                  Group I Loans.............................................................17
                  Group I REO Properties....................................................18
                  Group I Prepayment Interest Shortfall.....................................18
                  Group II Available Excess Cash Flow.......................................18
                  Group II Loans............................................................18
                  Group II Prepayment Interest Shortfall....................................18
                  Group II REO Properties...................................................18
                  High Cost Loan............................................................18
                  Independent...............................................................18
                  Index.....................................................................18
                  Initial Certificate Principal Balance.....................................19
                  Initial Loan Group II Basis Risk Reserve Fund Deposit.....................19
                  Insurance Proceeds........................................................19
                  Interest Accrual Period...................................................19
                  Interest Distribution Amount..............................................19
                  Interim Certification.....................................................19
                  Junior Mortgage Loan......................................................19
                  Late Collections..........................................................19
                  LIBOR.....................................................................19
                  LIBOR Business Day........................................................20
                  LIBOR Rate Adjustment Date................................................20
                  Liquidation Proceeds......................................................20
                  Loan-to-Value Ratio.......................................................20

                                        iii
<PAGE>

                  Loan Group................................................................20
                  Loan Group I..............................................................20
                  Loan Group I Certificates.................................................20
                  Loan Group I Excess Cash Flow.............................................20
                  Loan Group I Optional Termination Date....................................20
                  Loan Group I Stated Principal Balance.....................................20
                  Loan Group II.............................................................20
                  Loan Group II Basis Risk Reserve Fund.....................................20
                  Loan Group II Basis Risk Shortfall........................................20
                  Loan Group II Certificates................................................21
                  Loan Group II Excess Cash Flow............................................21
                  Loan Group II Optional Termination Date...................................21
                  Loan Group II Stated Principal Balance....................................21
                  Maturity Date.............................................................21
                  Maximum Group I Rate......................................................21
                  Maximum Group II Rate.....................................................21
                  Maximum Mortgage Rate.....................................................21
                  Maximum Net Mortgage Rate.................................................21
                  MERS......................................................................21
                  MERS(R)System.............................................................22
                  MIN.......................................................................22
                  Minimum Mortgage Rate.....................................................22
                  Modified Mortgage Loan....................................................22
                  Modified Net Mortgage Rate................................................22
                  MOM Loan..................................................................22
                  Monthly Payment...........................................................22
                  Moody's...................................................................22
                  Mortgage..................................................................22
                  Mortgage File.............................................................22
                  Mortgage Insurer..........................................................22
                  Mortgage Loan Schedule....................................................22
                  Mortgage Loans............................................................24
                  Mortgage Note.............................................................24
                  Mortgage Rate.............................................................24
                  Mortgaged Property........................................................24
                  Mortgagor.................................................................24
                  Net Mortgage Rate.........................................................25
                  Non-Primary Residence Loans...............................................25
                  Non-United States Person..................................................25
                  Nonrecoverable Advance....................................................25
                  Nonsubserviced Mortgage Loan..............................................25
                  Note Margin...............................................................25
                  Notice....................................................................25
                  Notional Amount...........................................................25
                  Offered Certificates......................................................26

                                        iv
<PAGE>

                  Officers' Certificate.....................................................26
                  Opinion of Counsel........................................................26
                  Outstanding Mortgage Loan.................................................26
                  Optional Termination Date.................................................26
                  Ownership Interest........................................................26
                  Pass-Through Rate.........................................................26
                  Paying Agent..............................................................27
                  Percentage Interest.......................................................27
                  Periodic Cap..............................................................27
                  Permitted Investments.....................................................27
                  Permitted Transferee......................................................28
                  Person....................................................................28
                  Policy....................................................................28
                  Premium...................................................................29
                  Premium Rate..............................................................29
                  Prepayment Assumption.....................................................29
                  Prepayment Interest Shortfall.............................................29
                  Prepayment Period.........................................................29
                  Primary Insurance Policy..................................................29
                  Principal Distribution Amount.............................................29
                  Principal Prepayment......................................................30
                  Principal Prepayment in Full..............................................30
                  Principal Remittance Amount...............................................30
                  Program Guide.............................................................30
                  Purchase Price............................................................30
                  Qualified Substitute Mortgage Loan........................................31
                  Rating Agency.............................................................31
                  Realized Loss.............................................................31
                  Record Date...............................................................32
                  Relief Act................................................................32
                  REMIC.....................................................................32
                  REMIC Administrator.......................................................32
                  REMIC I...................................................................32
                  REMIC I Interest..........................................................33
                  REMIC I Regular Interest..................................................33
                  REMIC I Remittance Rate...................................................33
                  REMIC IA..................................................................33
                  REMIC IA Interest.........................................................33
                  REMIC IA Regular Interest.................................................33
                  REMIC IA Remittance Rate..................................................33
                  REMIC II..................................................................33
                  REMIC II Interest.........................................................34
                  REMIC II Regular Interest.................................................34
                  REMIC II Remittance Rate..................................................34
                  REMIC III.................................................................34

                                        v
<PAGE>

                  REMIC III Certificate.....................................................34
                  REMIC III Regular Certificate.............................................34
                  REMIC III Regular Interest................................................34
                  REMIC Provisions..........................................................34
                  REO Acquisition...........................................................34
                  REO Disposition...........................................................34
                  REO Imputed Interest......................................................35
                  REO Proceeds..............................................................35
                  REO Property..............................................................35
                  Request for Release.......................................................35
                  Required Insurance Policy.................................................35
                  Residential Funding.......................................................35
                  Responsible Officer.......................................................35
                  Seller....................................................................35
                  Seller's Agreement........................................................35
                  Servicing Accounts........................................................35
                  Servicing Advances........................................................35
                  Servicing Fee.............................................................36
                  Servicing Fee Rate........................................................36
                  Servicing Officer.........................................................36
                  Servicing Modification....................................................36
                  Sixty-Plus Delinquency Percentage.........................................36
                  Senior Enhancement Percentage.............................................36
                  Special Hazard Amount.....................................................36
                  Special Hazard Loss.......................................................37
                  Specified Enhancement Percentage..........................................37
                  Standard & Poor's.........................................................37
                  Startup Date..............................................................38
                  Stated Principal Balance..................................................38
                  Stepdown Date.............................................................38
                  Subordinated Amount.......................................................38
                  Subordination Deficiency Amount...........................................38
                  Subordination Increase Amount.............................................38
                  Subordination Floor.......................................................39
                  Subordination Percentage..................................................39
                  Subordination Reduction Amount............................................39
                  Subserviced Mortgage Loan.................................................39
                  Subservicer...............................................................39
                  Subservicer Advance.......................................................39
                  Subservicing Account......................................................39
                  Subservicing Agreement....................................................39
                  Subservicing Fee..........................................................40
                  Targeted Subordinated Amount..............................................40
                  Tax Returns...............................................................40
                  Transfer..................................................................40

                                        vi
<PAGE>

                  Transferee................................................................40
                  Transferor................................................................40
                  Trigger Event.............................................................40
                  Trust Fund................................................................40
                  Unadjusted Accrued Certificate Interest...................................41
                  Uniform Single Attestation Program for Mortgage Bankers...................41
                  Uninsured Cause...........................................................41
                  United States Person......................................................41
                  Voting Rights.............................................................41
   Section 1.02   Determination of LIBOR....................................................41
   Section 1.03   Certain REMIC Matters.  [To be revised]...................................42

ARTICLE II CONVEYANCE OF MORTGAGE LOANS;ORIGINAL ISSUANCE OF CERTIFICATES...................47

   Section 2.01   Conveyance of Mortgage Loans..............................................47
   Section 2.02   Acceptance by Trustee.....................................................50
   Section 2.03   Representations, Warranties and Covenants of the Master Servicer and the
                  Depositor.................................................................52
   Section 2.04   Representations and Warranties of Sellers; Additional Representations and
                  Warranties of Residential Funding.........................................54
   Section 2.05   Execution and Authentication of Certificates..............................56
   Section 2.06   Convertible Mortgage Loans................................................57

ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS..................................57

   Section 3.01   Master Servicer to Act as Servicer........................................57
   Section 3.02   Subservicing Agreements Between Master Servicer and Subservicers;
                  Enforcement of Subservicers' and Sellers' Obligations.....................59
   Section 3.03   Successor Subservicers....................................................60
   Section 3.04   Liability of the Master Servicer..........................................61
   Section 3.05   No Contractual Relationship Between Subservicer and Trustee or
                  Certificateholders........................................................61
   Section 3.06   Assumption or Termination of Subservicing Agreements by Trustee...........61
   Section 3.07   Collection of Certain Mortgage Loan Payments; Deposits to Custodial
                  Account...................................................................62
   Section 3.08   Subservicing Accounts; Servicing Accounts.................................64
   Section 3.09   Access to Certain Documentation and Information Regarding the Mortgage
                  Loans.....................................................................65
   Section 3.10   Permitted Withdrawals from the Custodial Account..........................66
   Section 3.11   Maintenance of the PMI Policy and Primary Insurance Coverage..............67
   Section 3.12   Maintenance of Fire Insurance and Omissions and Fidelity Coverage.........68
   Section 3.13   Enforcement of Due-on-Sale Clauses; Assumption and Modification
                  Agreements; Certain Assignments...........................................70
   Section 3.14   Realization Upon Defaulted Mortgage Loans.................................72
   Section 3.15   Trustee to Cooperate; Release of Mortgage Files...........................74

                                        vii
<PAGE>

   Section 3.16   Servicing and Other Compensation; Compensating Interest...................76
   Section 3.17   Reports to the Trustee and the Depositor..................................77
   Section 3.18   Annual Statement as to Compliance.........................................77
   Section 3.19   Annual Independent Public Accountants' Servicing Report...................78
   Section 3.20   Right of the Depositor in Respect of the Master Servicer..................78
   Section 3.21   [Reserved]................................................................78
   Section 3.22   Administration of Buydown Funds...........................................78

ARTICLE IV PAYMENTS TO CERTIFICATEHOLDERS...................................................79

   Section 4.01   Certificate Account.......................................................79
   Section 4.02   Distributions.............................................................80
   Section 4.03   Statements to Certificateholders..........................................86
   Section 4.04   Distribution of Reports to the Trustee and the Depositor; Advances by the
                  Master Servicer...........................................................88
   Section 4.05   Allocation of Realized Losses.............................................90
   Section 4.06   Reports of Foreclosures and Abandonment of Mortgaged Property.............91
   Section 4.07   Optional Purchase of Defaulted Mortgage Loans.............................91

ARTICLE V THE CERTIFICATES..................................................................92

   Section 5.01   The Certificates..........................................................92
   Section 5.02   Registration of Transfer and Exchange of Certificates.....................94
   Section 5.03   Mutilated, Destroyed, Lost or Stolen Certificates.........................99
   Section 5.04   Persons Deemed Owners.....................................................99
   Section 5.05   Appointment of Paying Agent...............................................99
   Section 5.06   Reserved.................................................................100
   Section 5.07   Loan Group II Basis Risk Reserve Fund....................................100

ARTICLE VI THE DEPOSITOR AND THE MASTER SERVICER...........................................101

   Section 6.01   Respective Liabilities of the Depositor and the Master Servicer..........101
   Section 6.02   Merger or Consolidation of the Depositor or the Master Servicer;
                  Assignment of Rights and Delegation of Duties by Master Servicer.........101
   Section 6.03   Limitation on Liability of the Depositor, the Master Servicer and Others.102
   Section 6.04   Depositor and Master Servicer Not to Resign..............................103

ARTICLE VII DEFAULT........................................................................103

   Section 7.01   Events of Default........................................................103
   Section 7.02   Trustee or Depositor to Act; Appointment of Successor....................105
   Section 7.03   Notification to Certificateholders.......................................106
   Section 7.04   Waiver of Events of Default..............................................106

ARTICLE VIII CONCERNING THE TRUSTEE........................................................107

                                        viii
<PAGE>

   Section 8.01   Duties of Trustee........................................................107
   Section 8.02   Certain Matters Affecting the Trustee....................................109
   Section 8.03   Trustee Not Liable for Certificates or Mortgage Loans....................110
   Section 8.04   Trustee May Own Certificates.............................................111
   Section 8.05   Master Servicer to Pay Trustee's Fees and Expenses; Indemnification......111
   Section 8.06   Eligibility Requirements for Trustee.....................................112
   Section 8.07   Resignation and Removal of the Trustee...................................112
   Section 8.08   Successor Trustee........................................................113
   Section 8.09   Merger or Consolidation of Trustee.......................................113
   Section 8.10   Appointment of Co-Trustee or Separate Trustee............................114
   Section 8.11   Appointment of Custodians................................................115
   Section 8.12   Appointment of Office or Agency..........................................115

ARTICLE IX TERMINATION.....................................................................115

   Section 9.01   Termination Upon Purchase by the Master Servicer or the Depositor or
                  Liquidation of All Mortgage Loans........................................115
   Section 9.02   Termination of REMIC III.................................................118
   Section 9.03   Additional Termination Requirements......................................118

ARTICLE X REMIC PROVISIONS.................................................................119

   Section 10.01  REMIC Administration.....................................................119
   Section 10.02  Master Servicer, REMIC Administrator and Trustee Indemnification.........123

ARTICLE XI MISCELLANEOUS PROVISIONS........................................................123

   Section 11.01  Amendment................................................................123
   Section 11.02  Recordation of Agreement; Counterparts...................................126
   Section 11.03  Limitation on Rights of Certificateholders...............................126
   Section 11.04  Governing Law............................................................127
   Section 11.05  Notices..................................................................127
   Section 11.06  Notices to Rating Agency.................................................128
   Section 11.07  Severability of Provisions...............................................129
   Section 11.08  Supplemental Provisions for Resecuritization.............................129

                                    EXHIBITS

Exhibit A-1           Form of Class A Certificate
Exhibit A-2           Form of Class SB Certificate
Exhibit B             Form of Class R Certificate
Exhibit C             Custodial Agreement
Exhibit D-1           Mortgage Loan Schedule - Group - I

                                        ix

<PAGE>

Exhibit D-2           Mortgage Loan Schedule - Group - II
Exhibit E             Forms Of Request For Release
Exhibit F-1           Form of Transfer Affidavit and Agreement
Exhibit F-2           Form of Transferor Certificate
Exhibit G             Form of Investor Representation Letter
Exhibit H             Form of Transferor Representation Letter
Exhibit I             Text of Amendment to Pooling and Servicing Agreement Pursuant to Section
                      11.01(e) for a Limited Guaranty
Exhibit J             Form of Limited Guaranty
Exhibit K             Form of Lender Certification for Assignment of Mortgage Loan
Exhibit L             Form of Rule 144A Investment Representation
Exhibit M             High Cost Mortgage Loans
Exhibit N             Representations and Warranties
Exhibit O             [Reserved]
Exhibit P             ERISA Representation Letter

                                        x
</TABLE>

<PAGE>

               This Pooling and Servicing  Agreement,  effective as of September
1, 2001,  among  RESIDENTIAL  ASSET  SECURITIES  CORPORATION,  as the  depositor
(together  with  its  permitted   successors  and  assigns,   the  "Depositor"),
RESIDENTIAL FUNDING CORPORATION, as master servicer (together with its permitted
successors and assigns, the "Master Servicer"), and BANKERS TRUST COMPANY, a New
York banking corporation, as trustee (together with its permitted successors and
assigns, the "Trustee"),

                                    PRELIMINARY STATEMENT:

               The Depositor intends to sell mortgage pass-through  certificates
(collectively,  the  "Certificates"),  to be issued hereunder in twenty classes,
which in the aggregate will evidence the entire beneficial ownership interest in
the Mortgage Loans (as defined herein).  As provided herein, the Master Servicer
will make an election to treat the entire  segregated pool of assets relating to
the Group I Loans,  as described in the  definition of REMIC I below,  as a real
estate mortgage  investment conduit (a "REMIC") for federal income tax purposes,
and such  segregated  pool of assets will be  designated as "REMIC I." The Class
R-I Certificates will represent the sole class of "residual  interests" in REMIC
I for purposes of the REMIC  Provisions (as defined herein) under federal income
tax law.  Section  1.03  irrevocably  sets  forth the  designation,  the REMIC I
Remittance Rate, the initial Uncertificated  Balance, and solely for purposes of
satisfying Treasury Regulation Section 1.860G-1(a)(4)(iii), the "latest possible
maturity  date" for each of the REMIC I Regular  Interests.  None of the REMIC I
Regular Interests will be certificated.

               As provided herein, the REMIC Administrator will make an election
to treat  the  segregated  pool of  assets  consisting  of the  REMIC I  Regular
Interests as a REMIC for federal income tax purposes,  and each  segregated pool
of assets  will be  designated  as REMIC IA.  The Class R-IA  Certificates  will
represent the sole class of "residual interests" in REMIC IA for purposes of the
REMIC  Provisions  under federal income tax law.  Section 1.03  irrevocably sets
forth the designation,  the REMIC IA Remittance Rate, the initial Uncertificated
Balance,  and solely for  purposes of  satisfying  Treasury  Regulation  Section
1.860G-1(a)(4)(iii),  the "latest possible  maturity date" for each of the REMIC
IA  Regular  Interests.   None  of  the  REMIC  IA  Regular  Interests  will  be
certificated.  On each Distribution  Date,  available funds, if any remaining in
REMIC I after  payments of interest and  principal,  as  designated  above,  and
expenses  of the  Trust  that  are  payable  from  the  Group  I  Loans  will be
distributed to the Class R-I Certificates. It is expected that there will not be
any distributions on the Class R-I Certificates.

               As provided herein, the REMIC Administrator will make an election
to treat the entire segregated pool of assets relating to the Group II Loans, as
described in the  definition of REMIC II, as a real estate  mortgage  investment
conduit (a "REMIC") for federal income tax purposes, and such segregated pool of
assets  will be  designated  as "REMIC  II." The Class  R-II  Certificates  will
represent the sole class of "residual interests" in REMIC II for purposes of the
REMIC  Provisions  under federal income tax law.  Section 1.03  irrevocably sets
forth the designation,  the REMIC II Remittance Rate, the initial Uncertificated
Balance,  and solely for  purposes of  satisfying  Treasury  Regulation  Section
1.860G-1(a)(4)(iii),  the "latest possible  maturity date" for each of the REMIC
II  Regular  Interests.   None  of  the  REMIC  II  Regular  Interests  will  be
certificated.

                                       1
<PAGE>

               As provided herein,  the REMIC  Administrator will elect to treat
the segregated pool of assets  consisting of the REMIC IA Regular  Interests and
REMIC II Regular Interests as a REMIC for federal income tax purposes,  and such
segregated  pool of assets  will be  designated  as REMIC III.  The Class  R-III
Certificates will represent the sole class of "residual  interests" in REMIC III
for purposes of the REMIC Provisions under federal income tax law. The following
table  irrevocably  sets forth the  designation,  Pass-Through  Rate and initial
Certificate  Principal Balance for each of the "regular  interests" in REMIC III
(the  "REMIC III  Regular  Interests").  The  "latest  possible  maturity  date"
(determined  solely for  purposes  of  satisfying  Treasury  regulation  Section
1.860G-1(a)(4)(iii))   for  each  REMIC  III  Regular   Interest  shall  be  the
Distribution Date in September 2035.

                                       2
<PAGE>

<TABLE>
<CAPTION>

                                     Aggregate
                                     Initial
                                     Certificate               Scheduled Final     Initial Ratings
                       Pass-Through  Principal                 Distribution
Designation   Type       Rate        Balance       Features    Date             S&P   Moody's  Fitch

------------  --------  ---------    ------------  ----------  ---------------  -----    ----   -----
<S>       <C>                                                             <C>
Class A-I-1    Senior   Adjustable                   Senior      November 25,   AAA     Aaa     AAA
                             Rate    $286,981,000                    2016
Class A-I-2    Senior       4.79%    $ 51,255,000    Senior      October 25,    AAA     Aaa     AAA
                                                                     2019
Class A-I-3    Senior       5.18%                    Senior      July 25, 2027  AAA     Aaa     AAA
                                     $181,938,000
Class A-I-4    Senior       5.81%    $ 77,933,000    Senior      August 25,     AAA     Aaa     AAA
                                                                     2029
Class A-I-5    Senior       6.48%    $ 90,393,000    Senior      September 25,  AAA     Aaa     AAA
                                                                     2031
Class A-I-6    Senior       5.96%    $ 85,000,000Lockout/Senior  September 25,  AAA     Aaa     AAA
                                                                     2031
Class A-I-IO   Senior       5.00%      Notional    Interest      March 25,      AAA     Aaa     AAA
                                        Amount     Only/Senior       2004
Class A-II     Senior   Adjustable                   Senior      September 25,  AAA     Aaa     AAA
                           Rate      $1,040,750,000                 2031
Class M-I-1   Mezzanine    6.32%     $   34,000,000Mezzanine     September 25,  AA      Aa2      AA
                                                                    2031
Class M-I-2   Mezzanine    6.86%     $   25,500,000Mezzanine     September 25,   A      A2       A
                                                                    2031
Class M-I-3   Subordinate  7.01%     $   17,000,000Subordinate   September 25,  BBB    Baa2     BBB
                                                                    2031
Class M-II-1  Mezzanine Adjustable   $   46,000,000Mezzanine     September 25,  AA      Aa2      AA
                           Rate                                     2031
Class M-II-2  Mezzanine Adjustable   $   34,500,000Mezzanine     September 25,   A      A2       A
                           Rate                                     2031
Class M-II-3  SubordinatAdjustable   $   28,750,000Subordinate   September 25,  BBB    Baa2     BBB
                           Rate                                     2031
Class SB-I    Subordinate   N/A      $       676.06Subordinate   September 25,  N/A     N/A     N/A
                                                                    2031
Class SB-II   Subordinate   N/A      $        38.90Subordinate   September 25,  N/A     N/A     N/A
                                                                    2031
</TABLE>

               The  Mortgage  Loans have an  aggregate  Cut-off  Date  Principal
Balance equal to $2,000,000,714.96. The Mortgage Loans are comprised of two Loan
Groups.  The Group I Loans are  fixed-rate  first and junior lien mortgage loans
having  terms to maturity at  origination  or  modification  of not more than 30
years and the Group II Loans are  adjustable  rate  first  lien  mortgage  loans
having  terms to maturity at  origination  or  modification  of not more than 30
years.

               In consideration of the mutual agreements  herein contained,  the
Depositor, the Master Servicer and the Trustee agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

Section 1.01 Definitions.  Whenever used in this Agreement,  the following words
     and phrases, unless the context otherwise requires, shall have the meanings
     specified in this Article.

               Accrued Certificate  Interest:  With respect to each Distribution
Date,  as to any  Offered  Certificate,  interest  accrued  during  the  related
Interest  Accrual  Period at the related  Pass-Through  Rate on the  Certificate
Principal  Balance thereof  immediately  prior to such Distribution Date in each
case reduced by (i) the interest portion  (adjusted to the Net Mortgage Rate (or

                                       3
<PAGE>

the  Modified  Net Mortgage  Rate in the case of a Modified  Mortgage  Loan)) of
Realized  Losses  with  respect  to  Mortgage  Loans in the  related  Loan Group
(including  Excess Special Hazard Losses,  Excess Fraud Losses and Extraordinary
Losses) not allocated to one or more specific  Classes of Certificates  pursuant
to Section  4.05,  (ii) the  interest  portion of Advances  with  respect to the
related  Loan Group  previously  made with  respect  to a  Mortgage  Loan or REO
Property  which  remained  unreimbursed  following the Cash  Liquidation  or REO
Disposition of such Mortgage Loan or REO Property that were made with respect to
delinquencies  that  were  ultimately  determined  to be Excess  Special  Hazard
Losses, Excess Fraud Losses or Extraordinary Losses and (iii) any other interest
shortfalls   with  respect  to  the  related  Loan  Group  not  covered  by  the
subordination provided by the Class SB Certificates,  including interest that is
not  collectible  from the Mortgagor for the related Due Period  pursuant to the
Relief Act or similar  legislation or regulations as in effect from time to time
(but without reduction for any Group I Prepayment Interest Shortfalls,  Group II
Prepayment Interest Shortfalls or Loan Group II Basis Risk Shortfalls), with all
such reductions allocated among all of the Loan Group I Certificates in the case
of any of such  reductions that derive from Loan Group I, in proportion to their
respective  amounts of Accrued  Certificate  Interest  which would have resulted
absent such  reductions,  and among all of the Loan Group II Certificates in the
case of any of such  reductions that derive from Loan Group II, in proportion to
their  respective  amounts  of Accrued  Certificate  Interest  which  would have
resulted absent such reductions. Accrued Certificate Interest will be calculated
on the Fixed Rate  Certificates  on the basis of a 360-day  year  consisting  of
twelve 30-day months,  and on the Adjustable  Rate  Certificates on the basis of
the actual number of days in the related  Interest  Accrual Period and a 360-day
year.  With  respect to each  Distribution  Date and the Class SB  Certificates,
calculated as provided in Section 1.03 hereof.

               Adjustable  Group II Loan : Each  Mortgage  Loan in Group II, the
interest rate on which is not fixed for the life of such Mortgage Loan.

     Adjustable Rate  Certificates:  The Class A-I-1  Certificates  and the Loan
Group II Certificates.

     Adjusted  Mortgage Rate:  With respect to any Mortgage Loan and any date of
determination,  the Mortgage Rate borne by the related  Mortgage Note,  less the
rate at which the related Subservicing Fee accrues.

     Adjustment  Date: As to each Adjustable  Group II Loan, each date set forth
in the related Mortgage Note on which an adjustment to the interest rate on such
Mortgage Loan becomes effective.

     Advance:  As to any Mortgage Loan, any advance made by the Master Servicer,
pursuant to Section 4.04.

     Affiliate:  With  respect  to any  Person,  any other  Person  controlling,
controlled by or under common  control with such first Person.  For the purposes
of this  definition,  "control"  means the power to direct  the  management  and
policies of such Person,  directly or indirectly,  whether through the ownership
of voting securities,  by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.

                                       4
<PAGE>

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

               Allocated Loss Amount: As to either Loan Group,  related Class of
Offered  Certificates,  Distribution  Date and the related Due Period the sum of
(x) any  Realized  Losses,  other than Excess  Losses or  Extraordinary  Losses,
allocated  to such Class and the  related Due Period on such  Distribution  Date
pursuant to Section 4.05 hereof and (y) any Realized  Losses,  other than Excess
Losses or Extraordinary Losses, so allocated to such Class on prior Distribution
Dates and not reimbursed.

               Amount Held for Future Distribution:  As to any Distribution Date
and each Loan Group,  the total of the amounts held in the Custodial  Account at
the close of  business  on the  preceding  Determination  Date on account of (i)
Liquidation Proceeds, Insurance Proceeds,  Principal Prepayments,  Mortgage Loan
purchases made pursuant to Section 2.02,  2.03,  2.04, 3.21 or 4.07 and Mortgage
Loan substitutions made pursuant to Section 2.03 or 2.04 received or made in the
month of such Distribution Date (other than such Liquidation Proceeds, Insurance
Proceeds and purchases of Mortgage Loans that the Master  Servicer has deemed to
have been received in the preceding  month in accordance  with Section  3.07(b))
and (ii)  payments  which  represent  early  receipt of  scheduled  payments  of
principal and interest due on a date or dates  subsequent to the Due Date in the
related  Due  Period,  in each case with  respect to the  Mortgage  Loans in the
related Loan Group.

     Applicable  Spread:  With respect to the Adjustable Rate  Certificates,  as
follows;

                                Applicable Spread
        Class                     (1)                (2)
        A-I-1                      0.150%             0.150%
        A-II                       0.230%             0.460%
        M-II-1                     0.550%             0.825%
        M-II-2                     0.990%             1.350%
        M-II-3                     1.65%              2.475%
_________

(1) On or before the first possible  Optional  Termination  Date for the related
Loan Group.

(2) After the first  possible  Optional  Termination  Date for the related  Loan
Group.

     Appraised  Value:  As to any  Mortgaged  Property,  the  lesser  of (i) the
appraised value of such Mortgaged  Property based upon the appraisal made at the
time of the  origination of the related  Mortgage Loan, and (ii) the sales price
of the Mortgaged  Property at such time of origination,  except in the case of a
Mortgaged  Property  securing a refinanced or modified Mortgage Loan as to which
it is either the appraised  value based upon the  appraisal  made at the time of
origination of the loan which was refinanced or modified or the appraised  value
determined in an appraisal at the time of  refinancing or  modification,  as the
case may be.

                                       5
<PAGE>

               Assignment:  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 of
record  the  sale  of the  Mortgage  Loan to the  Trustee  for  the  benefit  of
Certificateholders,   which   assignment,   notice  of  transfer  or  equivalent
instrument  may be in the  form  of one or  more  blanket  assignments  covering
Mortgages  secured  by  Mortgaged  Properties  located  in the same  county,  if
permitted by law and accompanied by an Opinion of Counsel to that effect.

               Assignment  Agreement:  The Assignment and Assumption  Agreement,
dated the Closing Date, between  Residential  Funding and the Depositor relating
to the transfer and assignment of the Mortgage Loans.

               Available  Distribution  Amount:  As to any Distribution Date and
each Loan Group,  an amount  equal to (a) the sum of (i) the amount  relating to
the  Mortgage  Loans on  deposit  in the  Custodial  Account  as of the close of
business on the immediately  preceding  Determination Date and amounts deposited
in the  Custodial  Account in  connection  with the  substitution  of  Qualified
Substitute  Mortgage  Loans,  (ii)  the  amount  of  any  Advance  made  on  the
immediately  preceding  Certificate  Account  Deposit  Date,  (iii)  any  amount
deposited in the Certificate  Account on the related Certificate Account Deposit
Date pursuant to the second paragraph of Section  3.12(a),  (iv) any amount that
the Master  Servicer is not  permitted to withdraw  from the  Custodial  Account
pursuant to Section  3.16(e)  and (v) any amount  deposited  in the  Certificate
Account pursuant to Section 4.07 or 9.01, reduced by (b) the sum as of the close
of business on the  immediately  preceding  Determination  Date of (w) aggregate
Foreclosure Profits,  (x) the Amount Held for Future  Distribution,  (y) amounts
permitted to be withdrawn by the Master  Servicer from the Custodial  Account in
respect of the  Mortgage  Loans  pursuant  to clauses  (ii)-(x),  inclusive,  of
Section 3.10(a) and (z) the Premium payable on the PMI Policy, in each case with
respect to the related Loan Group.

               Bankruptcy Code:  The Bankruptcy Code of 1978, as amended.

               Bankruptcy  Loss:  With respect to any Mortgage Loan, a Deficient
Valuation or Debt Service Reduction; provided, however, that neither a Deficient
Valuation  nor a Debt  Service  Reduction  shall  be  deemed a  Bankruptcy  Loss
hereunder  so long as the Master  Servicer  has  notified  the  Trustee  and the
Insurer in writing that the Master Servicer is diligently  pursuing any remedies
that may  exist in  connection  with the  representations  and  warranties  made
regarding the related  Mortgage Loan and either (A) the related Mortgage Loan is
not in default with regard to payments due thereunder or (B) delinquent payments
of principal  and interest  under the related  Mortgage Loan and any premiums on
any applicable  primary hazard  insurance policy and any related escrow payments
in respect of such  Mortgage  Loan are being  advanced on a current basis by the
Master  Servicer or a  Subservicer,  in either case without giving effect to any
Debt Service Reduction.

                                       6
<PAGE>

               Basic Principal  Amount: As to either Loan Group and Distribution
Date, the excess,  if any, of (x) the Principal  Remittance Amount for that Loan
Group and Distribution Date over (y) the Subordination Reduction Amount, if any,
for that Loan Group and Distribution Date.

               Book-Entry Certificate: Any Certificate registered in the name of
the Depository or its nominee.

               Business  Day:  Any day other than (i) a Saturday  or a Sunday or
(ii) a day on which banking  institutions in the State of New York, the State of
Illinois,  or the State of  California  (and such other state or states in which
the Custodial  Account or the  Certificate  Account are at the time located) are
required or authorized by law or executive order to be closed.

               Buydown  Funds:  Any  amount  contributed  by  the  seller  of  a
Mortgaged  Property,  the  Depositor  or other  source  in order to  enable  the
Mortgagor to reduce the payments  required to be made from the Mortgagor's funds
in the early years of a Mortgage  Loan.  Buydown Funds are not part of the Trust
Fund prior to deposit into the Custodial or Certificate Account.

               Buydown  Mortgage Loan: Any Mortgage Loan as to which a specified
amount of interest is paid out of related  Buydown  Funds in  accordance  with a
related buydown agreement.

               Calendar Quarter:  One of the following time periods in any given
year:  January 1  through  March 31,  April 1  through  June 30,  July 1 through
September 30, and October 1 through December 31.

               Cash Liquidation:  As to any defaulted Mortgage Loan other than a
Mortgage Loan as to which an REO Acquisition  occurred,  a determination  by the
Master  Servicer  that  it has  received  all  Insurance  Proceeds,  Liquidation
Proceeds  and  other  payments  or cash  recoveries  which the  Master  Servicer
reasonably and in good faith expects to be finally  recoverable  with respect to
such Mortgage Loan.

     Certificate:  Any  Class A  Certificate,  Class  M  Certificate,  Class  SB
Certificate or Class R Certificate.

     Certificate  Account:  The  account  or  accounts  created  and  maintained
pursuant to Section 4.01,  which shall be entitled  "Bankers Trust  Company,  as
trustee,  in trust for the registered  holders of Residential  Asset  Securities
Corporation, Home Equity Mortgage Asset-Backed Pass-Through Certificates, Series
2001-KS3" and which must be an Eligible Account.

     Certificate Account Deposit Date: As to any Distribution Date, the Business
Day prior thereto.

     Certificateholder  or Holder:  The Person in whose  name a  Certificate  is
registered  in the  Certificate  Register,  except that  neither a  Disqualified
Organization  nor a  Non-United  States  Person  shall be a holder  of a Class R
Certificate for any purpose hereof. Solely for the purpose of giving any consent
or direction pursuant to this Agreement,  any Certificate,  other than a Class R

                                       7
<PAGE>

Certificate, registered in the name of the Depositor, the Master Servicer or any
Subservicer or any Affiliate  thereof shall be deemed not to be outstanding  and
the Percentage  Interest or Voting Rights  evidenced  thereby shall not be taken
into account in determining whether the requisite amount of Percentage Interests
or Voting  Rights  necessary to effect any such  consent or  direction  has been
obtained.  All  references  herein to  "Holders" or  "Certificateholders"  shall
reflect the rights of Certificate  Owners as they may  indirectly  exercise such
rights through the  Depository  and  participating  members  thereof,  except as
otherwise  specified  herein;  provided,  however,  that  the  Trustee  shall be
required to  recognize as a "Holder" or  "Certificateholder"  only the Person in
whose name a Certificate is registered in the Certificate Register.

               Certificate Owner: With respect to a Book-Entry Certificate,  the
Person who is the  beneficial  owner of such  Certificate,  as  reflected on the
books  of an  indirect  participating  brokerage  firm  for  which a  Depository
Participant  acts as agent,  if any, and  otherwise on the books of a Depository
Participant, if any, and otherwise on the books of the Depository.

               Certificate  Principal  Balance:  With  respect  to each  Offered
Certificate  (other  than  the  Class  A-I-IO  Certificate),   on  any  date  of
determination,  an amount equal to (i) the initial Certificate Principal Balance
of such Certificate as specified on the face thereof,  minus (ii) the sum of (x)
the  aggregate  of all  amounts  previously  distributed  with  respect  to such
Certificate (or any predecessor Certificate) to reduce the Certificate Principal
Balance  thereof  pursuant  to  Section  4.02(c)  and (y) the  aggregate  of all
reductions  in  Certificate   Principal  Balance  deemed  to  have  occurred  in
connection  with  Realized  Losses  that  were  previously   allocated  to  such
Certificate  (or any  predecessor  Certificate)  pursuant to Section 4.05.  With
respect to each Class SB-I Certificate, on any date of determination,  an amount
equal to the Percentage Interest evidenced by such Certificate times the excess,
if any, of (A) the then aggregate Stated Principal  Balance of the Group I Loans
over (B) the then aggregate  Certificate  Principal  Balance of all Loan Group I
Certificates then outstanding.  With respect to each Class SB-II Certificate, on
any date of determination,  an amount equal to the Percentage Interest evidenced
by such Certificate  times the excess,  if any, of (A) the then aggregate Stated
Principal Balance of the Group II Loans over (B) the then aggregate  Certificate
Principal Balance of all Loan Group II Certificates then outstanding.

     Certificate Register and Certificate Registrar: The register maintained and
the registrar appointed pursuant to Section 5.02.

     Class: Collectively, all of the Certificates bearing the same designation.

     Class A Certificate:  Any one of the Class A-I  Certificates  or Class A-II
Certificates.

     Class A-I  Certificate:  Any one of the Class  A-I-1,  Class  A-I-2,  Class
A-I-3,  Class  A-I-4,  Class  A-I-5,  Class A-I-6 or Class  A-I-IO  Certificates
executed  by  the  Trustee  and  authenticated  by  the  Certificate   Registrar
substantially  in the form annexed  hereto as Exhibit  A-1,  senior to the Class
M-I, Class SB-I and Class R Certificates  with respect to distributions  and the

                                       8
<PAGE>

allocation of Realized Losses in respect of Loan Group I as set forth in Section
4.05, and evidencing an interest designated as a "regular interest" in REMIC III
for purposes of the REMIC Provisions.

               Class A-I-6 Lockout  Distribution  Amount:  For any  Distribution
Date,  the lesser of (a) the product of (i) the Class A-I-6  Lockout  Percentage
for  such   Distribution  Date  and  (ii)  the  Class  A-I-6  Lockout  Pro  Rata
Distribution   Amount  for  such   Distribution   Date  and  (b)  the  Principal
Distribution Amount for Loan Group I.

     Class A-I-6  Lockout  Percentage:  For each  Distribution  Date shall be as
follows:

                                                                   LOCKOUT
PAYMENT DATES                                                    PERCENTAGE

October 2001 through September 2004.............................       0%
October 2004 through September 2006.............................      45%
October 2006 through September 2007.............................      80%
October 2007 through September 2008.............................     100%
October 2008 and thereafter.....................................     300%

               Class  A-I-6  Lockout  Pro  Rata  Distribution  Amount:  For  any
Distribution  Date,  an  amount  equal to the  product  of (x) a  fraction,  the
numerator  of which is the  Certificate  Principal  Balance  of the Class  A-I-6
Certificates  immediately prior to such Distribution Date and the denominator of
which  is  the  aggregate   Certificate  Principal  Balance  of  the  Class  A-I
Certificates  immediately  prior to such Distribution Date and (y) the Principal
Distribution  Amount, or Class A Principal  Distribution  Amount, as applicable,
with respect to Loan Group I for such Distribution Date.

               Class A-II  Certificate:  The Class A-II Certificate  executed by
the Trustee and authenticated by the Certificate Registrar  substantially in the
form annexed hereto as Exhibit A-1, senior to the Class M-II Certificates, Class
SB-II  Certificates and Class R Certificates  with respect to distributions  and
the  allocation  of Realized  Losses in respect of Loan Group II as set forth in
Section 4.05, and evidencing an interest  designated as a "regular  interest" in
REMIC III for purposes of the REMIC Provisions.

               Class A Principal  Distribution  Amount:  With  respect to either
Loan  Group  and  any  Distribution  Date,  the  excess  of  (x)  the  aggregate
Certificate  Principal  Balance of the related Class A Certificates  immediately
prior to that  Distribution  Date  over  (y) the  lesser  of (1) the  applicable
Subordination  Percentage of the Stated Principal Balances of the Mortgage Loans
in that  Loan  Group  and (2) the  aggregate  Stated  Principal  Balance  of the
Mortgage Loans in that Loan Group minus the related Subordination Floor.

     Class  M-1   Certificates:   Either  the  Class   M-I-1  or  Class   M-II-1
Certificates, as the context requires.

     Class M-1 Principal  Distribution Amount: With respect to either Loan Group
and any  Distribution  Date,  the  excess  of (x)  the sum of (1) the  aggregate
Certificate Principal Balance of the related Class A Certificates,  after taking
into  account the  distribution  of the related  Class A Principal  Distribution
Amount on that  Distribution  Date and (2) the Certificate  Principal Balance of

                                       9
<PAGE>

the related Class M-1 Certificates  immediately  prior to that Distribution Date
over (y) the lesser of (1) the applicable Subordination Percentage of the Stated
Principal  Balances  of the  Mortgage  Loans  in  that  Loan  Group  and (2) the
aggregate  Stated  Principal  Balance of the  Mortgage  Loans in that Loan Group
minus the related Subordination Floor.

     Class  M-2   Certificates:   Either  the  Class   M-I-2  or  Class   M-II-2
Certificates, as the context requires.

               Class M-2 Principal  Distribution  Amount: With respect to either
Loan  Group  and any  Distribution  Date,  the  excess of (x) the sum of (1) the
aggregate  Certificate  Principal  Balance of the related  Class A and Class M-1
Principal  Distribution Amount on that Distribution Date and (2) the Certificate
Principal  Balance of the related Class M-2  Certificates  immediately  prior to
that Distribution  Date over (y) the lesser of (1) the applicable  Subordination
Percentage of the Stated  Principal  Balances of the Mortgage Loans in that Loan
Group and (2) the aggregate  Stated  Principal  Balance of the Mortgage Loans in
that Loan Group minus the related Subordination Floor.

     Class  M-3   Certificates:   Either  the  Class   M-I-3  or  Class   M-II-3
Certificates, as the context requires.

               Class M-3 Principal  Distribution  Amount: With respect to either
Loan  Group  and any  Distribution  Date,  the  excess of (x) the sum of (1) the
aggregate  Certificate  Principal  Balance of the related Class A, Class M-1 and
Class M-2  Certificates,  after  taking  into  account the  distribution  of the
related Class A, Class M-1 and Class M-2 Principal  Distribution  Amount on that
Distribution Date and (2) the Certificate Principal Balance of the related Class
M-3 Certificates immediately prior to that Distribution Date over (y) the lesser
of (1) the applicable  Subordination Percentage of the Stated Principal Balances
of the Mortgage Loans in that Loan Group and (2) the aggregate  Stated Principal
Balance of the Mortgage Loans in that Loan Group minus the related Subordination
Floor.

               Class M-I  Certificates:  Any of the Class M-I-1,  Class M-I-2 or
Class  M-I-3  Certificates  executed by the  Trustee  and  authenticated  by the
Certificate  Registrar  substantially in the form annexed hereto as Exhibit A-1,
senior to the Class SB-1 and Class R Certificates  with respect to distributions
and the allocation of Realized Losses in respect of Loan Group I as set forth in
Section 4.05, and evidencing and interest  designated as a "regular interest" in
REMIC III for purpose of the REMIC Provisions.

               Class M-II Certificates: Any of the Class M-II-1, Class M-II-2 or
Class  M-II-3  Certificates  executed by the Trustee  and  authenticated  by the
Certificate  Registrar  substantially in the form annexed hereto as Exhibit A-1,
senior to the Class SB-II and Class R Certificates with respect to distributions
and the  allocation of Realized  Losses in respect of Loan Group II as set forth
in Section 4.05, and evidencing an interest  designated as a "regular  interest"
in REMIC III for purposes of the REMIC Provisions.

     Class M  Certificates:  The  Class  M-I  Certificates  and the  Class  M-II
Certificates.

                                       10
<PAGE>

     Class R Certificate:  Any one of the Class R-I,  Class R-IA,  Class R-II or
Class R-III Certificates.

               Class R-I  Certificate:  Any one of the  Class  R-I  Certificates
executed  by  the  Trustee  and  authenticated  by  the  Certificate   Registrar
substantially in the form annexed hereto as Exhibit B and evidencing an interest
designated  as a  "residual  interest"  in  REMIC I for  purposes  of the  REMIC
Provisions.

               Class R-IA  Certificate:  Any one of the Class R-IA  Certificates
executed  by  the  Trustee  and  authenticated  by  the  Certificate   Registrar
substantially in the form annexed hereto as Exhibit B and evidencing an interest
designated  as a  "residual  interest"  in REMIC IA for  purposes  of the  REMIC
Provisions.

               Class R-II  Certificate:  Any one of the Class R-II  Certificates
executed  by  the  Trustee  and  authenticated  by  the  Certificate   Registrar
substantially in the form annexed hereto as Exhibit B and evidencing an interest
designated  as a  "residual  interest"  in REMIC II for  purposes  of the  REMIC
Provisions.

               Class R-III Certificate:  Any one of the Class R-III Certificates
executed  by  the  Trustee  and  authenticated  by  the  Certificate   Registrar
substantially in the form annexed hereto as Exhibit B and evidencing an interest
designated  as a  "residual  interest"  in REMIC III for  purposes  of the REMIC
Provisions.

     Class  SB   Certificate:   Any  one  of  the  Class  SB-I  or  Class  SB-II
Certificates.

               Class SB-I  Certificate:  Any one of the Class SB-I  Certificates
executed  by  the  Trustee  and  authenticated  by  the  Certificate   Registrar
substantially  in the form  annexed  hereto as Exhibit A-2,  subordinate  to the
Class A-I and Class M-I  Certificates  with  respect  to  distributions  and the
allocation of Realized Losses in respect of Loan Group I as set forth in Section
4.05, and evidencing  ownership of interests  designated as a "regular interest"
in REMIC III for purposes of the REMIC Provisions.

               Class SB-II Certificate:  Any one of the Class SB-II Certificates
executed  by  the  Trustee  and  authenticated  by  the  Certificate   Registrar
substantially  in the form  annexed  hereto as Exhibit A-2,  subordinate  to the
Class A-II and Class M-II  Certificates  with respect to  distributions  and the
allocation  of  Realized  Losses  in  respect  of Loan  Group II as set forth in
Section  4.05,  and  evidencing  ownership of interests  designated  as "regular
interests" in REMIC III for purposes of the REMIC Provisions.

               Closing Date:  September 26, 2001.

               Code:  The Internal Revenue Code of 1986, as amended.

               Combined   Loan-to-Value   Ratio:  The  ratio,   expressed  as  a
percentage,  equal to the sum of (i) the Cut-off Date Principal  Balance of such
Junior  Mortgage  Loan and (ii) the  principal  balance of any related  mortgage
loans that  constitute  liens senior to the lien of the Junior  Mortgage Loan on
the related  Mortgaged  Property,  at the time of the origination of such Junior

                                       11
<PAGE>

Mortgage  Loan (or, if  appropriate,  at the time of an appraisal  subsequent to
origination),  to the lesser of (A) the appraised value of the related Mortgaged
Property  determined in the  appraisal  used in the  origination  of such Junior
Mortgage Loan (or, if appropriate, the value determined in an appraisal obtained
subsequent  to  origination)  and  (B) if  applicable  under  the  corresponding
program, the sales price of each Mortgaged Property.

               Compensating Interest:  With respect to any Distribution Date and
each Loan Group,  an amount equal to Prepayment  Interest  Shortfalls  resulting
from Principal Prepayments in Full or Curtailments during the related Prepayment
Period,  but not more than the lesser of (a) one-twelfth of 0.125% of the Stated
Principal Balance of the Mortgage Loans immediately  preceding such Distribution
Date and (b) the sum of the  Servicing  Fee, all income and gain on amounts held
in the  Custodial  Account  and  the  Certificate  Account  and  payable  to the
Certificateholders   with  respect  to  such  Distribution  Date  and  servicing
compensation  to which the Master  Servicer may be entitled  pursuant to Section
3.10(a)(v)  and (vi),  in each case with  respect  to the  related  Loan  Group;
provided  that for purposes of this  definition  the amount of the Servicing Fee
will not be reduced pursuant to Section 7.02 except as may be required  pursuant
to the last sentence of such Section.

     Converted Mortgage Loan: A Convertible  Mortgage Loan with respect to which
the Mortgagor has exercised the conversion option.

               Convertible  Mortgage Loan: An Adjustable Group II Loan the terms
of which  permit the  Mortgagor  to convert the  Mortgage  Rate  thereon from an
adjustable  rate to a fixed  rate  subject  to the  conditions  set forth in the
related Mortgage Note.

               Corporate  Trust Office:  The principal  office of the Trustee at
which at any particular  time its corporate  trust business with respect to this
Agreement  shall be  administered,  which office at the date of the execution of
this instrument is located at Bankers Trust Company, 1761 East St. Andrew Place,
Santa Ana, CA 92705-4934.

     Curtailment:  Any Principal  Prepayment  made by a Mortgagor which is not a
Principal Prepayment in Full.

               Custodial Account:  The custodial account or accounts created and
maintained pursuant to Section 3.07 in the name of a depository institution,  as
custodian for the holders of the Certificates,  for the holders of certain other
interests in mortgage loans serviced or sold by the Master  Servicer and for the
Master  Servicer,  into which the  amounts  set forth in  Section  3.07 shall be
deposited directly. Any such account or accounts shall be an Eligible Account.

               Custodial Agreement:  An agreement that may be entered into among
the Depositor, the Master Servicer, the Trustee and a Custodian in substantially
the form of Exhibit C hereto.

     Custodian: A custodian appointed pursuant to a Custodial Agreement.

               Cut-off Date:  September 1, 2001.

                                       12
<PAGE>

               Cut-off Date  Principal  Balance:  As to any Mortgage  Loan,  the
unpaid principal  balance thereof at the Cut-off Date after giving effect to all
installments  of  principal  due in or prior to the month of the  Cut-off  Date,
whether or not received.

               Debt Service  Reduction:  With  respect to any  Mortgage  Loan, a
reduction in the scheduled  Monthly Payment for such Mortgage Loan by a court of
competent  jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction constituting a Deficient Valuation.

               Deficient  Valuation:  With  respect  to  any  Mortgage  Loan,  a
valuation by a court of competent  jurisdiction of the Mortgaged  Property in an
amount less than the then outstanding  indebtedness  under the Mortgage Loan, or
any  reduction  in the amount of  principal  to be paid in  connection  with any
scheduled Monthly Payment that constitutes a permanent forgiveness of principal,
which  valuation or reduction  results  from a proceeding  under the  Bankruptcy
Code.

     Definitive Certificate: Any definitive, fully registered Certificate.

     Deleted  Mortgage  Loan: A Mortgage  Loan replaced or to be replaced with a
Qualified Substitute Mortgage Loan.

               Delinquent:  As used herein, a Mortgage Loan is considered to be:
"30 to 59  days"  or "30 or more  days"  delinquent  when a  payment  due on any
scheduled  due date  remains  unpaid  as of the  close of  business  on the next
following  monthly  scheduled  due  date;  "60 to 89 days" or "60 or more  days"
delinquent when a payment due on any scheduled due date remains unpaid as of the
close of business on the second following monthly scheduled due date; and so on.
The  determination  as to whether a Mortgage Loan falls into these categories is
made as of the close of business  on the last  business  day of each month.  For
example,  a Mortgage Loan with a payment due on August 1 that remained unpaid as
of the close of business on September 30 would then be considered to be 30 to 59
days  delinquent.  Delinquency  information as of the Cut-off Date is determined
and prepared as of the close of business on the last  business  day  immediately
prior to the Cut-off Date.

               Depository:  The  Depository  Trust  Company,  or  any  successor
Depository  hereafter named. The nominee of the initial  Depository for purposes
of registering those Certificates that are to be Book-Entry Certificates is Cede
& Co. The Depository  shall at all times be a "clearing  corporation" as defined
in Section  8-102(a)(5) of the Uniform  Commercial Code of the State of New York
and a "clearing agency" registered  pursuant to the provisions of Section 17A of
the Securities Exchange Act of 1934, as amended.

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

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

                                       13
<PAGE>

               Determination  Date: With respect to any  Distribution  Date, the
20th  day  (or if  such  20th  day is  not a  Business  Day,  the  Business  Day
immediately  following  such 20th day) of the month of the related  Distribution
Date.

               Disqualified   Organization:   Any  organization   defined  as  a
"disqualified organization" under Section 860E(e)(5) of the Code, which includes
any of the following:  (i) the United States, any State or political subdivision
thereof,  any possession of the United States, or any agency or  instrumentality
of any of the foregoing (other than an instrumentality which is a corporation if
all of its activities  are subject to tax and,  except for the FHLMC, a majority
of its board of  directors is not selected by such  governmental  unit),  (ii) a
foreign   government,   any  international   organization,   or  any  agency  or
instrumentality  of any of the  foregoing,  (iii) any  organization  (other than
certain  farmers'  cooperatives  described  in Section 521 of the Code) which is
exempt from the tax imposed by Chapter 1 of the Code  (including the tax imposed
by Section 511 of the Code on unrelated  business  taxable  income),  (iv) rural
electric and telephone  cooperatives  described in Section  1381(a)(2)(C) of the
Code. A Disqualified Organization also includes any "electing large partnership"
as defined in Section  775(a) of the Code and any other Person so  designated by
the Trustee  based upon an Opinion of Counsel  that the holding of an  Ownership
Interest in a Class R Certificate  by such Person may cause the related REMIC or
any Person having an Ownership Interest in any Class of Certificates (other than
such  Person) to incur a liability  for any  federal tax imposed  under the Code
that  would not  otherwise  be  imposed  but for the  Transfer  of an  Ownership
Interest in a Class R Certificate  to such Person.  The terms  "United  States",
"State" and  "international  organization"  shall have the meanings set forth in
Section 7701 of the Code or successor provisions.

               Distribution  Date:  The 25th day of any month  beginning  in the
month   immediately   following  the  month  of  the  initial  issuance  of  the
Certificates  or, if such  25th day is not a  Business  Day,  the  Business  Day
immediately following such 25th day.

     Due Date: With respect to each Mortgage Loan, the date on which the monthly
payment is due.

     Due Period:  With respect to any  Distribution  Date, the calendar month in
which such Distribution Date occurs.

               Eligible  Account:  An account that is any of the following:  (i)
maintained with a depository institution the debt obligations of which have been
rated by each Rating Agency in its highest rating available,  or (ii) an account
or accounts in a depository institution in which such accounts are fully insured
to the limits established by the FDIC, provided that any deposits not so insured
shall, to the extent  acceptable to each Rating Agency, as evidenced in writing,
be maintained such that (as evidenced by an Opinion of Counsel  delivered to the
Trustee and each Rating Agency) the registered  Holders of  Certificates  have a
claim with  respect to the funds in such account or a perfected  first  security
interest   against  any   collateral   (which  shall  be  limited  to  Permitted
Investments)  securing  such  funds  that is  superior  to  claims  of any other
depositors or creditors of the depository institution with which such account is
maintained,  or (iii) in the case of the Custodial  Account,  a trust account or
accounts  maintained in the  corporate  trust  department of Bank One,  National

                                       14
<PAGE>

Association,  or (iv) in the case of the Certificate Account, a trust account or
accounts  maintained  in the  corporate  trust  division  of Bank One,  National
Association,  or  (v)  an  account  or  accounts  of  a  depository  institution
acceptable  to each Rating Agency (as evidenced in writing by each Rating Agency
that use of any such account as the Custodial Account or the Certificate Account
will not reduce the rating  assigned to any Class of Certificates by such Rating
Agency below the lower of the then-current rating or the rating assigned to such
Certificates as of the Closing Date by such Rating Agency).

               Event of Default:  As defined in Section 7.01.

               Excess Fraud Loss:  With respect to the Mortgage  Loans in a Loan
Group,  any Fraud Loss, or portion  thereof,  which exceeds the then  applicable
Fraud Loss Amount with respect to the related Loan Group.

     Excess  Losses:  The Excess Fraud Losses and Excess  Special Hazard Losses,
collectively.

               Excess Special Hazard Loss: With respect to the Mortgage Loans in
a Loan Group, any Special Hazard Loss, or portion thereof, that exceeds the then
applicable Special Hazard Amount with respect to the related Loan Group.

               Excess  Subordinated   Amount:  For  either  Loan  Group  on  any
Distribution Date, the excess, if any, of (a) the related Subordinated Amount on
that Distribution Date over (b) the related Targeted Subordinated Amount.

     Expense  Fee:  With  respect to each  Mortgage  Loan in a Loan  Group,  the
Subservicing Fee, if any, the Servicing Fee and the Premium Rate, as applicable.

               Extraordinary  Events:  Any  of  the  following  conditions  with
respect to a Mortgaged  Property or Mortgage Loan causing or resulting in a loss
which causes the liquidation of such Mortgage Loan:

(a)     losses that are of the type that would be covered by the  fidelity  bond
        and the errors and omissions  insurance policy required to be maintained
        pursuant to Section 3.12(b) but are in excess of the coverage maintained
        thereunder;

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

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

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

2.   by military, naval or air forces; or

                                       15
<PAGE>

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

     (d) any weapon of war employing atomic fission or radioactive force whether
in time of peace or war; or

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

     Extraordinary  Losses:  Any loss  incurred on a Mortgage  Loan caused by or
resulting from an Extraordinary Event.

     FASIT:  A "financial  asset  securitization  investment  trust"  within the
meaning of Section 860L of the Code.

     FDIC: Federal Deposit Insurance Corporation or any successor thereto.

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

               Final Distribution Date: The Distribution Date on which the final
distribution  in respect of the  Certificates  will be made  pursuant to Section
9.01, which Final  Distribution  Date shall in no event be later than the end of
the 90-day liquidation period described in Section 9.02.

               Fitch:  Fitch, Inc. or its successor in interest.

     Fixed Rate Certificates: All classes of Offered Certificates except for the
Adjustable Rate Certificates.

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

               Foreclosure  Profits:  As to any  Distribution  Date  or  related
Determination  Date and any Mortgage  Loan,  the excess,  if any, of Liquidation
Proceeds,  Insurance Proceeds and REO Proceeds (net of all amounts  reimbursable
therefrom  pursuant to Section  3.10(a)(ii)) in respect of each Mortgage Loan or
REO Property for which a Cash  Liquidation  or REO  Disposition  occurred in the
related  Prepayment  Period over the sum of the unpaid principal balance of such
Mortgage Loan or REO Property (determined, in the case of an REO Disposition, in
accordance  with Section 3.14) plus accrued and unpaid  interest at the Mortgage
Rate on such unpaid  principal  balance from the Due Date to which  interest was
last paid by the Mortgagor to the first day of the month  following the month in
which such Cash Liquidation or REO Disposition occurred.

                                       16
<PAGE>

               Fraud  Loss  Amount:  As of any date of  determination  after the
Cut-off  Date and with  respect  to each of Loan  Group I and Loan  Group II, an
amount equal to (X) prior to the first anniversary of the Cut-off Date an amount
equal to 3.00% of the  aggregate  outstanding  principal  balance  of all of the
Mortgage  Loans in the  related  Loan  Group as of the  Cut-off  Date  minus the
aggregate  amount of Fraud Losses with  respect to such Loan Group  allocated to
the related Class SB  Certificates  or the Loan Group I Excess Cash Flow or Loan
Group II Excess Cash Flow in accordance with Section 4.05 since the Cut-off Date
up to such date of determination,  (Y) from the first to the second  anniversary
of the  Cut-off  Date,  an amount  equal to (1) the lesser of (a) the Fraud Loss
Amount as of the most recent  anniversary  of the Cut-off  Date and (b) 2.00% of
the aggregate  outstanding principal balance of all of the Mortgage Loans in the
related Loan Group as of the most recent  anniversary  of the Cut-off Date minus
(2) the Fraud  Losses with  respect to such Loan Group  allocated to the related
Class SB  Certificates  or the Loan  Group I Excess  Cash Flow or Loan  Group II
Excess  Cash  Flow in  accordance  with  Section  4.05  since  the  most  recent
anniversary  of the Cut-off Date up to such date of  determination  and (Z) from
the second anniversary of the Cut-off Date and each anniversary  thereafter,  an
amount  equal to (1) the  lesser  of (a) the  Fraud  Loss  Amount as of the most
recent  anniversary  of  the  Cut-off  Date  and  (b)  1.00%  of  the  aggregate
outstanding  principal  balance of all of the Mortgage Loans in the related Loan
Group as of the most recent  anniversary of the Cut-off Date minus (2) the Fraud
Losses  with  respect  to such Loan  Group  allocated  to the  related  Class SB
Certificates  or the Loan Group I Excess  Cash Flow or Loan Group II Excess Cash
Flow in accordance  with Section 4.05 since the most recent  anniversary  of the
Cut-off Date up to such date of determination.

               The Fraud  Loss  Amount  may be  further  reduced  by the  Master
Servicer  (including  accelerating the manner in which such coverage is reduced)
provided that prior to any such reduction,  the Master Servicer shall (i) obtain
written  confirmation  from each  Rating  Agency that such  reduction  shall not
reduce the rating  assigned to any Class of  Certificates  by such Rating Agency
below  the  lower of the  then-current  rating or the  rating  assigned  to such
Certificates  as of the Closing Date by such Rating  Agency;  and (ii) provide a
copy of such written confirmation to the Trustee.

     Fraud Losses:  Losses on Mortgage  Loans as to which there was fraud in the
origination of such Mortgage Loan.

               Gross  Margin:  As to each  Adjustable  Group II Loan,  the fixed
percentage  set forth in the related  Mortgage Note and indicated in Exhibit D-2
hereto  as the "NOTE  MARGIN,"  which  percentage  is added to the Index on each
Adjustment Date to determine (subject to rounding in accordance with the related
Mortgage  Note,  the  Periodic  Cap, the Maximum  Mortgage  Rate and the Minimum
Mortgage  Rate) the interest  rate to be borne by such  Mortgage  Loan until the
next Adjustment Date.

               Group I Available  Excess Cash Flow: For any  Distribution  Date,
the  excess,  if any,  of the Loan Group I Excess  Cash Flow over the sum of the
amounts  payable  therefrom  pursuant to clauses  first through ninth of Section
4.02(d)(i).

     Group I Loans:  The Mortgage Loans designated on the Mortgage Loan Schedule
attached hereto as Exhibit D-1.

                                       17
<PAGE>

               Group I REO Properties: The REO Properties related to the Group I
Loans.

               Group  I  Prepayment  Interest  Shortfall:  With  respect  to any
Distribution Date, the amount of any Prepayment Interest Shortfalls with respect
to Loan  Group I for such  Distribution  Date,  to the  extent not offset by the
Master Servicer with a payment of  Compensating  Interest as provided in Section
3.16 or by Loan Group I Excess  Cash Flow or Loan  Group II Excess  Cash Flow as
provided in Section 4.02(d), to be allocated among the Loan Group I Certificates
in proportion to their respective  amounts of Accrued  Certificate  Interest for
such Distribution Date.

               Group II Available Excess Cash Flow: For any  Distribution  Date,
the  excess,  if any,  of the Loan Group II Excess Cash Flow over the sum of the
amounts  payable  therefrom  pursuant to clauses  first through tenth of Section
4.02(d)(ii).

               Group II Loans:  The Mortgage  Loans  designated  on the Mortgage
Loan Schedule attached hereto as Exhibit D-2-A and Exhibit D-2-B.

               Group II  Prepayment  Interest  Shortfall:  With  respect  to any
Distribution Date, the amount of any Prepayment Interest Shortfalls with respect
to Loan  Group II for such  Distribution  Date,  to the extent not offset by the
Master Servicer with a payment of  Compensating  Interest as provided in Section
3.16 or by Loan Group II Excess  Cash Flow or Loan  Group I Excess  Cash Flow as
provided in Section  4.02(d),  to be allocated to the Loan Group II Certificates
for such Distribution Date.

               Group II REO Properties:  The REO Properties related to the Group
II Loans.

               High Cost Loan:  The Mortgage Loans set forth hereto as Exhibit M
that are subject to special rules,  disclosure requirements and other provisions
that were added to the Federal  Truth in Lending Act by the Home  Ownership  and
Equity Protection Act of 1994.

               Independent:  When used with  respect  to any  specified  Person,
means such a Person who (i) is in fact independent of the Depositor,  the Master
Servicer  and the  Trustee,  or any  Affiliate  thereof,  (ii) does not have any
direct financial  interest or any material  indirect  financial  interest in the
Depositor,  the Master Servicer or the Trustee or in an Affiliate  thereof,  and
(iii) is not connected with the Depositor, the Master Servicer or the Trustee as
an officer,  employee,  promoter,  underwriter,  trustee,  partner,  director or
person performing similar functions.

               Index:  With  respect to any  Adjustable  Rate Loan and as to any
Adjustment Date therefor,  (i) a per annum rate equal to an average of interbank
offered  rates for  six-month  U.S.  dollar-denominated  deposits  in the London
market  based on  quotations  of major  banks,  as  published in The Wall Street
Journal and as most recently  available (A) as most recently available as of the
date  forty-five  days prior to such  Adjustment  Date or (B) as of the first or
fifteenth  business day of the month preceding the month in which the Adjustment
Date  occurs or (ii) a per annum rate equal to an average of  interbank  offered
rates for six-month U.S.  dollar-denominated deposits in the London market based
on  quotations  of major banks,  as published by Fannie Mae and as most recently
available as of the date forty-five  days prior to the Adjustment  Date; each as
provided in the related  Mortgage  Note,  or, in the event that such index is no
longer  available,  an index  selected  by the Master  Servicer  and  reasonably
acceptable to the Trustee that is based on comparable information.

                                       18
<PAGE>

               Initial Certificate Principal Balance: With respect to each Class
of Certificates, the Certificate Principal Balance of such Class of Certificates
as of the Cut-off Date as set forth in the Preliminary Statement hereto.

               Initial Loan Group II Basis Risk Reserve Fund Deposit:  $10,000.

               Insurance  Proceeds:  Proceeds  paid in respect  of the  Mortgage
Loans pursuant to the PMI Policy and any Primary  Insurance  Policy or any other
related  insurance  policy covering a Mortgage Loan, to the extent such proceeds
are payable to the mortgagee  under the Mortgage,  any  Subservicer,  the Master
Servicer or the Trustee  and are not applied to the  restoration  of the related
Mortgaged  Property  or  released  to  the  Mortgagor  in  accordance  with  the
procedures  that the Master  Servicer  would follow in servicing  mortgage loans
held for its own account.

               Interest   Accrual  Period:   With  respect  to  any  Fixed  Rate
Certificate and any Distribution Date, the calendar month preceding the month in
which  such  Distribution  Date  occurs.  With  respect to the  Adjustable  Rate
Certificates,  Class SB-I Certificates and Class SB-II Certificates,  the period
commencing on the Distribution Date of the month immediately preceding the month
in  which  such  Distribution  Date  occurs  (or,  in  the  case  of  the  first
Distribution  Date,  commencing  on the  Closing  Date)  and  ending  on the day
preceding  such   Distribution   Date.   Notwithstanding   the  foregoing,   the
distributions  of  interest  on any  Distribution  Date and the  calculation  of
Accrued  Certificate  Interest  for all  Classes of  Certificates  will  reflect
interest accrued,  and receipts with respect thereto,  on the Mortgage Loans for
the  preceding  calendar  month,  as may  be  reduced  in  accordance  with  the
definition of Accrued Certificate Interest.

               Interest  Distribution  Amount:  With respect to any Distribution
Date and each Loan  Group,  the  amount  paid to the  related  class of  Offered
Certificates pursuant of Section 4.02(c)(i).

               Interim Certification:  As defined in Section 2.02.

     Junior Mortgage Loan: Any Mortgage Loan that is secured by a junior lien on
the related Mortgaged Property.

               Late Collections:  With respect to any Mortgage Loan, all amounts
received during any Due Period,  whether as late payments of Monthly Payments or
as Insurance Proceeds,  Liquidation Proceeds or otherwise,  which represent late
payments or  collections  of Monthly  Payments due but delinquent for a previous
Due Period and not previously recovered.

               LIBOR: With respect to any Distribution Date, the arithmetic mean
of the London  interbank  offered rate  quotations  for  one-month  U.S.  Dollar
deposits,  expressed on a per annum basis, determined in accordance with Section
1.02.

                                       19
<PAGE>

               LIBOR  Business  Day: Any day other than (i) a Saturday or Sunday
or (ii) a day on which banking  institutions in London,  England are required or
authorized to by law to be closed.

               LIBOR Rate  Adjustment  Date:  With respect to each  Distribution
Date and the  Adjustable  Rate  Certificates,  the  second  LIBOR  Business  Day
immediately preceding the commencement of the related Interest Accrual Period.

               Liquidation  Proceeds:  Amounts (other than  Insurance  Proceeds)
received  by the  Master  Servicer  in  connection  with the taking of an entire
Mortgaged Property by exercise of the power of eminent domain or condemnation or
in  connection  with  the  liquidation  of a  defaulted  Mortgage  Loan  through
trustee's sale, foreclosure sale or otherwise, other than REO Proceeds.

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

     Loan Group: Either or both of Loan Group I or Loan Group II.

     Loan Group I: The group of Mortgage Loans comprised of the Group I Loans.

     Loan Group I Certificates: The Class A-I and M-I Certificates.

               Loan Group I Excess Cash Flow: As of any  Distribution  Date, the
excess  of (x) the  Available  Distribution  Amount  for  Loan  Group I for such
Distribution  Date  over (y) the sum of (1) the  related  Interest  Distribution
Amount and (2) the related Basic Principal Amount.

               Loan Group I Optional  Termination Date: Any Distribution Date on
or after which the Loan Group I Stated  Principal  Balance (before giving effect
to distributions to be made on such  Distribution  Date) is less than 10% of the
aggregate Cut-off Date Principal Balance of the Group I Loans.

               Loan  Group  I  Stated  Principal  Balance:  As of  any  date  of
determination,  the aggregate of the Stated  Principal  Balances of each Group I
Loan that was an  Outstanding  Mortgage  Loan on the Due Date in the Due  Period
preceding such date of determination.

     Loan Group II: The group of Mortgage Loans comprised of the Group II Loans.

               Loan Group II Basis Risk  Reserve  Fund:  The  separate  Eligible
Account created and maintained with the Trustee pursuant to Section 5.07 hereof.

               Loan Group II Basis  Risk  Shortfall:  The excess of (x)  Accrued
Certificate  Interest on a Class of Loan Group II Certificates,  calculated at a
rate  equal to  One-Month  LIBOR plus the  Applicable  Spread  over (y)  Accrued
Certificate   Interest  on  that  Class   calculated   at  the   then-applicable
Pass-Through Rate.

                                       20
<PAGE>

              Loan Group II Certificates:  The Class A-II and M-II Certificates.

               Loan Group II Excess Cash Flow: As of any Distribution  Date, the
excess  of (x) the  Available  Distribution  Amount  for Loan  Group II for such
Distribution  Date  over (y) the sum of (1) the  related  Interest  Distribution
Amount and (2) the related Basic Principal Amount.

               Loan Group II Optional Termination Date: Any Distribution Date on
or after which the Loan Group II Stated Principal  Balance (before giving effect
to distributions to be made on such  Distribution  Date) is less than 10% of the
aggregate Cut-off Date Principal Balance of the Group II Loans.

               Loan  Group  II  Stated  Principal  Balance:  As to any  date  of
determination,  the aggregate of the Stated Principal  Balances of each Group II
Loan that was an  Outstanding  Mortgage  Loan on the Due Date in the Due  Period
preceding such date of determination.

     Maturity Date: The latest  possible  maturity date,  solely for purposes of
Section 1.860G-1(a)(4)(iii) of the Treasury Regulations.

               Maximum  Group I Rate:  With respect to each  Distribution  Date,
while the Class A-I-IO  Certificates are outstanding,  a per annum rate equal to
(x) the weighted  average of the Net  Mortgage  Rates on the Group I Loans as of
the respective Due Dates immediately preceding the related Due Period,  weighted
on the basis of the respective  Stated Principal  Balances as of such Due Dates,
minus (y) the product of 5.00% and the percentage equivalent of a fraction,  the
numerator of which is the Notional Amount immediately prior to that Distribution
Date and the denominator of which is the aggregate Stated  Principal  Balance of
the Mortgage Loans in Loan Group I as of the  respective  Due Dates  immediately
preceding the related Due Period for Loan Group I Certificates  other than Class
A-I-2 and A-I-3  Certificates with respect to any other Distribution Date, a per
annum rate equal to the weighted  average of the Net Mortgage Rates on the Group
I Loans as of the  respective  Due Dates  immediately  preceding the related Due
Period,  weighted on the basis of the respective Stated Principal Balances as of
such Due Dates.

               Maximum Group II Rate: With respect to each Distribution  Date, a
per annum rate equal to the weighted  average of the Net  Mortgage  Rates on the
Group II Loans as of the respective Due Dates immediately  preceding the related
Due Period, weighted on the basis of the respective Stated Principal Balances as
of such Due Dates.

               Maximum  Mortgage Rate: As to any  Adjustable  Group II Loan, the
rate  indicated  in  Exhibit D hereto as the "NOTE  CEILING,"  which rate is the
maximum  interest  rate that may be applicable to such Group II Loan at any time
during the life of such Mortgage Loan.

     Maximum Net Mortgage Rate: As to any Adjustable Group II Loan, the rate per
annum  indicated  in  Exhibit D as the "MAX NET MTG RT" for such  Group II Loan.
MERS: Mortgage Electronic  Registration  Systems,  Inc., a corporation organized
and existing under the laws of the State of Delaware, or any successor thereto.

     MERS(R)   System:   The  system  of   recording   transfers   of  Mortgages
electronically maintained by MERS.

                                       21
<PAGE>

     MIN: The Mortgage  Identification Number for Mortgage Loans registered with
MERS on the MERS(R)System.

               Minimum  Mortgage Rate: As to any  Adjustable  Group II Loan, the
greater of (i) the Note Margin and (ii) the rate  indicated  in Exhibit D hereto
as the "NOTE  FLOOR",  which rate may be applicable to such Group II Loan at any
time during the life of such Group II Loan.

     Modified  Mortgage  Loan:  Any Mortgage Loan that has been the subject of a
Servicing Modification.

               Modified Net Mortgage  Rate:  As to any Mortgage Loan that is the
subject of a Servicing  Modification,  the Net Mortgage  Rate minus the rate per
annum by which the Mortgage Rate on such Mortgage Loan was reduced.

               MOM Loan:  With respect to any Mortgage Loan,  MERS acting as the
mortgagee of such Mortgage  Loan,  solely as nominee for the  originator of such
Mortgage Loan and its successors and assigns, at the origination thereof.

               Monthly Payment: With respect to any Mortgage Loan (including any
REO Property)  and the Due Date in any Due Period,  the payment of principal and
interest due thereon in accordance  with the  amortization  schedule at the time
applicable thereto (after adjustment, if any, for Curtailments and for Deficient
Valuations  occurring  prior to such Due Date but before any  adjustment to such
amortization  schedule  by  reason of any  bankruptcy,  other  than a  Deficient
Valuation,  or similar  proceeding or any  moratorium or similar waiver or grace
period and before any Servicing Modification that constitutes a reduction of the
interest rate on such Mortgage Loan).

     Moody's: Moody's Investors Service, Inc. or its successor in interest.

               Mortgage:  With  respect  to  each  Mortgage  Note  related  to a
Mortgage  Loan,  the  mortgage,  deed of trust or  other  comparable  instrument
creating a first or junior lien on an estate in fee simple or leasehold interest
in real property securing a Mortgage Note.

               Mortgage  File:  The  mortgage  documents  listed in Section 2.01
pertaining to a particular  Mortgage Loan and any additional  documents required
to be added to the Mortgage File pursuant to this Agreement.

     Mortgage Insurer: PMI Mortgage Insurance Co., an Arizona corporation.

               Mortgage Loan  Schedule:  The list of the Mortgage Loans attached
hereto as Exhibit D-1 (with  respect to the Group I Loans) and Exhibit D-2 (with
respect  to Group II Loans)  (each as amended  from time to time to reflect  the
addition of Qualified Substitute Mortgage Loans), which lists shall set forth at
a minimum the following information as to each Mortgage Loan in the related Loan
Group:

                                       22
<PAGE>

(i)     the Mortgage Loan identifying number ("RFC LOAN #");

(ii)    the state and zip code of the Mortgaged Property ("ADDRESS");

(iii) the maturity of the Mortgage Note  ("MATURITY  DATE" for the Group I Loans
and "MATURITY DT" for the Group II Loans);

(iv) the Mortgage Rate as of the Cut-off Date ("ORIG RATE" for the Group I Loans
and "CURR RATE" for the Group II Loans);

(v)     the Subservicer pass-through-rate ("CURR NET");

(vi)    [Reserved];

(vii) the scheduled monthly payment of principal, if any, and interest as of the
Cut-off Date ("ORIGINAL P & I" for the Group I Loans and "CURRENT P & I" for the
Group II Loans);

(viii)  the Cut-off Date Principal Balance ("PRINCIPAL BAL");

(ix) the  Loan-to-Value  Ratio or Combined  Loan-to-Value  Ratio at  origination
("LTV");

(x)      [Reserved];

(xi) a code "T", "BT" or "CT" under the column "LN FEATURE," indicating that the
Mortgage Loan is secured by a second or vacation  residence  (the absence of any
such code means the Mortgage Loan is secured by a primary residence);

(xii) a code "N" under the column "OCCP CODE", indicating that the Mortgage Loan
is secured by a non-owner occupied residence (the absence of any such code means
the Mortgage Loan is secured by an owner occupied residence);

(xiii)  the Maximum Mortgage Rate for the Group II Loans ("NOTE CEILING");

(xiv) the Maximum  Mortgage  Rate minus the rate at which the  Subservicing  Fee
accrues for the Group II Loans ("NET CEILING");

(xv)    the Note Margin for the Adjustable Group II Loans ("NOTE MARGIN");

(xvi) the first  Adjustment Date after the Cut-off Date for the Adjustable Group
II Loans ("NXT INT CHG DT");

(xvii) the Periodic Cap for the Adjustable  Group II Loans  ("PERIODIC  DECR" or
"PERIODIC INCR");

(xviii) the rounding of the  semi-annual  or annual  adjustment  to the Mortgage
Rate with respect to the Adjustable Group II Loans ("NOTE METHOD");

                                       23
<PAGE>

(xix) a code  indicating  whether such Mortgage  Loan is a Convertible  Mortgage
Loan;

(xx) an attached  schedule  indicating  whether any  Mortgage  Loan is a Balloon
Loan;

(xxi) an attached  schedule  indicating  whether any Mortgage Loan is 30-59 days
delinquent;

(xxii) an attached  schedule  indicating  whether any Mortgage  Loan is a Junior
Mortgage Loan;

(xxiii) a code  indicating  the property type of each  Mortgage Loan  ("PROPERTY
TYPE"); and

(xxiv) an attached schedule  indicating  whether any Mortgage Loan is covered by
the PMI Policy and the related Premium Rate.

               Such schedules may consist of multiple reports that  collectively
set forth all of the information required.

               Mortgage  Loans:  Such  of the  mortgage  loans  transferred  and
assigned to the Trustee  pursuant to Section  2.01 as from time to time are held
or deemed to be held as a part of the Trust Fund, the Mortgage Loans  originally
so held being  identified in the initial  Mortgage Loan Schedule,  and Qualified
Substitute  Mortgage  Loans  held or  deemed  held as  part  of the  Trust  Fund
including,  without limitation, with respect to each Mortgage Loan, each related
Mortgage Note, Mortgage and Mortgage File and all rights appertaining thereto.

               Mortgage Note: The originally  executed note or other evidence of
indebtedness  evidencing the  indebtedness of a Mortgagor under a Mortgage Loan,
together with any modification thereto.

               Mortgage  Rate: As to any Mortgage  Loan, the interest rate borne
by the related Mortgage Note, or any modification thereto other than a Servicing
Modification.  The Mortgage  Rate on the  Adjustable  Group II Loans will adjust
semi-annually commencing (i) six months after the date of origination,  (ii) two
years  after the date of  origination,  or (iii)  three  years after the date of
origination,  each as specified in the related  Mortgage  Note, in each case, on
the  Adjustment  Date to equal  the sum  (rounded  to the  nearest  multiple  of
one-eighth of one percent (0.125%) of the related Index plus the Note Margin, in
each case subject to the  applicable  Periodic  Cap,  Maximum  Mortgage Rate and
Minimum Mortgage Rate.

     Mortgaged Property: The underlying real property securing a Mortgage Loan.

     Mortgagor: The obligor on a Mortgage Note.

                                       24
<PAGE>

               Net Mortgage Rate: As to any Group I Loan, a per annum rate equal
to the  Adjusted  Mortgage  Rate for such  Mortgage  Loan  minus  the sum of the
Servicing Fee Rate and, where applicable, the Premium Rate. With respect to each
Adjustable  Group II Loan and each Due Date  occurring  on or prior to the first
Adjustment  Date for such Group II Loan, the rate designated as the "NET MTG RT"
for such Group II Loan on Exhibit D-2 hereto and with respect to each Adjustable
Group II Loan and each Due Date  occurring  after each  Adjustment  Date, a rate
equal to the Adjusted Mortgage Rate minus the sum of the Servicing Fee Rate and,
where  applicable,  the Premium  Rate;  provided  that (i) the Net Mortgage Rate
becoming  effective on any Adjustment Date shall not be greater or less than the
Net Mortgage Rate  immediately  prior to such  Adjustment Date plus or minus the
Periodic Cap applicable to such Group II Loan and (ii) the Net Mortgage Rate for
any Group II Loan shall not exceed a rate equal to the Maximum Net Mortgage Rate
for such Group II Loan.

               Non-Primary  Residence  Loans:  The Mortgage Loans  designated as
secured by second or vacation  residences,  or by non-owner occupied residences,
on the Mortgage Loan Schedule.

     Non-United States Person: Any Person other than a United States Person.

               Nonrecoverable  Advance:  Any Advance previously made or proposed
to be made by the Master  Servicer  in respect of a Mortgage  Loan (other than a
Deleted Mortgage Loan) which, in the good faith judgment of the Master Servicer,
will not,  or, in the case of a  proposed  Advance,  would  not,  be  ultimately
recoverable  by the Master  Servicer  from related Late  Collections,  Insurance
Proceeds, Liquidation Proceeds or REO Proceeds.

     Nonsubserviced  Mortgage  Loan:  Any  Mortgage  Loan  that,  at the time of
reference thereto, is not subject to a Subservicing Agreement.

               Note  Margin:  As to each  Adjustable  Group II Loan,  the  fixed
percentage  set forth in the related  Mortgage Note and indicated in Exhibit D-2
hereto  as the "NOTE  MARGIN,"  which  percentage  is added to the Index on each
Adjustment Date to determine (subject to rounding in accordance with the related
Mortgage  Note,  the  Periodic  Cap, the Maximum  Mortgage  Rate and the Minimum
Mortgage  Rate) the  interest  rate to be borne by such  Group II Loan until the
next Adjustment Date.

               Notice:  As defined in Section 4.04.

               Notional Amount: As to any Distribution Date specified below, the
lesser of (x) the aggregate  Stated  Principal  Balance of the Mortgage Loans in
Loan Group I and (y) the amount specified below for the applicable  Distribution
Date:

                                       25
<PAGE>

                Distribution Date                   Amount
                -----------------                   ------
                October 2001 - March 2002           $  298,000,000
                April 2002 - September 2002         $  255,000,000
                October 2002 - March 2003           $  204,000,000
                April 2003 - September 2003         $  150,000,000
                October 2003 - March 2004           $  85,000,000
                April 2004 and thereafter           $  0

               Offered Certificates:  The Class A and Class M Certificates.

               Officers'  Certificate:  A certificate  signed by the Chairman of
the Board,  the President or a Vice President or Assistant Vice President,  or a
Director or Managing Director,  and by the Treasurer,  the Secretary,  or one of
the Assistant Treasurers or Assistant Secretaries of the Depositor or the Master
Servicer,  as the case may be, and delivered to the Trustee, as required by this
Agreement.

               Opinion of Counsel:  A written  opinion of counsel  acceptable to
the Trustee and the Master Servicer, who may be counsel for the Depositor or the
Master  Servicer,  provided  that any opinion of counsel (i)  referred to in the
definition of "Disqualified  Organization" or (ii) relating to the qualification
of the  Trust  Fund as a REMIC or  compliance  with the REMIC  Provisions  must,
unless otherwise specified, be an opinion of Independent counsel.

               Outstanding  Mortgage Loan: As to the Due Date in any Due Period,
a  Mortgage  Loan  (including  an REO  Property)  that was not the  subject of a
Principal  Prepayment in Full, Cash  Liquidation or REO Disposition and that was
not  purchased,  deleted or  substituted  for prior to such Due Date pursuant to
Section 2.02, 2.03, 2.04, 3.21 or 4.07.

     Optional  Termination  Date:  Either the Loan Group I Optional  Termination
Date or the Loan Group II Optional Termination Date, as the context requires.

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

               Pass-Through  Rate:  With  respect  to any  Class of  Fixed  Rate
Certificates  and each Interest  Accrual  Period,  a per annum rate equal to the
lesser of (i) the per  annum  rate for such  Class set forth in the  Preliminary
Statement  hereto  and  (ii)  the  applicable  Maximum  Group I Rate;  provided,
however,  that the per annum rate for the Class A-I-5  Certificates set forth in
the  Preliminary  Statement  hereto will increase by 0.50% on each  Distribution
Date following the Loan Group I Optional  Termination  Date. With respect to the
Adjustable Rate  Certificates and each Interest Accrual Period, a per annum rate
equal to the  lesser  of (i)  LIBOR  plus the  Applicable  Spread,  and (ii) the
Maximum  Group II Rate,  or in the case of the  Class  A-I-1  Certificates,  the
Maximum Group I Rate.

                                       26
<PAGE>

               With respect to the Class SB-I  Certificates and any Distribution
Date, a rate per annum equal to the interest  distributable  thereon as provided
in Section 1.03 divided by the Certificate Principal Balance thereof,  converted
to a per annum rate.

               With respect to the Class SB-II Certificates and any Distribution
Date, a rate per annum equal to the interest  distributable  thereon as provided
in Section 1.03 divided by the Certificate Principal Balance thereof,  converted
to a per annum rate.

     Paying  Agent:  Bankers  Trust  Company,  or  any  successor  Paying  Agent
appointed by the Trustee.

               Percentage Interest: With respect to any Offered Certificate, the
undivided  percentage  ownership interest in the related Class evidenced by such
Certificate,  which percentage  ownership interest shall be equal to the Initial
Certificate   Principal   Balance  thereof  divided  by  the  aggregate  Initial
Certificate  Principal Balance of all of the Certificates of the same Class. The
Percentage  Interest with respect to a Class SB or Class R Certificate  shall be
stated on the face thereof.

               Periodic Cap: With respect to each Adjustable  Group II Loan, the
periodic  rate cap that  limits the  increase  or the  decrease  of the  related
Mortgage  Rate on any  Adjustment  Date  pursuant  to the  terms of the  related
Mortgage Note.

               Permitted Investments:  One or more of the following:

(i)  obligations  of or  guaranteed  as to principal  and interest by the United
     States or any agency or  instrumentality  thereof when such obligations are
     backed by the full faith and credit of the United States;

(ii) repurchase  agreements on obligations  specified in clause (i) maturing not
     more than one month from the date of acquisition thereof, provided that the
     unsecured  obligations of the party agreeing to repurchase such obligations
     are at the time  rated by each  Rating  Agency  in its  highest  short-term
     rating available;

(iii)federal funds,  certificates of deposit, demand deposits, time deposits and
     bankers'  acceptances  (which  shall each have an original  maturity of not
     more than 90 days and,  in the case of  bankers'  acceptances,  shall in no
     event  have an  original  maturity  of more  than 365  days or a  remaining
     maturity of more than 30 days)  denominated in United States dollars of any
     U.S. depository institution or trust company incorporated under the laws of
     the  United  States or any state  thereof  or of any  domestic  branch of a
     foreign  depository  institution or trust  company;  provided that the debt
     obligations  of such  depository  institution  or trust company (or, if the
     only  Rating  Agency is  Standard  & Poor's,  in the case of the  principal

                                       27
<PAGE>

     depository  institution in a depository  institution holding company,  debt
     obligations of the depository  institution  holding company) at the date of
     acquisition  thereof  have been rated by each Rating  Agency in its highest
     short-term rating available;  and provided further that, if the only Rating
     Agency is  Standard & Poor's and if the  depository  or trust  company is a
     principal  subsidiary of a bank holding company and the debt obligations of
     such subsidiary are not separately  rated,  the applicable  rating shall be
     that of the bank  holding  company;  and,  provided  further  that,  if the
     original maturity of such short-term  obligations of a domestic branch of a
     foreign  depository  institution or trust company shall exceed 30 days, the
     short-term rating of such institution shall be A-1+ in the case of Standard
     & Poor's if Standard & Poor's is the Rating Agency;

(iv)    commercial  paper and demand notes  (having  original  maturities of not
        more than 365 days) of any  corporation  incorporated  under the laws of
        the United States or any state thereof which on the date of  acquisition
        has been rated by each Rating  Agency in its highest  short-term  rating
        available;  provided  that such  commercial  paper or demand notes shall
        have a remaining maturity of not more than 30 days;

(v)  a money  market  fund or a qualified  investment  fund rated by each Rating
     Agency in its highest rating available; and

(vi)    other  obligations  or  securities  that are  acceptable  to each Rating
        Agency as a  Permitted  Investment  hereunder  and will not  reduce  the
        rating assigned to any Class of Certificates by such Rating Agency below
        the lower of the  then-current  rating or the  rating  assigned  to such
        Certificates as of the Closing Date by such Rating Agency,  as evidenced
        in writing;

provided,  however,  that no  instrument  shall be a Permitted  Investment if it
represents,  either (1) the right to receive only interest payments with respect
to the underlying debt instrument or (2) the right to receive both principal and
interest  payments derived from  obligations  underlying such instrument and the
principal and interest payments with respect to such instrument  provide a yield
to maturity greater than 120% of the yield to maturity at par of such underlying
obligations.  References  herein to the highest  rating  available  on unsecured
long-term debt shall mean AAA in the case of Standard & Poor's and Fitch and Aaa
in the case of Moody's, and references herein to the highest rating available on
unsecured  commercial  paper and  short-term  debt  obligations  shall  mean the
following:  A-1 in the case of Standard & Poor's, P-1 in the case of Moody's and
either A-1 by  Standard & Poor's,  P-1 by Moody's or F-1 by Fitch in the case of
Fitch.

     Permitted Transferee: Any Transferee of a Class R Certificate, other than a
Disqualified Organization or Non-United States Person.

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

               PMI Policy:  The bulk primary mortgage insurance policy issued by
the Mortgage Insurer on the Cut-off Date.

                                       28
<PAGE>

     Premium:  As to either Loan Group and any Distribution  Date, the aggregate
amount payable to the Mortgage Insurer under the PMI Policy.

               Premium Rate: As to each Mortgage Loan covered by the PMI Policy,
the per annum rate applicable to such Mortgage Loan as set forth in the Mortgage
Loan Schedule.

               Prepayment   Assumption:   With  respect  to  the  Loan  Group  I
Certificates,  the prepayment  assumption to be used for determining the accrual
of original issue discount and premium and market discount on such  Certificates
for federal  income tax purposes,  which assumes a constant  prepayment  rate of
one-tenth  of 23% per annum of the then  outstanding  principal  balance  of the
Group I Loans  in the  first  month  of the  life of such  Group I Loans  and an
additional  one-tenth of 23% per annum in each month  thereafter until the tenth
month, and beginning in the tenth month and in each month thereafter  during the
life of the Group I Loans,  a  constant  prepayment  rate of 23% per annum  each
month ("23% HEP"). With respect to the Loan Group II Certificates,  a prepayment
assumption of 28% of the constant  prepayment  rate,  used for  determining  the
accrual of original issue discount and premium and market  discount on the Class
A-II Certificates for federal income tax purposes.  The constant prepayment rate
assumes that the stated  percentage of the outstanding  principal balance of the
Group II Loans is prepaid over the course of a year.

               Prepayment  Interest  Shortfall:  As to any Distribution Date and
any Mortgage Loan (other than a Mortgage Loan relating to an REO Property)  that
was the  subject  of (a) a  Principal  Prepayment  in Full  during  the  related
Prepayment  Period, an amount equal to the excess of one month's interest at the
related  Net  Mortgage  Rate (or  Modified  Net  Mortgage  Rate in the case of a
Modified  Mortgage Loan) on the Stated  Principal  Balance of such Mortgage Loan
over the amount of  interest  (adjusted  to the related  Net  Mortgage  Rate (or
Modified Net Mortgage Rate in the case of a Modified Mortgage Loan)) paid by the
Mortgagor for such Prepayment Period to the date of such Principal Prepayment in
Full or (b) a Curtailment  during the prior calendar  month,  an amount equal to
one month's  interest at the related Net Mortgage Rate (or Modified Net Mortgage
Rate in the case of a Modified Mortgage Loan) on the amount of such Curtailment.

     Prepayment  Period:  As  to  any  Distribution  Date,  the  calendar  month
preceding the month of distribution.

               Primary  Insurance  Policy:  Each borrower paid primary policy of
mortgage  guaranty  insurance as  indicated  on Exhibit D with the  exception of
either code "23" or "96" under the column "MI CO CODE."

               Principal  Distribution  Amount: With respect to any Distribution
Date and each Loan Group,  the sum of (1) the related Basic Principal Amount and
(2)  the  amount  of  any  related   Subordination   Increase  Amount  for  that
Distribution  Date.  In no event will the  Principal  Distribution  Amount  with
respect to a Loan Group and any  Distribution  Date be (x) less than zero or (y)
greater than the then outstanding  Certificate  Principal Balance of the related
Offered Certificates.

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<PAGE>

               Principal Prepayment:  Any payment of principal or other recovery
on a Mortgage  Loan,  including  a recovery  that takes the form of  Liquidation
Proceeds or Insurance  Proceeds,  which is received in advance of its  scheduled
Due  Date  and is not  accompanied  by an  amount  as to  interest  representing
scheduled  interest  on such  payment  due on any date or dates in any  month or
months subsequent to the month of prepayment.

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

               Principal  Remittance  Amount:  As to  either  Loan  Group on any
Distribution Date, the sum of the following amounts with respect to the Mortgage
Loans in such Loan Group:

(1)            the  principal  portion  of  each  Monthly  Payment  received  or
               Advanced   with  respect  to  the  related  Due  Period  on  each
               Outstanding Mortgage Loan in such Loan Group;

(2)            the Stated  Principal  Balance of any Mortgage  Loan in such Loan
               Group repurchased during the related Prepayment Period (or deemed
               to have been so repurchased in accordance  with Section  3.07(b))
               pursuant to Section 2.02, 2.03, 2.04, 2.06 or 4.07 and the amount
               of any shortfall deposited in the Custodial Account in connection
               with the  substitution  of a Deleted  Mortgage  Loan in such Loan
               Group  pursuant  to  Section  2.03 or  2.04  during  the  related
               Prepayment Period;

(3)            the  principal  portion  of  all  other  unscheduled  collections
               including,  without  limitation,  Principal  Prepayments in Full,
               Curtailments,  Insurance Proceeds,  Liquidation  Proceeds and REO
               Proceeds)  received  during  the  related  Prepayment  Period (or
               deemed to have been so  received)  to the  extent  applied by the
               Master  Servicer as recoveries of principal of the Mortgage Loans
               in such Loan Group pursuant to Section 3.14.

               Program  Guide:  The  AlterNet  Seller  Guide or the  Residential
Funding  Seller  Guide,  as  applicable,  for mortgage  collateral  sellers that
participate in Residential  Funding's AlterNet Mortgage Program, and Residential
Funding's  Servicing  Guide  and  any  other  subservicing   arrangements  which
Residential  Funding has arranged to  accommodate  the servicing of the Mortgage
Loans and in each case all  supplements  and  amendments  thereto  published  by
Residential Funding from time to time.

               Purchase  Price:  With  respect  to any  Mortgage  Loan  (or  REO
Property) required to be or otherwise  purchased on any date pursuant to Section
2.02,  2.03, 2.04, 2.06, 3.21 or 4.07, an amount equal to the sum of (i) 100% of
the Stated Principal  Balance thereof plus the principal  portion of any related
unreimbursed  Advances and (ii) unpaid accrued interest at the Adjusted Mortgage
Rate (or  Modified  Net  Mortgage  Rate  plus the  rate per  annum at which  the
Servicing  Fee and the  related  Premium  Rate is  calculated  in the  case of a
Modified  Mortgage  Loan) (or at the Net Mortgage Rate (or Modified Net Mortgage
Rate in the case of a Modified  Mortgage Loan) plus the related  Premium Rate in

                                       30
<PAGE>

the case of a purchase  made by the  Master  Servicer)  on the Stated  Principal
Balance  thereof to the first day of the month  following  the month of purchase
from the Due Date to which interest was last paid by the Mortgagor.

               Qualified  Substitute  Mortgage Loan: A Mortgage Loan substituted
by Residential  Funding or the Depositor for a Deleted Mortgage Loan which must,
on the date of such  substitution,  as  confirmed  in an  Officers'  Certificate
delivered to the  Trustee,  (i) have an  outstanding  principal  balance,  after
deduction of the  principal  portion of the monthly  payment due in the month of
substitution  (or in the case of a  substitution  of more than one Mortgage Loan
for a Deleted Mortgage Loan, an aggregate outstanding  principal balance,  after
such deduction),  not in excess of the Stated  Principal  Balance of the Deleted
Mortgage  Loan (the  amount of any  shortfall  to be  deposited  by  Residential
Funding,  in the Custodial  Account in the month of  substitution);  (ii) have a
Mortgage  Rate and a Net  Mortgage  Rate no lower  than and not more than 1% per
annum higher than the Mortgage Rate and Net Mortgage Rate, respectively,  of the
Deleted Mortgage Loan as of the date of substitution; (iii) have a Loan-to-Value
Ratio at the time of  substitution  no higher than that of the Deleted  Mortgage
Loan at the time of substitution;  (iv) have a remaining term to stated maturity
not  greater  than (and not more than one year less  than)  that of the  Deleted
Mortgage   Loan;  (v)  comply  as  of  the  date  of   substitution   with  each
representation  and  warranty  set  forth  in  Sections  2.03  and  2.04  hereof
(including  Exhibit  N  referred  to in  Section  2.04)  and  Section  4 of  the
Assignment  Agreement;  (vi) in the case of the Adjustable  Group II Loans,  (w)
have a Mortgage  Rate that  adjusts with the same  frequency  and based upon the
same Index as that of the Deleted Mortgage Loan, (x) have a Note Margin not less
than that of the Deleted  Mortgage  Loan;  (y) have a Periodic  Rate Cap that is
equal to that of the Deleted  Mortgage Loan; and (z) have a next Adjustment Date
no later than that of the Deleted  Mortgage Loan and (vii) be covered by the PMI
Policy to the same extent as the Deleted  Mortgage Loan if the Deleted  Mortgage
Loan was so covered.

               Rating Agency: With respect to the Offered Certificates, Standard
& Poor's,  Moody's and Fitch.  If any such agency or a successor is no longer in
existence,  "Rating Agency" shall be such statistical  credit rating agency,  or
other  comparable  Person,   designated  by  the  Depositor,   notice  of  which
designation shall be given to the Trustee and the Master Servicer.

               Realized  Loss:  With  respect  to  each  Mortgage  Loan  (or REO
Property) as to which a Cash  Liquidation or REO  Disposition  has occurred,  an
amount  (not less than zero)  equal to (i) the Stated  Principal  Balance of the
Mortgage  Loan  (or REO  Property)  as of the  date of Cash  Liquidation  or REO
Disposition, plus (ii) interest (and REO Imputed Interest, if any) at the sum of
the Net Mortgage Rate plus the  applicable  Premium Rate from the Due Date as to
which  interest was last paid or advanced to  Certificateholders  up to the last
day of the month in which the Cash Liquidation (or REO Disposition)  occurred on
the Stated Principal Balance of such Mortgage Loan (or REO Property) outstanding
during each Due Period that such interest was not paid or advanced,  minus (iii)
the proceeds,  if any,  received during the month in which such Cash Liquidation
(or REO Disposition)  occurred,  to the extent applied as recoveries of interest
at the sum of the Net  Mortgage  Rate plus the  applicable  Premium  Rate and to
principal of the Mortgage Loan, net of the portion  thereof  reimbursable to the
Master Servicer or any Subservicer  with respect to related Advances or expenses
as to which the Master  Servicer or  Subservicer  is  entitled to  reimbursement
thereunder but which have not been previously  reimbursed.  With respect to each
Mortgage Loan which is the subject of a Servicing  Modification,  (a) the amount
by which the interest  portion of a Monthly Payment or the principal  balance of
such  Mortgage  Loan was  reduced,  and (b) any such  amount  with  respect to a
Monthly  Payment  that  was or would  have  been  due in the  month  immediately

                                       31
<PAGE>

following  the month in which a Principal  Prepayment  or the Purchase  Price of
such Mortgage Loan is received or is deemed to have been received.  With respect
to each Mortgage Loan which has become the subject of a Deficient Valuation, the
difference  between  the  principal  balance of the  Mortgage  Loan  outstanding
immediately  prior to such Deficient  Valuation and the principal balance of the
Mortgage  Loan as  reduced  by the  Deficient  Valuation.  With  respect to each
Mortgage  Loan  which has become the  object of a Debt  Service  Reduction,  the
amount of such Debt  Service  Reduction.  Notwithstanding  the above,  neither a
Deficient Valuation nor a Debt Service Reduction shall be deemed a Realized Loss
hereunder  so long as the Master  Servicer  has  notified the Trustee in writing
that the Master  Servicer is diligently  pursuing any remedies that may exist in
connection  with the  representations  and warranties made regarding the related
Mortgage  Loan and either (A) the related  Mortgage  Loan is not in default with
regard to payments due  thereunder or (B)  delinquent  payments of principal and
interest under the related Mortgage Loan and the related portion of the Premium,
if  applicable,  and any premiums on any  applicable  primary  hazard  insurance
policy and any  related  escrow  payments in respect of such  Mortgage  Loan are
being advanced on a current basis by the Master  Servicer or a  Subservicer,  in
either case without giving effect to any Debt Service Reduction.

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

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

               REMIC: A "real estate  mortgage  investment  conduit"  within the
meaning of Section 860D of the Code. As used herein, the term "the REMICs" shall
mean the REMICs created under this Agreement.

               REMIC   Administrator:   Residential  Funding   Corporation.   If
Residential Funding Corporation is found by a court of competent jurisdiction to
no longer be able to fulfill its obligations as REMIC  Administrator  under this
Agreement the Master Servicer or Trustee acting as Master Servicer shall appoint
a  successor   REMIC   Administrator,   subject  to   assumption  of  the  REMIC
Administrator obligations under this Agreement.

               REMIC  I:  That   segregated   pool  of  assets  subject  hereto,
constituting a part of the primary trust created  hereby and to be  administered
hereunder,  with  respect  to which a  separate  REMIC  election  is to be made,
consisting of:

(i)     the Group I Loans and the related Mortgage Files,

(ii) all payments on and  collections  in respect of the Group I Mortgage  Loans
     after deducting payments of principal due in the month of the Cut-off Date,
     as shall be on  deposit  in the  Custodial  Account  or in the  Certificate
     Account and identified as belonging to the Trust Fund,

                                       32
<PAGE>

(iii)property  which  secured a Group I Loan and which has been acquired for the
     benefit  of the  Certificateholders  by  foreclosure  or  deed  in  lieu of
     foreclosure,

(iv) the hazard  insurance  policies and Primary  Insurance  Policies and rights
     under the PMI Policy pertaining to Group I Loans, if any, and

(v)     all proceeds of clauses (i) through (iv) above.

     REMIC I  Interest:  The  REMIC  I  Regular  Interests  and  the  Class  R-I
Certificates.

               REMIC I Regular Interest: As defined in Section 1.03.

               REMIC I  Remittance  Rate:  The per annum rate at which  interest
accrues on each REMIC I Regular Interest as set forth in Section 1.03.

               REMIC IA: The segregated pool of assets  consisting of all of the
REMIC I Regular Interests, with respect to which a separate REMIC election is to
be made.

     REMIC IA  Interest:  The REMIC IA  Regular  Interests  and the  Class  R-IA
Certificates.

               REMIC IA Regular Interests: As defined in Section 1.03.

               REMIC IA Remittance  Rate:  The per annum rate at which  interest
accrues on each REMIC IA Regular Interest as set forth in Section 1.03.

               REMIC  II:  That   segregated  pool  of  assets  subject  hereto,
constituting a part of the primary trust created  hereby and to be  administered
hereunder,  with  respect  to which a  separate  REMIC  election  is to be made,
consisting of:

(i)     the Group II Loans and the related Mortgage Files,

(ii) all payments on and  collections in respect of the Group II Loans due after
     the Cut-off Date as shall be on deposit in the Custodial  Account or in the
     Certificate Account and identified as belonging to the Trust Fund,

(iii)property  which secured a Group II Loan and which has been acquired for the
     benefit  of the  Certificateholders  by  foreclosure  or  deed  in  lieu of
     foreclosure,

                                       33
<PAGE>

(iv) the hazard  insurance  policies and Primary  Insurance  Policies and rights
     under the PMI Policy pertaining to Group II Loans, if any, and

(v)     all proceeds of clauses (i) through (iv) above.

     REMIC II  Interest:  The REMIC II  Regular  Interests  and the  Class  R-II
Certificates.

               REMIC II Regular Interest: As defined in Section 1.03.

               REMIC II Remittance  Rate:  The per annum rate at which  interest
accrues on each REMIC II Regular Interest as set forth in Section 1.03.

               REMIC III: The segregated pool of assets consisting of all of the
REMIC IA Regular Interests and REMIC II Regular Interests, with respect to which
a separate REMIC election is to be made.

     REMIC III Certificate: Any Certificate,  other than a Class R-I Certificate
or Class R-II Certificate.

     REMIC III  Regular  Certificate:  Any REMIC III  Certificate,  other than a
Class R-III Certificate.

               REMIC  III  Regular  Interest:  Any of the  sixteen  certificated
beneficial  ownership  interests  in REMIC III  issued  hereunder  and,  hereby,
designated  as a  "regular  interest"  in REMIC III,  as  follows:  Class  A-I-1
Certificates,  Class A-I-2 Certificates,  Class A-I-3 Certificates,  Class A-I-4
Certificates,  Class A-I-5 Certificates,  Class A-I-6  Certificates,  Class A-II
Certificates,  Class M-I-1 Certificates,  Class M-I-2 Certificates,  Class M-I-3
Certificates, Class M-II-1 Certificates, Class M-II-2 Certificates, Class M-II-3
Certificates, Class A-I-IO Certificates, Class SB-I Certificates and Class SB-II
Certificates.

               REMIC  Provisions:  Provisions  of the  federal  income  tax  law
relating to real estate mortgage investment  conduits,  which appear at Sections
860A  through  860G of  Subchapter  M of  Chapter  1 of the  Code,  and  related
provisions,  and  temporary  and  final  regulations  (or,  to  the  extent  not
inconsistent with such temporary or final regulations, proposed regulations) and
published  rulings,  notices and announcements  promulgated  thereunder,  as the
foregoing may be in effect from time to time.

               REO Acquisition: The acquisition by the Master Servicer on behalf
of the  Trustee for the benefit of the  Certificateholders  of any REO  Property
pursuant to Section 3.14.

               REO Disposition:  As to any REO Property,  a determination by the
Master  Servicer  that it has received  substantially  all  Insurance  Proceeds,
Liquidation Proceeds,  REO Proceeds and other payments and recoveries (including
proceeds  of a final  sale)  which the  Master  Servicer  expects  to be finally
recoverable from the sale or other disposition of the REO Property.

                                       34
<PAGE>

               REO Imputed Interest: As to any REO Property,  for any period, an
amount  equivalent  to interest (at the sum of the Net Mortgage  Rate that would
have been  applicable to the related  Mortgage Loan had it been  outstanding) on
the unpaid principal  balance of the Mortgage Loan as of the date of acquisition
thereof for such period.

               REO Proceeds:  Proceeds, net of expenses,  received in respect of
any REO Property (including, without limitation, proceeds from the rental of the
related Mortgaged Property) which proceeds are required to be deposited into the
Custodial Account only upon the related REO Disposition.

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

               Request for Release:  A request for  release,  the forms of which
are attached as Exhibit E hereto, or an electronic  request in a form acceptable
to the Custodian.

               Required Insurance Policy: With respect to any Mortgage Loan, any
insurance policy which is required to be maintained from time to time under this
Agreement, the Program Guide or the related Subservicing Agreement in respect of
such Mortgage Loan.

     Residential   Funding:   Residential   Funding   Corporation,   a  Delaware
corporation,  in its capacity as seller of the Mortgage  Loans to the  Depositor
and any successor thereto.

               Responsible  Officer:  When used with respect to the Trustee, any
officer of the Corporate Trust  Department of the Trustee,  including any Senior
Vice President,  any Vice President, any Assistant Vice President, any Assistant
Secretary, any Trust Officer or Assistant Trust Officer, or any other officer of
the Trustee customarily  performing  functions similar to those performed by any
of the above designated  officers to whom, with respect to a particular  matter,
such matter is referred.

     Seller: As to any Mortgage Loan, a Person, including any Subservicer,  that
executed a Seller's Agreement applicable to such Mortgage Loan.

               Seller's Agreement:  An agreement for the origination and sale of
Mortgage  Loans  generally  in the form of the seller  contract  referred  to or
contained in the Program  Guide,  or in such other form as has been  approved by
the Master  Servicer and the  Depositor,  each  containing  representations  and
warranties in respect of one or more Mortgage Loans.

     Servicing Accounts: The account or accounts created and maintained pursuant
to Section 3.08.

               Servicing Advances: All customary,  reasonable and necessary "out
of pocket" costs and expenses incurred in connection with a default, delinquency
or other  unanticipated  event by the Master  Servicer in the performance of its
servicing  obligations,  including,  but not  limited  to,  the  cost of (i) the
preservation,  restoration  and  protection  of a Mortgaged  Property,  (ii) any
enforcement or judicial proceedings,  including  foreclosures,  and any expenses
incurred in relation to any such  proceedings that result from the Mortgage Loan
being registered on the MERS System, (iii) the management and liquidation of any

                                       35
<PAGE>

REO Property and (iv) compliance with the obligations under Sections 3.01, 3.08,
3.12(a) and 3.14,  including,  if the Master  Servicer or any  Affiliate  of the
Master Servicer provides services such as appraisals and brokerage services that
are  customarily  provided by Persons  other than  servicers of mortgage  loans,
reasonable compensation for such services.

               Servicing Fee: With respect to any Mortgage Loan and Distribution
Date,  the fee  payable  monthly  to the  Master  Servicer  in respect of master
servicing compensation that accrues at an annual rate equal to the Servicing Fee
Rate multiplied by the Stated Principal  Balance of such Mortgage Loan as of the
related  Due Date in the related  Due  Period,  as may be  adjusted  pursuant to
Section 3.16(e).

               Servicing Fee Rate:  0.08% per annum.

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

               Servicing Modification:  Any reduction of the interest rate on or
the outstanding  principal  balance of a Mortgage Loan that is in default or, in
the judgment of the Master Servicer,  default is reasonably foreseeable pursuant
to a modification of such Mortgage Loan in accordance with Section 3.07(a).

               Sixty-Plus  Delinquency  Percentage:  With respect to either Loan
Group and any Distribution Date, the arithmetic  average,  for each of the three
Distribution  Dates  ending  with  the  applicable  Distribution  Date,  of  the
percentage  equivalent  of a fraction,  the  numerator of which is the aggregate
Stated Principal Balance of the Mortgage Loans in that Loan Group that are 60 or
more days  delinquent  in payment of  principal  and  interest  for the relevant
Distribution  Date,  including  Mortgaged  Loans in foreclosure and REO, and the
denominator  of which is the aggregate  Stated  Principal  Balance of all of the
Mortgage   Loans  in  that  Loan  Group   immediately   preceding  the  relevant
Distribution Date.

               Senior  Enhancement  Percentage:  As to either Loan Group and any
Distribution  Date,  the percentage  equivalent of a fraction,  the numerator of
which  is the sum of (x) the  aggregate  Certificate  Principal  Balance  of the
related Class M Certificates immediately prior to that Distribution Date and (y)
the related  Subordinated  Amount and the  denominator of which is the aggregate
Stated Principal  Balance of the Mortgage Loans in that Loan Group as of the end
of the preceding Due Period.

               Special  Hazard  Amount:  As of any  Distribution  Date  and with
respect  to Loan Group I and Loan Group II, an amount  equal to  $8,500,001  and
$11,500,000,  respectively, minus the sum of (i) the aggregate amount of Special
Hazard Losses allocated to the Class SB Certificates or the related Loan Group I
Excess Cash Flow or Loan Group II Excess Cash Flow in  accordance  with  Section
4.05 and  (ii)  the  Adjustment  Amount  (as  defined  below)  as most  recently
calculated.  For each  anniversary of the Cut-off Date, the "Adjustment  Amount"
shall  be  equal to the  amount,  if any,  by which  the  amount  calculated  in
accordance with the preceding  sentence  (without giving effect to the deduction
of the Adjustment  Amount for such  anniversary)  exceeds the greater of (A) the
greatest of (i) twice the outstanding  principal balance of the Mortgage Loan in
the related Loan Group that has the largest outstanding principal balance on the
Distribution Date immediately  preceding such  anniversary,  (ii) the product of

                                       36
<PAGE>

1.0%  multiplied by the outstanding  principal  balance of all Mortgage Loans in
the related  Loan Group on the  Distribution  Date  immediately  preceding  such
anniversary  and (iii) the aggregate  outstanding  principal  balance (as of the
immediately  preceding  Distribution  Date) of the Mortgage Loans in the related
Loan Group in any single  five-digit  California  zip code area with the largest
amount of Mortgage Loans by aggregate  principal  balance as of such anniversary
and (B) the greater of (i) the  product of 0.5%  multiplied  by the  outstanding
principal  balance  of all  Mortgage  Loans  in the  related  Loan  Group on the
Distribution  Date  immediately  preceding  such  anniversary  multiplied  by  a
fraction, the numerator of which is equal to the aggregate outstanding principal
balance  (as of  the  immediately  preceding  Distribution  Date)  of all of the
Mortgage Loans in such Loan Group secured by Mortgaged Properties located in the
State of California divided by the aggregate  outstanding  principal balance (as
of the immediately preceding  Distribution Date) of all of the Mortgage Loans in
the related Loan Group, expressed as a percentage,  and the denominator of which
is equal to 7.8% in the case of Loan  Group I and  16.2%  with  respect  to Loan
Group II (which  percentage is equal to the percentage of Mortgage Loans in such
Loan Group  initially  secured by Mortgaged  Properties  located in the State of
California)  and (ii) the  aggregate  outstanding  principal  balance (as of the
immediately  preceding  Distribution  Date) of the largest  Mortgage Loan in the
related  Loan Group  secured by a  Mortgaged  Property  (or,  with  respect to a
Cooperative  Loan, the related  Cooperative  Apartment)  located in the State of
California.

               The Special  Hazard  Amount may be further  reduced by the Master
Servicer  (including  accelerating  the  manner in which  coverage  is  reduced)
provided that prior to any such reduction,  the Master Servicer shall (i) obtain
written  confirmation  from each  Rating  Agency that such  reduction  shall not
reduce the rating  assigned to any Class of  Certificates  by such Rating Agency
below  the  lower of the  then-current  rating or the  rating  assigned  to such
Certificates  as of the Closing Date by such Rating  Agency,  and (ii) provide a
copy of such written confirmation to the Trustee.

               Special  Hazard  Loss:  Any  Realized  Loss not in  excess of the
lesser of the cost of repair or the cost of replacement of a Mortgaged  Property
suffered  by such  Mortgaged  Property  on  account  of  direct  physical  loss,
exclusive  of (i) any  loss of a type  covered  by a  hazard  policy  or a flood
insurance policy required to be maintained in respect of such Mortgaged Property
pursuant  to Section  3.12(a),  except to the extent of the portion of such loss
not covered as a result of any coinsurance  provision and (ii) any Extraordinary
Loss.

     Specified Enhancement Percentage:  For Loan Group I, 19.00%. For Loan Group
II, 20.00%

     Standard & Poor's:  Standard & Poor's Ratings  Services,  a division of The
McGraw-Hill Companies Inc., or its successor in interest.

                                       37
<PAGE>

     Startup Date: The day designated as such pursuant to Article X hereof.

               Stated  Principal  Balance:  With respect to any Mortgage Loan or
related REO Property,  at any given time, (i) the Cut-off Date Principal Balance
of the Mortgage  Loan,  minus (ii) the sum of (a) the  principal  portion of the
Monthly  Payments due with respect to such Mortgage Loan or REO Property  during
each Due Period in which the most recent  Distribution  Date  occurs  which were
received  or with  respect to which an Advance was made,  and (b) all  Principal
Prepayments  with  respect  to  such  Mortgage  Loan  or REO  Property,  and all
Insurance Proceeds, Liquidation Proceeds and REO Proceeds, to the extent applied
by the Master  Servicer as recoveries  of principal in  accordance  with Section
3.14 with respect to such Mortgage Loan or REO Property, in each case which were
distributed pursuant to Section 4.02 on any previous  Distribution Date, and (c)
any Realized Loss allocated to  Certificateholders  with respect thereto for any
previous Distribution Date.

               Stepdown  Date:  As to either  Loan  Group,  the later of (x) the
Distribution  Date in October 2004 and (y) the first  Distribution Date on which
the  related  Senior  Enhancement  Percentage  is  greater  than or  equals  the
applicable Specified Enhancement Percentage.

               Subordinated  Amount: As of any Distribution Date with respect to
each Loan Group,  the  excess,  if any, of (a) the  aggregate  Stated  Principal
Balances of the Mortgage  Loans in such Loan Group  immediately  following  such
Distribution Date over (b) the Certificate Principal Balance of the Loan Group I
or Loan Group II  Certificates  (as  applicable)  as of such  Distribution  Date
(after  taking into  account the  payment of the  related  Principal  Remittance
Amount on such Distribution Date).

               Subordination Deficiency Amount: With respect to any Distribution
Date and each Loan  Group,  the  excess,  if any,  of (a) the  related  Targeted
Subordinated  Amount  applicable to such  Distribution Date over (b) the related
Subordinated  Amount  applicable  to such  Distribution  Date after  taking into
account the payment of the related Basic Principal  Amount on such  Distribution
Date.

               Subordination  Increase Amount:  With respect to any Distribution
Date and each Loan Group, the lesser of (a) the Subordination  Deficiency Amount
as of such  Distribution  Date  (after  taking  into  account the payment of the
related Principal Remittance Amount on such Distribution Date and (b)

(i)  with respect to Loan Group I, (x) on the first two Distribution Dates, zero
     and (y) on any  Distribution  Date  thereafter,  the amount of Loan Group I
     Excess Cash Flow on such Distribution Date as reduced by the sum of (1) any
     Realized  Losses paid as provided  in Section  4.05 hereof with  respect to
     such  Distribution  Date that are attributable to Loan Group I, and (2) any
     Realized  Losses paid as provided  in Section  4.05 hereof with  respect to
     such  Distribution  Date that are  attributable  to Loan  Group II that are
     covered by Loan Group I Excess Cash Flow; and

                                       38
<PAGE>

(ii) with  respect to Loan Group II,  (x) on the first two  Distribution  Dates,
     zero and (y) on any Distribution Date thereafter,  the amount of Loan Group
     II  Excess  Cash  Flow on such  Distribution  Date  as  reduced  by (1) any
     Realized  Losses paid as provided  in Section  4.05 hereof with  respect to
     such  Distribution  Date that are attributable to Loan Group II and (2) any
     Realized  Losses paid as provided  in Section  4.05 hereof with  respect to
     such  Distribution  Date  that are  attributable  to Loan  Group I that are
     covered by Loan Group II Excess Cash Flow.

     Subordination  Floor: For any  distribution  date and Loan Group I and Loan
Group II, $4,250,003 and $5,750,000, respectively.

     Subordination  Percentage:  As to any class of  offered  certificates,  the
respective amount set fort below.

        Class               Percentage          Class                Percentage
        -----               ----------          -----                ----------
        A-I                 81.00%              A-II                 80.00%
        M-I-1               89.00%              M-II-1               88.00%
        M-I-2               95.00%              M-II-2               94.00%
        M-I-3               99.00%              M-II-3               99.00%

               Subordination  Reduction Amount: With respect to any Distribution
Date and a Loan Group,  an amount equal to the lesser of (a) the related  Excess
Subordinated Amount and (b) the Principal Remittance Amount for such Loan Group.

     Subserviced Mortgage Loan: Any Mortgage Loan that, at the time of reference
thereto, is subject to a Subservicing Agreement.

               Subservicer: Any Person with whom the Master Servicer has entered
into a Subservicing  Agreement and who generally  satisfied the requirements set
forth in the Program Guide in respect of the  qualification  of a Subservicer as
of the date of its approval as a Subservicer by the Master Servicer.

               Subservicer Advance: Any delinquent  installment of principal and
interest on a Mortgage Loan which is advanced by the related Subservicer (net of
its Subservicing Fee) pursuant to the Subservicing Agreement.

     Subservicing Account: An account established by a Subservicer in accordance
with Section 3.08.

               Subservicing  Agreement:  The written contract between the Master
Servicer and any Subservicer relating to servicing and administration of certain
Mortgage  Loans  as  provided  in  Section  3.02,  generally  in the form of the
servicer contract referred to or contained in the Program Guide or in such other
form as has been approved by the Master Servicer and the Depositor.

                                       39
<PAGE>

               Subservicing  Fee:  As to any  Mortgage  Loan,  the  fee  payable
monthly to the related Subservicer (or, in the case of a Nonsubserviced Mortgage
Loan, to the Master Servicer) in respect of subservicing and other  compensation
that accrues with respect to each  Distribution  Date at an annual rate equal to
the excess of the rate shown in item (iv) of the Mortgage Loan Schedule over the
rate shown in item (v) of the Mortgage  Loan  Schedule for the related  Mortgage
Loan.

     Targeted  Subordinated  Amount:  For any distribution date and Loan Group I
and Loan Group II, $4,250,003 and $5,750,000, respectively.

               Tax Returns:  The federal income tax returns on Internal  Revenue
Service Form 1066,  U.S.  Real Estate  Mortgage  Investment  Conduit  Income Tax
Return,  including  Schedule Q thereto,  Quarterly  Notice to Residual  Interest
Holders of REMIC Taxable Income or Net Loss Allocation,  or any successor forms,
to be filed on behalf of the Trust  Fund due to their  classification  as REMICs
under the REMIC Provisions, together with any and all other information, reports
or returns  that may be required to be furnished  to the  Certificateholders  or
filed  with the  Internal  Revenue  Service  or any  other  governmental  taxing
authority under any applicable provisions of federal, state or local tax laws.

     Transfer: Any direct or indirect transfer,  sale, pledge,  hypothecation or
other form of assignment of any Ownership Interest in a Certificate.

     Transferee:  Any Person who is acquiring by Transfer any Ownership Interest
in a Certificate.

     Transferor:  Any Person  who is  disposing  by  Transfer  of any  Ownership
Interest in a Certificate.

               Trigger Event: As to either Loan Group and any Distribution  Date
on or after the related  Stepdown  Date, (1) the product of (x) 1.10 in the case
of Loan  Group I and  1.25 in the  case  of Loan  Group  II and (y) the  related
Sixty-Plus  Delinquency  Percentage,  equals or exceeds (2) the  related  Senior
Enhancement Percentage for that Distribution Date.

               Trust Fund:  Collectively,  the Loan Group II Basis Risk  Reserve
Fund and the assets of REMIC I, REMIC IA, REMIC II and REMIC III  consisting  of
the segregated  pool of assets,  with respect to which a REMIC election is to be
made, consisting of:

(i)     the Mortgage Loans and the related Mortgage Files,

(ii) all  payments on and  collections  in respect of the  Mortgage  Loans after
     deducting  payments of principal  due in the month of the Cut-off  Date, as
     shall be on deposit in the Custodial Account or in the Certificate  Account
     and identified as belonging to the Trust Fund,

(iii)property  which secured a Mortgage Loan and which has been acquired for the
     benefit  of the  Certificateholders  by  foreclosure  or  deed  in  lieu of
     foreclosure,

                                       40
<PAGE>

(iv)    the hazard insurance policies and Primary Insurance Policies, if any,

(v)     the PMI Policy, and

(vi)    all proceeds of clauses (i) through (v) above.

               The Mortgage  Loans  included from time to time in the Trust Fund
shall be divided into two separate sub-trusts,  one for Loan Group I and one for
Loan Group II.

               Unadjusted  Accrued  Certificate  Interest:  With respect to each
Distribution  Date, as to any  Adjustable  Rate  Certificate,  interest  accrued
during the  related  Interest  Accrual  Period at a rate equal to LIBOR for such
Distribution  Date  plus the  Applicable  Spread  on the  Certificate  Principal
Balance thereof immediately prior to such Distribution Date.

               Uniform  Single  Attestation  Program for Mortgage  Bankers:  The
Uniform Single  Attestation  Program for Mortgage  Bankers,  as published by the
Mortgage  Bankers  Association  of America and effective  with respect to fiscal
periods ending on or after December 15, 1995.

               Uninsured  Cause:  Any cause of damage to  property  subject to a
Mortgage  such  that the  complete  restoration  of such  property  is not fully
reimbursable by the hazard insurance policies.

               United States Person: A citizen or resident of the United States,
a  corporation  or  partnership  (or other entity  treated as a  corporation  or
partnership for United States federal income tax purposes)  created or organized
in, or under the laws of, the United States or any state thereof or the District
of Columbia,  an estate whose income from sources  without the United  States is
includable  in gross  income  for United  States  federal  income  tax  purposes
regardless of its connection  with the conduct of a trade or business within the
United  States,  or a trust  if a court  within  the  United  States  is able to
exercise  primary  supervision over the  administration  of the trust and one or
more  United  States  Persons  have the  authority  to control  all  substantial
decisions  of the trust.  The term  "United  States"  shall have the meaning set
forth in Section 7701 of the Code or successor provisions.

               Voting  Rights:  The  portion of the voting  rights of all of the
Certificates  which is  allocated to any  Certificate.  96% of all of the Voting
Rights shall be allocated  among Holders of each Class of Offered  Certificates,
other than the Class  A-I-IO  Certificates,  in  proportion  to the  outstanding
Certificate Principal Balances of their respective  Certificates;  1%, 1% and 1%
of all of the Voting  Rights shall be  allocated  among the Holders of the Class
A-I-IO, Class SB-I and Class SB-II Certificates,  respectively; and 1/3 of 1% of
all of the Voting  Rights  shall be  allocated  among the Holders of each of the
Class R-I, Class R-II and Class R-III Certificates; in each case to be allocated
among  the  Certificates  of such  Class in  accordance  with  their  respective
Percentage Interest.

Section 1.02 Determination of LIBOR.

                                       41
<PAGE>

               LIBOR applicable to the calculation of the  Pass-Through  Rate on
the  Adjustable  Rate  Certificates  for any  Interest  Accrual  Period  will be
determined on each LIBOR Rate Adjustment Date.

               On each LIBOR Rate Adjustment Date, LIBOR shall be established by
the Trustee and, as to any Interest Accrual Period,  will equal the rate for one
month United  States dollar  deposits  that appears on the Telerate  Screen Page
3750 as of  11:00  a.m.,  London  time,  on such  LIBOR  Rate  Adjustment  Date.
"Telerate  Screen Page 3750" means the  display  designated  as page 3750 on the
Bridge  Telerate  Service (or such other page as may  replace  page 3750 on that
service for the purpose of displaying  London  interbank  offered rates of major
banks).  If such rate does not  appear on such page (or such  other  page as may
replace  that page on that  service,  or if such  service is no longer  offered,
LIBOR shall be so established by use of such other service for displaying  LIBOR
or comparable  rates as may be selected by the Trustee after  consultation  with
the Master  Servicer),  the rate will be the Reference Bank Rate. The "Reference
Bank Rate" will be  determined  on the basis of the rates at which  deposits  in
U.S.  Dollars are offered by the reference banks (which shall be any three major
banks that are engaged in transactions in the London interbank market,  selected
by the Trustee after  consultation  with the Master  Servicer) as of 11:00 a.m.,
London  time,  on the LIBOR Rate  Adjustment  Date to prime  banks in the London
interbank market for a period of one month in amounts approximately equal to the
Certificate   Principal   Balance  of  the  Adjustable  Rate  Certificates  then
outstanding. The Trustee will request the principal London office of each of the
reference  banks to  provide  a  quotation  of its  rate.  If at least  two such
quotations are provided,  the rate will be the arithmetic mean of the quotations
rounded  up to the next  multiple  of  1/16%.  If on such  date  fewer  than two
quotations are provided as requested,  the rate will be the  arithmetic  mean of
the rates  quoted by one or more major  banks in New York City,  selected by the
Trustee after consultation with the Master Servicer,  as of 11:00 a.m., New York
City time, on such date for loans in U.S.  Dollars to leading European banks for
a  period  of one  month  in  amounts  approximately  equal  to the  Certificate
Principal Balance of the Adjustable Rate  Certificates  then outstanding.  If no
such  quotations  can be  obtained,  the  rate  will  be  LIBOR  for  the  prior
Distribution Date.

               The  establishment  of LIBOR by the  Trustee  on any  LIBOR  Rate
Adjustment  Date and the Trustee's  subsequent  calculation of the  Pass-Through
Rates applicable to the Adjustable Rate  Certificates for the relevant  Interest
Accrual Period, in the absence of manifest error, will be final and binding.

               Promptly  following each LIBOR Rate  Adjustment  Date the Trustee
shall supply the Master Servicer with the results of its  determination of LIBOR
on such date.  Furthermore,  the Trustee will supply to any Certificateholder so
requesting  by  telephone  the   Pass-Through   Rates  on  the  Adjustable  Rate
Certificates  for the current and the  immediately  preceding  Interest  Accrual
Period.

Section 1.03   Certain REMIC Matters.

(a) The Trustee  shall elect that each of REMIC I, REMIC IA,  REMIC II and REMIC
III  shall  be  treated  as  a  REMIC  under  Section  860D  of  the  Code.  Any
inconsistencies  or ambiguities in this  Agreement or in the  administration  of
this Agreement shall be resolved in a manner that preserves the validity of such
REMIC  elections.  The REMIC I,  REMIC IA and  REMIC II  Regular  Interests  (as
defined below) shall constitute the assets of REMIC III.

                                       42
<PAGE>

(b) REMIC I will be evidenced by the REMIC I Class IA, Class IB, Class IC, Class
ID, Class IE and Class IF Interests (together,  the "REMIC I Regular Interests")
which  (x) will be  uncertificated  and  non-transferable  and  (ii) are  hereby
designated  as the  "regular  interests"  in  REMIC  I and  (y)  the  Class  R-I
Certificates,  which are hereby designated as the single "residual  interest" in
REMIC  I  (the  REMIC  I  Regular   Interests,   together  with  the  Class  R-I
Certificates,  the "REMIC I Interests").  The REMIC I Regular Interests shall be
recorded on the records of REMIC I as being issued to and held by the Trustee on
behalf of REMIC IA.

(c) The REMIC I Interests will have the following designations, initial balances
and  pass-through   rates,  and  distributions  of  interest  thereon  shall  be
calculated as follows:

   REMIC I Interests            Initial Balance              Pass-Through Rate

           IA                     $85,000,000                       (1)
           IB                      65,000,000                       (1)
           IC                      54,000,000                       (1)
           ID                      51,000,000                       (1)
           IE                      43,000,000                       (1)
           IF                    $552,000,676                       (1)
          R-I                        $      0                        0%

__________________________

(1) The pass-through  rate on these REMIC I Regular  Interests shall at any time
of  determination  equal the weighted  average of the Net Mortgage  Rates of the
Mortgage Loans in Loan Group I.

(d)  Principal  payments  on the Group I Loans shall be  allocated  first to the
REMIC I Class IF  Interests,  and then to the other  REMIC I Regular  Interests,
sequentially,  in  reverse  order to which  they are  listed  above,  until  the
principal  balances of each are paid in full. The REMIC I Class R-I Certificates
shall have no principal  balance and no pass-through  rate and shall be entitled
to only  those  distributable  assets,  if  any,  remaining  in  REMIC I on each
Distribution  Date after all amounts  required to be  distributed to the REMIC I
Regular I Interests after payment of allocable expenses have been paid.

(e) REMIC IA will be evidenced by (x) the REMIC IA Class IA-1, Class IA-2, Class
IA-3, Class IA-4, Class IA-5, Class IA-6, Class IA-I-IO, Class IM-1, Class IM-2,
Class IM-3 and Class I-Q  Interests  (the "REMIC IA Regular  Interests"),  which
will be  uncertificated  and  non-transferable  and are hereby designated as the
"regular  interests" in REMIC IA and (y) the Class R-IA Certificates,  which are
hereby  designated as the single  "residual  interest" in REMIC IA (the REMIC IA
Regular  Interests,  together  with the Class R-IA  Certificates,  the "REMIC IA
Interests").  The REMIC IA Regular Interests shall be recorded on the records of
REMIC IA as being issued to and held by the Trustee on behalf of REMIC III.

                                       43
<PAGE>

(f) The  REMIC IA  Interests  will  have  the  following  designations,  initial
principal balances and pass-through rates, and distributions of interest thereon
shall be allocated to the Class SB-I Certificates in the following manner:

 REMIC IA                 Initial             Pass-Through        Allocations of
 Interests                Balance                 Rate               Interest

   IA-1                    $286,981                (1)                 (3)
   IA-2                       $51,255              (1)                 (3)
   IA-3                      $181,938              (1)                 (3)
   IA-4                       $77,933              (1)                 (3)
   IA-5                       $90,393              (1)                 (3)
   IA-6                       $85,000              (1)                 (3)
  IA-I-IO             Notional Amount              (2)             Class A-I-IO
   I-M-1                      $34,000              (1)                 (3)
   I-M-2                      $25,500              (1)                 (3)
   I-M-3                      $17,000              (1)                 (3)
    I-Q                  $849,150,676              (1)                 (3)
    R-I           $                 0            0% (4)                 NA

____________________

(1)     The pass-through  rate on these REMIC IA Regular  Interests shall at any
        time of  determination  equal the weighted  average of the  pass-through
        rates of the REMIC I Regular Interests after first subtracting 5.0% from
        the pass-through rates of such Regular Interests (other than the REMIC I
        Class IF Interests) for the Distribution  Dates indicated below for each
        of such Regular Interests:

                 REMIC I Interest            5.0% Subtraction Distribution Date

                        IA                       October 2001 - March 2002
                        IB                      April 2002 - September 2002
                        IC                       October 2002 - March 2003
                        ID                      April 2003 - September 2003
                        IE                       October 2003 - March 2004

(2)     Interest on the REMIC I Class IA-I-IO  Interest will be equal to the sum
        of five strips of interest, each being a strip off the principal balance
        of a REMIC  I  Regular  Interest  (other  than  the  REMIC  I  Class  IF
        Interests) at 5.0% per annum for the Distribution Dates indicated in the
        table in note (1) for such Regular Interest,  and 0.0% thereafter.  Each
        of the five interest strips comprising the interest on the REMIC I Class
        IA-I-IO Interest,  each of which shall be designated as a separate REMIC
        Regular Interest.

(3)     Any interest with respect to this REMIC IA Regular Interest in excess of
        the product of (i) 1000 times the weighted average  Pass-Through Rate of
        the REMIC IA Regular  Interests,  where the REMIC IA Class  IA-1,  Class
        IA-2,  Class IA-3, Class IA-4, Class IA-5, Class IA-6, Class IM-1, Class
        IM-2 and Class IM-3  Interests are first each subject to a cap and floor
        equal to the Pass-Through  Rates on the Class A-I-1,  Class A-I-2, Class
        A-I-3,  Class A-I-4,  Class A-I-5, Class A-I-6, Class M-I-1, Class M-I-2
        and Class M-I-3  Certificates,  respectively  and the REMIC IA Class I-Q
        Interest is subject to a cap equal to 0%, and (ii) the principal balance
        of this REMIC I Regular  Interest,  shall be allocated to the Class SB-I
        Certificates.  The Class SB-I  Certificates  will also be  entitled to a
        portion of the  principal  paid on the REMIC I Regular  Interests  in an
        amount equal to the Initial  Certificate  Principal Balance of the Class
        SB-I Certificates.

                                       44
<PAGE>

(4)     On each Distribution Date, available funds, if any remaining in REMIC IA
        after payments of interest and principal,  as designated  above, will be
        distributed  to the Class R-IA  Certificates.  It is expected that there
        will not be any distributions on the Class R-IA Certificates.

(g) The Subordination Increase Amount for Loan Group I will not be paid directly
as  principal  to the REMIC IA Regular  Interests,  but instead a portion of the
interest  payable with  respect to the Class I-Q  Interest  which equals 0.1% of
such  Subordination  Increase  Amount  will be  payable  as a  reduction  of the
principal  balances of the REMIC IA Class IA-1,  Class IA-2,  Class IA-3,  Class
IA-4,  Class IA-5,  Class IA-6, Class IM-1, Class IM-2 and Class IM-3 Interests,
in the same manner in which the Subordination Increase Amount is allocated among
the Class A-I-1,  Class  A-I-2,  Class A-I-3,  Class A-I-4,  Class A-I-5,  Class
A-I-6, Class M-I-1, Class M-I-2 and Class M-I-3 Certificates,  respectively (and
will be  accrued  and added to the  principal  balance of the REMIC IA Class I-Q
Interest).  Principal  payments on the Group I Loans shall be allocated 99.9% to
the  REMIC  IA  Class  I-Q  Interest,  and 0.1% to the  other  REMIC IA  Regular
Interests, until paid in full. The aggregate amount of principal allocated among
the REMIC IA Class IA-1,  Class IA-2,  Class IA-3, Class IA-4, Class IA-5, Class
IA-6, Class IM-1, Class IM-2 and Class IM-3 Interests shall be apportioned among
such  Interests  in the same manner in which  principal  on the Group I Loans is
payable with respect to the Class A-I-1,  Class A-I-2, Class A-I-3, Class A-I-4,
Class A-I-5, Class A-I-6, Class M-I-1, Class M-I-2 and Class M-I-3 Certificates,
respectively.   Notwithstanding   the  above,   principal   payments   that  are
attributable  to the  Subordination  Reduction  Amount for Loan Group I shall be
allocated  to the REMIC IA Class I-Q  Interest  (until  paid in full).  Realized
losses shall be applied such that after all distributions have been made on each
Distribution  Date (i) the principal  balances of the REMIC IA Class IA-1, Class
IA-2, Class IA-3, Class IA-4, Class IA-5, Class IA-6, Class MI-1, Class MI-2 and
Class MI-3 Interests are each 0.1% of the principal balances of the Class A-I-1,
Class A-I-2,  Class A-I-3,  Class A-I-4,  Class A-I-5, Class A-I-6, Class M-I-1,
Class M-I-2 and Class M-I-3 Certificates,  respectively;  and (ii) the principal
balance of the REMIC IA Class I-Q  Interest  is equal to the Loan Group I Stated
Principal Balance,  less an amount equal to the sum of the principal balances of
the REMIC IA Regular Interests, other than the REMIC IA Class I-Q Interest.

(h) REMIC II will be  evidenced  by (x) the REMIC II Class  II-A,  Class  IIM-1,
Class  IIM-2,  Class  IIM-3 and Class  II-Q  Interests  (the  "REMIC II  Regular
Interests"),  which will be uncertificated and  non-transferable  and are hereby
designated  as the  "regular  interests"  in  REMIC  II and (y) the  Class  R-II
Certificates,  which are hereby designated as the single "residual  interest" in
REMIC  II (the  REMIC  II  Regular  Interests,  together  with  the  Class  R-II
Certificates, the "REMIC II Interests"). The REMIC II Regular Interests shall be
recorded on the  records of REMIC II as being  issued to and held by the Trustee
on behalf of REMIC III.

(i) The  REMIC II  Interests  will  have  the  following  designations,  initial
principal balances and pass-through rates, and distributions of interest thereon
shall be allocated to the Class SB-II Certificates in the following manner:

                                       45
<PAGE>

                                               Pass-Through  Allocation
 REMIC II                     Initial              Rate         of
Interests                     Balance                        Interest
   II-A             $         1,040,750             (1)         (2)
  II-M-1            $            46,000             (1)         (2)
  II-M-2            $            34,500             (1)         (2)
  II-M-3            $            28,750             (1)         (2)
   II-Q             $     1,148,850,039             (1)         (2)
   R-II             $                 0          0% (3)         N/A

____________________________

(1)     The pass-through  rate on these REMIC II Regular  Interests shall at any
        time of  determination  equal the  weighted  average of the Net Mortgage
        Rates of the Mortgage Loans in Loan Group II.

(2)     Any interest with respect to this REMIC II Regular Interest in excess of
        the product of (i) 1000 times the weighted average  Pass-Through Rate of
        the REMIC II Regular  Interests,  where the REMIC II Class  II-A,  Class
        IIM-1, Class IIM-2 and Class IIM-3 Interests are first each subject to a
        cap and floor  equal to the  Pass-Through  Rates on the Class A-II Class
        M-II-1, Class M-II-2 and Class M-II-3 Certificates, respectively and the
        REMIC II Class II-Q  Interest  is subject to a cap equal to 0%, and (ii)
        the  principal  balance  of this  REMIC II  Regular  Interest,  shall be
        allocated to the Class SB-II Certificates.  The Class SB-II Certificates
        will also be entitled to a portion of the principal paid on the REMIC II
        Regular  Interests  in  an  amount  equal  to  the  Initial  Certificate
        Principal Balance of the Class SB-II Certificates.

(3)     On each Distribution Date, available funds, if any remaining in REMIC II
        after  payments of interest and  principal,  as  designated  above,  and
        expenses of the Trust that are  payable  from the Group II Loans will be
        distributed  to the Class R-II  Certificates.  It is expected that there
        will not be any distributions on the Class R-II Certificates.

(j) The  Subordination  Increase  Amount  for  Loan  Group  II will  not be paid
directly as principal to the REMIC II Regular  Interests,  but instead a portion
of the interest  payable with respect to the REMIC II Class II-Q Interest  which
equals 0.1% of such Subordination Increase Amount will be payable as a reduction
of the principal  balances of the REMIC II Class II-A, Class IIM-1,  Class IIM-2
and  Class  IIM-3  Interests,  in the same  manner  in which  the  Subordination
Increase  Amount is allocated among the Class A-II,  Class M-II-1,  Class M-II-2
and Class M-II-3  Certificates,  respectively  (and will be accrued and added to
the principal balance of the REMIC II Class II-Q Interest).  Principal  payments
on the  Group  II Loans  shall be  allocated  99.9% to the  REMIC II Class  II-Q
Interest, and 0.1% to the other REMIC II Regular Interests,  until paid in full.
The aggregate amount of principal allocated among the REMIC II Class II-A, Class
IIM-1,  Class IIM-2 and Class IIM-3  Interests  shall be apportioned  among such
Interests in the same manner in which principal on the Group II Loans is payable
with  respect to the Class A-II,  Class  M-II-1,  Class  M-II-2 and Class M-II-3
Certificates,  respectively.  Notwithstanding the above, principal payments that
are attributable to the  Subordination  Reduction Amount for Loan Group II shall
be allocated to the REMIC II Class II-Q Interest (until paid in full).  Realized
losses shall be applied such that after all distributions have been made on each
Distribution  Date (i) the principal  balances of the REMIC II Class II-A, Class
MII-1,  Class MII-2 and Class  MII-3  Interests  are each 0.1% of the  principal
balances  of the Class  A-II,  Class  M-II-1,  Class  M-II-2  and  Class  M-II-3
Certificates, respectively; and (ii) the principal balance of the REMIC II Class

                                       46
<PAGE>

II-Q Interest is equal to the Loan Group II Stated  Principal  Balance,  less an
amount  equal to the sum of the  principal  balances  of the  REMIC  II  Regular
Interests, other than the REMIC II Class II-Q Interest.

(k) The  Maturity  Dates of the  REMIC I  Regular  Interests,  REMIC IA  Regular
Interests,  REMIC II  Regular  Interests  and REMIC  III  Regular  Interests  is
September 25, 2035.

                                   ARTICLE II

         CONVEYANCE OF MORTGAGE LOANS;ORIGINAL ISSUANCE OF CERTIFICATES

Section 2.01   Conveyance of Mortgage Loans.

(a) The Depositor,  concurrently  with the execution and delivery  hereof,  does
hereby assign to the Trustee without recourse all the right,  title and interest
of the  Depositor  in and to the  Mortgage  Loans,  including  all  interest and
principal  received on or with respect to the  Mortgage  Loans after the Cut-off
Date (other than payments of principal and interest due on each Mortgage Loan on
or before the Due Date in the month of the Cut-off  Date).  The  Mortgage  Loans
that from time to time  constitute  part of the Trust Fund shall be divided into
two separate sub-trusts, one for Loan Group I and one for Loan Group II.

(b) In connection with such assignment,  and contemporaneously with the delivery
of this Agreement,  except as set forth in Section 2.01(c) below,  the Depositor
does hereby  deliver to, and deposit  with,  the Trustee,  or to and with one or
more  Custodians,  as the duly appointed agent or agents of the Trustee for such
purpose,  the following documents or instruments (or copies thereof as permitted
by this Section) with respect to each Mortgage Loan so assigned:

(i)     The original  Mortgage Note,  endorsed  without recourse to the order of
        the  Trustee  and showing an  unbroken  chain of  endorsements  from the
        originator  thereof to the Person  endorsing it to the Trustee,  or with
        respect to any Destroyed  Mortgage Note, an original lost note affidavit
        from the related  Person  stating  that the original  Mortgage  Note was
        lost,  misplaced  or  destroyed,  together  with a copy  of the  related
        Mortgage Note;

(ii)    The  original  Mortgage,  noting the presence of the MIN of the Mortgage
        Loan and language indicating that the Mortgage Loan is a MOM Loan if the
        Mortgage  Loan is a MOM  Loan,  with  evidence  of  recording  indicated
        thereon or if the recording  office retains the original or the original
        has been lost or  destroyed  a copy of the  Mortgage  with  evidence  of
        recording indicated thereon;

(iii)   Unless the  Mortgage  Loan is  registered  on the  MERS(R)  Systems,  an
        original  Assignment  of the  Mortgage to the Trustee  with  evidence of
        recording  indicated  thereon or if the  recording  office  retains  the
        original  or the  original  has been  lost or  destroyed  a copy of such
        assignment with evidence of recording indicated thereon;

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<PAGE>

(iv)    The original recorded  assignment or assignments of the Mortgage showing
        an  unbroken  chain of title from the  originator  thereof to the Person
        assigning  it to the  Trustee  (or to  MERS,  if the  Mortgage  Loan  is
        registered on the MERS(R)  System and noting the presence of a MIN) with
        evidence of  recordation  noted thereon or attached  thereto,  or if the
        recording  office  retains the original or the original has been lost or
        destroyed a copy of such  assignment or assignments of the Mortgage with
        evidence of recording indicated thereon; and

(v)     The  original of each  modification,  assumption  agreement or preferred
        loan  agreement,  if  any,  relating  to  such  Mortgage  Loan or if the
        recording  office  retains the original or the original has been lost or
        destroyed a copy of each modification, assumption agreement or preferred
        loan agreement with evidence of recording thereon, if such documents are
        required to be recorded.

(c) The Depositor  may, in lieu of delivering  the original of the documents set
forth  in  Section  2.01(b)(ii),  (iii),  (iv)  and (v) (or  copies  thereof  as
permitted by Section  2.01(b)) to the Trustee or the  Custodian  or  Custodians,
deliver such  documents to the Master  Servicer,  and the Master  Servicer shall
hold such  documents  in trust for the use and benefit of all present and future
Certificateholders  until such time as is set forth below in the next  sentence.
Within  ten  Business  Days  following  the  earlier  of (i) the  receipt of the
original  of  all  of  the  documents  or  instruments   set  forth  in  Section
2.01(b)(ii),  (iii),  (iv)  and (v) (or  copies  thereof  as  permitted  by such
Section)  for any  Mortgage  Loan and (ii) a written  request by the  Trustee to
deliver those  documents  with respect to any or all of the Mortgage  Loans then
being held by the Master Servicer,  the Master Servicer shall deliver a complete
set of such documents to the Trustee or the Custodian or Custodians that are the
duly appointed agent or agents of the Trustee.

               On the Closing Date,  the Master  Servicer  shall certify that it
has in its  possession an original or copy of each of the documents  referred to
in Section  2.01(b)(ii),  (iii),  (iv) and (v) which has been delivered to it by
the Depositor.

(d)  Notwithstanding  the  provisions of Section  2.01(c),  in the event that in
connection  with any Mortgage Loan the Depositor  cannot deliver the original of
the Mortgage,  any assignment,  modification,  assumption agreement or preferred
loan  agreement (or copy thereof as permitted by Section  2.01(b)) with evidence
of  recording  thereon  concurrently  with the  execution  and  delivery of this
Agreement  solely because of a delay caused by the public recording office where
such Mortgage, assignment, modification,  assumption agreement or preferred loan
agreement, as the case may be, has been delivered for recordation, the Depositor
shall  deliver  or  cause  to be  delivered  to the  Trustee  or the  respective
Custodian  a  copy  of  such  Mortgage,  assignment,  modification,   assumption
agreement or preferred loan agreement.

               The  Depositor  shall  promptly  cause  to  be  recorded  in  the
appropriate  public office for real property records the Assignment  referred to
in clause (iii) of Section  2.01(b),  except (a) in states where, in the opinion
of  counsel  acceptable  to the  Trustee,  the  Rating  Agencies  and the Master
Servicer,  such recording is not required to protect the Trustee's  interests in
the  Mortgage  Loan  against  the  claim  of any  subsequent  transferee  or any
successor to or creditor of the  Depositor or the  originator  of such  Mortgage
Loan or (b) if MERS is  identified  on the  Mortgage  or on a properly  recorded
assignment  of the Mortgage as the mortgagee of record solely as nominee for the
Seller and its successors and assigns.

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<PAGE>

               If  the  Depositor  delivers  to the  Trustee  or  Custodian  any
Mortgage Note or Assignment of Mortgage in blank,  the Depositor shall, or shall
cause the Custodian to,  complete the  endorsement  of the Mortgage Note and the
Assignment  of  Mortgage  in the name of the  Trustee  in  conjunction  with the
Interim Certification issued by the Custodian, as contemplated by Section 2.02.

               In connection with the assignment of any Mortgage Loan registered
on the MERS(R) System,  the Depositor  further agrees that it will cause, at the
Depositor's  own expense,  within 30 Business Days after the Closing  Date,  the
MERS(R)  System to indicate that such  Mortgage  Loans have been assigned by the
Depositor to the Trustee in  accordance  with this  Agreement for the benefit of
the  Certificateholders by including (or deleting, in the case of Mortgage Loans
which are  repurchased in accordance with this Agreement) in such computer files
(a) the code in the field which identifies the specific Trustee and (b) the code
in the field "Pool Field" which identifies the series of the Certificates issued
in connection  with such Mortgage  Loans.  The Depositor  further agrees that it
will not, and will not permit the Master  Servicer  to, and the Master  Servicer
agrees  that it will not,  alter the codes  referenced  in this  paragraph  with
respect to any Mortgage Loan during the term of this Agreement  unless and until
such  Mortgage  Loan  is  repurchased  in  accordance  with  the  terms  of this
Agreement.

(e) It is intended that the  conveyances  by the Depositor to the Trustee of the
Mortgage  Loans as provided  for in this  Section  2.01 be and be construed as a
sale by the  Depositor to the Trustee of the  Mortgage  Loans for the benefit of
the Certificateholders.  Further, it is not intended that any such conveyance be
deemed to be a pledge of the Mortgage  Loans by the  Depositor to the Trustee to
secure a debt or other obligation of the Depositor.  However,  in the event that
the Mortgage  Loans are held to be property of the  Depositor or of  Residential
Funding,  or if for any  reason  this  Agreement  is held or  deemed to create a
security  interest in the  Mortgage  Loans,  then it is  intended  that (a) this
Agreement shall also be deemed to be a security  agreement within the meaning of
Articles  8 and 9 of the New  York  Uniform  Commercial  Code  and  the  Uniform
Commercial  Code of any  other  applicable  jurisdiction;  (b)  the  conveyances
provided  for in this  Section  2.01  shall be  deemed  to be (1) a grant by the
Depositor to the Trustee of a security  interest in all of the Depositor's right
(including the power to convey title thereto),  title and interest,  whether now
owned or hereafter  acquired,  in and to (A) the Mortgage Loans,  including with
respect to each  Mortgage  Loan,  the Mortgage  Notes,  the  Mortgages,  (B) any
related  insurance  policies  and all other  documents  in the related  Mortgage
Files, (C) all amounts payable pursuant to the Mortgage Loans in accordance with
the terms  thereof and (D) any and all general  intangibles,  accounts,  chattel
paper, instruments, documents, money, deposit accounts, certificates of deposit,
goods,  letters of credit,  advices of credit and investment property consisting
of,  arising from or relating to any of the  foregoing,  and all proceeds of the
conversion,  voluntary or involuntary,  of the foregoing into cash, instruments,
securities or other property, including without limitation all amounts from time
to time held or invested in the  Certificate  Account or the Custodial  Account,
whether in the form of cash,  instruments,  securities or other property and (2)
an assignment  by the  Depositor to the Trustee of any security  interest in any
and all of  Residential  Funding's  right  (including  the power to convey title
thereto), title and interest, whether now owned or hereafter acquired, in and to
the property described in the foregoing clauses (1)(A), (B), (C) and (D) granted
by Residential  Funding to the Depositor  pursuant to the Assignment  Agreement;
(c) the  possession  by the  Trustee,  the  Custodian  or any other agent of the

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<PAGE>

Trustee  of  Mortgage  Notes or such  other  items  of  property  as  constitute
instruments,  money, negotiable documents,  goods, letters of credit, advices of
credit,  certificated  securities  or  chattel  paper  shall  be  deemed  to  be
"possession by the secured  party," or possession by a purchaser for purposes of
perfecting the security interest  pursuant to the Minnesota  Uniform  Commercial
Code  and the  Uniform  Commercial  Code of any  other  applicable  jurisdiction
(including,   without  limitation,   Section  9-313(c)(1),   thereof);  and  (d)
notifications to persons holding such property, and acknowledgments, receipts or
confirmations from persons holding such property,  shall be deemed notifications
to,   or   acknowledgments,   receipts   or   confirmations   from,   securities
intermediaries, bailees or agents of, or persons holding for (as applicable) the
Trustee for the purpose of perfecting  such security  interest under  applicable
law.

               The  Depositor  and, at the  Depositor's  direction,  Residential
Funding and the Trustee shall,  to the extent  consistent  with this  Agreement,
take  such  reasonable  actions  as may be  necessary  to ensure  that,  if this
Agreement  were deemed to create a security  interest in the Mortgage  Loans and
the other property described above, such security interest would be deemed to be
a perfected security interest of first priority under applicable law and will be
maintained as such throughout the term of this Agreement.  Without  limiting the
generality  of the  foregoing,  the  Depositor  shall prepare and deliver to the
Trustee  not less than 15 days prior to any filing date and,  the Trustee  shall
forward for filing, or shall cause to be forwarded for filing, at the expense of
the  Depositor,  all filings  necessary  to maintain  the  effectiveness  of any
original filings necessary under the Uniform Commercial Code as in effect in any
jurisdiction  to  perfect  the  Trustee's  security  interest  in or lien on the
Mortgage  Loans as  evidenced  by an  Officer's  Certificate  of the  Depositor,
including  without  limitation (x) continuation  statements,  and (y) such other
statements  as may be  occasioned  by (1) any  change  of  name  of  Residential
Funding,  the Depositor or the Trustee (such  preparation and filing shall be at
the expense of the Trustee,  if occasioned  by a change in the Trustee's  name),
(2) any  change of  location  of the place of  business  or the chief  executive
office of  Residential  Funding  or the  Depositor  or (3) any  transfer  of any
interest of Residential Funding or the Depositor in any Mortgage Loan.

(f) The  Depositor  agrees to deliver to the  Trustee an  Officer's  Certificate
listing  any  Mortgage  Loan  registered  on the  MERS(R)  System  for which the
assignment  to the  Trustee on the  MERS(R)  System as  contemplated  by Section
2.01(d) was  rejected,  defective or otherwise not  accomplished.  The Depositor
shall  deliver  such  Officer's  Certificate  within 45 Business  Days after the
Closing Date and every 30 days thereafter until no such exceptions exist. If any
Mortgage  Loan or  Mortgage  Loans  continue  to be  listed as  exceptions,  the
Depositor shall use its commercially reasonable efforts to cure the exception.

Section 2.02   Acceptance by Trustee.

               The Trustee  acknowledges  receipt (or,  with respect to Mortgage
Loans  subject to a  Custodial  Agreement,  and based  solely  upon a receipt or
certification executed by the Custodian,  receipt by the respective Custodian as
the duly appointed agent of the Trustee) of the documents referred to in Section
2.01(b)(i)  above  (except  that for  purposes of such  acknowledgment  only,  a
Mortgage  Note may be endorsed in blank) and declares that it, or a Custodian as
its  agent,  holds  and  will  hold  such  documents  and  the  other  documents

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<PAGE>

constituting a part of the Mortgage Files delivered to it, or a Custodian as its
agent,   in  trust  for  the  use  and   benefit  of  all   present  and  future
Certificateholders.  The Trustee or Custodian (such Custodian being so obligated
under a Custodial Agreement) agrees, for the benefit of  Certificateholders,  to
review each Mortgage File delivered to it pursuant to Section  2.01(b) within 90
days  after  the  Closing  Date  to  ascertain   that  all  required   documents
(specifically as set forth in Section 2.01(b)), have been executed and received,
and that such documents  relate to the Mortgage Loans identified on the Mortgage
Loan Schedule, as supplemented, that have been conveyed to it, and to deliver to
the Trustee a certificate (the "Interim  Certification")  to the effect that all
documents listed in Section 2.01(b) above have been executed and received by the
Custodian and that such documents relate to the Mortgage Loans identified on the
Mortgage Loan Schedule,  except for any exceptions listed on Schedule A attached
to such  Interim  Certification.  Upon  delivery  of the  Mortgage  Files by the
Depositor or the Master  Servicer,  the Trustee shall  acknowledge  receipt (or,
with  respect to  Mortgage  Loans  subject to a Custodial  Agreement,  and based
solely upon a receipt or certification executed by the Custodian, receipt by the
respective  Custodian  as  the  duly  appointed  agent  of the  Trustee)  of the
documents referred to in Section 2.01(c) above.

               If the Custodian,  as the Trustee's agent,  finds any document or
documents constituting a part of a Mortgage File to be missing or defective, the
Trustee shall promptly notify the Master  Servicer and the Depositor;  provided,
that if the Mortgage  Loan related to such Mortgage File is listed on Schedule A
of Exhibit One of the Custodial  Agreement,  no notification shall be necessary.
Pursuant to Section 2.3 of the Custodial  Agreement,  the Custodian  will notify
the Master  Servicer,  the  Depositor  and the  Trustee of any such  omission or
defect found by it in respect of any Mortgage  File held by it. If such omission
or defect materially and adversely affects the interests in the related Mortgage
Loan of the  Certificateholders,  the Master  Servicer shall promptly notify the
related  Subservicer  or Seller of such omission or defect and request that such
Subservicer  or Seller  correct or cure such  omission or defect  within 60 days
from the date the Master  Servicer was notified of such  omission or defect and,
if such  Subservicer  or Seller does not correct or cure such omission or defect
within such period,  that such Subservicer or Seller purchase such Mortgage Loan
from REMIC I or REMIC II, as applicable,  at its Purchase  Price, in either case
within 90 days from the date the Master  Servicer was notified of such  omission
or defect; provided that if the omission or defect would cause the Mortgage Loan
to be other than a "qualified  mortgage" as defined in Section 860G(a)(3) of the
Code,  any such cure or repurchase  must occur within 90 days from the date such
breach was  discovered.  The Purchase Price for any such Mortgage Loan,  whether
purchased by the Seller or the  Subservicer,  shall be deposited or caused to be
deposited  by the Master  Servicer in the  Custodial  Account  maintained  by it
pursuant  to  Section  3.07  and,   upon  receipt  by  the  Trustee  of  written
notification of such deposit signed by a Servicing  Officer,  the Trustee or any
Custodian,  as the case may be, shall release to the Master Servicer the related
Mortgage  File and the Trustee  shall  execute and deliver such  instruments  of
transfer or  assignment  prepared by the Master  Servicer,  in each case without
recourse,  as shall be  necessary  to vest in the Seller or its  designee or the
Subservicer  or its  designee,  as the case may be, any Mortgage  Loan  released
pursuant hereto and thereafter such Mortgage Loan shall not be part of the Trust
Fund.  In  furtherance  of the  foregoing,  if the  Subservicer  or Seller  that
repurchases  the  Mortgage  Loan is not a  member  of MERS and the  Mortgage  is

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<PAGE>

registered on the MERS(R) System,  the Master  Servicer,  at its own expense and
without any right of  reimbursement,  shall cause MERS to execute and deliver an
assignment of the Mortgage in recordable form to transfer the Mortgage from MERS
to such  Subservicer  or Seller and shall cause such Mortgage to be removed from
registration   on  the  MERS(R)  System  in  accordance  with  MERS'  rules  and
regulations.  It is understood  and agreed that the  obligation of the Seller or
the Subservicer, as the case may be, to so cure or purchase any Mortgage Loan as
to which a material and adverse defect in or omission of a constituent  document
exists  shall  constitute  the sole  remedy  respecting  such defect or omission
available to Certificateholders or the Trustee on behalf of Certificateholders.

Section 2.03  Representations,  Warranties and Covenants of the Master  Servicer
     and the Depositor.

     (a) The Master Servicer  hereby  represents and warrants to the Trustee for
the benefit of the Certificateholders that:

(i)     The Master Servicer is a corporation  duly organized,  validly  existing
        and in good standing under the laws governing its creation and existence
        and is or will be in compliance with the laws of each state in which any
        Mortgaged  Property  is located to the  extent  necessary  to ensure the
        enforceability  of each Mortgage  Loan in  accordance  with the terms of
        this Agreement;

(ii)    The execution and delivery of this Agreement by the Master  Servicer and
        its performance and compliance with the terms of this Agreement will not
        violate the Master Servicer's  Certificate of Incorporation or Bylaws or
        constitute a material  default (or an event which,  with notice or lapse
        of time, or both, would constitute a material  default) under, or result
        in the  material  breach of, any material  contract,  agreement or other
        instrument  to which  the  Master  Servicer  is a party or which  may be
        applicable to the Master Servicer or any of its assets;

(iii)   This Agreement,  assuming due  authorization,  execution and delivery by
        the Trustee and the  Depositor,  constitutes a valid,  legal and binding
        obligation of the Master Servicer,  enforceable against it in accordance
        with the terms  hereof  subject to  applicable  bankruptcy,  insolvency,
        reorganization,  moratorium and other laws affecting the  enforcement of
        creditors'  rights  generally  and  to  general  principles  of  equity,
        regardless of whether such  enforcement is considered in a proceeding in
        equity or at law;

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

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<PAGE>

(v)     No  litigation  is  pending  or,  to the best of the  Master  Servicer's
        knowledge,  threatened  against the Master Servicer which would prohibit
        its entering into this  Agreement or performing  its  obligations  under
        this Agreement;

(vi)    The  Master  Servicer  will  comply  in  all  material  respects  in the
        performance of this Agreement with all reasonable rules and requirements
        of each insurer under each Required Insurance Policy;

(vii)   No  information,  certificate  of an  officer,  statement  furnished  in
        writing or report  delivered  to the  Depositor,  any  Affiliate  of the
        Depositor or the Trustee by the Master  Servicer  will, to the knowledge
        of the Master Servicer,  contain any untrue statement of a material fact
        or omit a material fact necessary to make the information,  certificate,
        statement or report not misleading;

(viii)  The Master  Servicer has examined each  existing,  and will examine each
        new,  Subservicing  Agreement  and is or will be familiar with the terms
        thereof.  The terms of each  existing  Subservicing  Agreement  and each
        designated Subservicer are acceptable to the Master Servicer and any new
        Subservicing Agreements will comply with the provisions of Section 3.02;

(ix)    The  Master  Servicer  is a member  of MERS in good  standing,  and will
        comply in all material respects with the rules and procedures of MERS in
        connection  with the servicing of the Mortgage Loans that are registered
        with MERS; and

(x)  The Master  Servicer did not sell the Mortgage  Loans to the Depositor with
     the intent to hinder, delay or defraud any of its creditors

It is understood and agreed that the representations and warranties set forth in
this Section 2.03(a) shall survive delivery of the respective  Mortgage Files to
the Trustee or any Custodian.

               Upon discovery by either the Depositor,  the Master Servicer, the
Trustee or any Custodian of a breach of any representation or warranty set forth
in this Section 2.03(a) which materially and adversely  affects the interests of
the  Certificateholders  in any Mortgage Loan, the party discovering such breach
shall give prompt written notice to the other parties (to the Custodian being so
obligated under a Custodial  Agreement).  Within 90 days of its discovery or its
receipt of notice of such breach, the Master Servicer shall either (i) cure such
breach in all  material  respects or (ii) to the extent that such breach is with
respect to a Mortgage  Loan or a related  document,  purchase such Mortgage Loan
from the Trust Fund at the Purchase Price and in the manner set forth in Section
2.02; provided that if the breach would cause the Mortgage Loan to be other than
a "qualified  mortgage" as defined in Section  860G(a)(3) of the Code,  any such
cure must occur  within 90 days from the date such  breach was  discovered.  The
obligation  of the Master  Servicer to cure such  breach or to so purchase  such
Mortgage  Loan  shall  constitute  the sole  remedy in  respect of a breach of a
representation  and warranty set forth in this Section 2.03(a)  available to the
Certificateholders or the Trustee on behalf of the Certificateholders.

(b) The Depositor hereby  represents and warrants to the Trustee for the benefit
of  Certificateholders  that  (i)  immediately  prior to the  assignment  of the
Mortgage Loans to the Trustee, the Depositor had good title to, and was the sole

                                       53
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owner of, each Mortgage Loan free and clear of any pledge, lien,  encumbrance or
security interest (other than rights to servicing and related  compensation) and
such assignment validly transfers ownership of the Mortgage Loans to the Trustee
free and clear of any pledge,  lien,  encumbrance or security  interest and (ii)
the assignment of the Mortgage Loans to the Trustee  hereunder was not made with
the intent to hinder, delay or defraud any of its creditors.

It is understood and agreed that the representations and warranties set forth in
this Section 2.03(b) shall survive delivery of the respective  Mortgage Files to
the Trustee or any Custodian.

               Upon discovery by any of the Depositor,  the Master Servicer, the
Trustee  or  any  Custodian  of a  breach  of any  of  the  representations  and
warranties  set forth in this Section  2.03(b)  which  materially  and adversely
affects the interests of the  Certificateholders in any Mortgage Loan, the party
discovering  such breach shall give prompt  written  notice to the other parties
(any Custodian being so obligated under a Custodial  Agreement).  Within 90 days
of its discovery or its receipt of notice of breach,  the Depositor shall either
(i) cure such breach in all material  respects or (ii)  purchase  such  Mortgage
Loan from the Trust  Fund at the  Purchase  Price and in the manner set forth in
Section 2.02;  provided that the Depositor shall have the option to substitute a
Qualified  Substitute  Mortgage  Loan or Loans  for such  Mortgage  Loan if such
substitution  occurs within two years following the Closing Date;  provided that
if the  breach  would  cause the  Mortgage  Loan to be other  than a  "qualified
mortgage"  as  defined  in  Section  860G(a)(3)  of the  Code,  any such cure or
repurchase  must occur within 90 days from the date such breach was  discovered.
Any such  substitution  shall be effected by the Depositor  under the same terms
and  conditions  as provided in Section 2.04 for  substitutions  by  Residential
Funding.  It is  understood  and agreed that the  obligation of the Depositor to
cure such breach or to so purchase or  substitute  for any  Mortgage  Loan as to
which such a breach has occurred and is  continuing  shall  constitute  the sole
remedy respecting such breach available to  Certificateholders or the Trustee on
behalf of Certificateholders. Notwithstanding the foregoing, the Depositor shall
not be required to cure breaches or purchase or substitute for Mortgage Loans as
provided  in  this  Section  2.03(b)  if  the  substance  of  the  breach  of  a
representation  set forth above also constitutes fraud in the origination of the
Mortgage Loan.

Section   2.04   Representations   and   Warranties   of   Sellers;   Additional
     Representations and Warranties of Residential Funding.

               The  Depositor,  as assignee  of  Residential  Funding  under the
Assignment  Agreement,  hereby  assigns to the  Trustee  for the  benefit of the
Certificateholders  all of its  right,  title and  interest  in  respect  of the
Assignment  Agreement and each Seller's Agreement  applicable to a Mortgage Loan
to the extent set forth in the Assignment  Agreement.  Insofar as the Assignment
Agreement  or  such  Seller's  Agreement  relates  to  the  representations  and
warranties made by Residential  Funding or the related Seller in respect of such
Mortgage  Loan and any  remedies  provided  thereunder  for any  breach  of such
representations  and warranties,  such right, title and interest may be enforced
by the Master Servicer on behalf of the Trustee and the Certificateholders. Upon
the  discovery  by the  Depositor,  the Master  Servicer,  the  Trustee,  or any
Custodian of a breach of any of the  representations  and  warranties  made in a
Seller's  Agreement or the Assignment  Agreement in respect of any Mortgage Loan
which materially and adversely  affects the interests of the  Certificateholders
in such  Mortgage  Loan,  the party  discovering  such breach  shall give prompt

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written  notice to the other parties (any Custodian  being so obligated  under a
Custodial  Agreement).  The Master  Servicer shall  promptly  notify the related
Seller and Residential  Funding,  of such breach and request that such Seller or
Residential  Funding,  as the case may be,  either  (i) cure such  breach in all
material  respects within 90 days from the date the Master Servicer was notified
of such breach or (ii)  purchase  such  Mortgage Loan from the Trust Fund at the
Purchase Price and in the manner set forth in Section 2.02.

               Residential Funding hereby  additionally  represents and warrants
to  the  Trustee  for  the  benefit  of  the  Certificateholders   each  of  the
representations and warranties set forth in Exhibit N hereto. Upon the discovery
by the Depositor, the Master Servicer, the Trustee, or any Custodian of a breach
of any of such  representations and warranties set forth on Exhibit N in respect
of any Mortgage Loan which materially and adversely affects the interests of the
Certificateholders  in such Mortgage  Loan,  the party  discovering  such breach
shall give prompt written  notice to the other parties (any  Custodian  being so
obligated  under a  Custodial  Agreement)  at the same  time as  notice is given
pursuant  to  the   preceding   paragraph   of  any   corresponding   breach  of
representation or warranty made in Seller's Agreement. The Master Servicer shall
promptly  notify  Residential  Funding  of such  breach of a  representation  or
warranty set forth in Exhibit N and request that Residential  Funding either (i)
cure  such  breach  in all  material  respects  within 90 days from the date the
Master  Servicer was notified of such breach or (ii) purchase such Mortgage Loan
from the Trust Fund  within 90 days of the date of such  written  notice of such
breach at the Purchase  Price and in the manner set forth in Section  2.02,  but
only if the Mortgage  Loan has not been  purchased by the Seller due to a breach
of representation and warranty of the related Seller's Agreement as set forth in
the preceding paragraph; provided that Residential Funding shall have the option
to  substitute a Qualified  Substitute  Mortgage Loan or Loans for such Mortgage
Loan if such  substitution  occurs within two years  following the Closing Date;
provided  that if the breach  would cause the  Mortgage  Loan to be other than a
"qualified mortgage" as defined in Section 860G(a)(3) of the Code, any such cure
or  substitution  must  occur  within  90 days  from  the date  the  breach  was
discovered.  In the  event  that  Residential  Funding  elects to  substitute  a
Qualified Substitute Mortgage Loan or Loans for a Deleted Mortgage Loan pursuant
to this Section 2.04,  Residential  Funding shall deliver to the Trustee for the
benefit of the  Certificateholders  with  respect to such  Qualified  Substitute
Mortgage Loan or Loans, the original Mortgage Note, the Mortgage,  an Assignment
of the Mortgage in recordable  form, and such other  documents and agreements as
are required by Section  2.01,  with the Mortgage  Note  endorsed as required by
Section  2.01.  No  substitution  will be made in any  calendar  month after the
Determination  Date  for such  month.  Monthly  Payments  due  with  respect  to
Qualified  Substitute  Mortgage Loans in the month of substitution  shall not be
part of the Trust Fund and will be retained by the Master  Servicer and remitted
by  the  Master   Servicer  to  Residential   Funding  on  the  next  succeeding
Distribution  Date.  For  the  month  of  substitution,   distributions  to  the
Certificateholders  will include the Monthly  Payment due on a Deleted  Mortgage
Loan for such month and  thereafter  Residential  Funding  shall be  entitled to
retain all amounts received in respect of such Deleted Mortgage Loan. The Master
Servicer  shall amend or cause to be amended the Mortgage  Loan Schedule for the
benefit  of the  Certificateholders  to  reflect  the  removal  of such  Deleted
Mortgage Loan and the substitution of the Qualified  Substitute Mortgage Loan or
Loans and the Master  Servicer shall deliver the amended  Mortgage Loan Schedule
to the Trustee.  Upon such substitution,  the Qualified Substitute Mortgage Loan

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<PAGE>

or Loans  shall  be  subject  to the  terms of this  Agreement  and the  related
Subservicing  Agreement in all respects,  the related  Seller shall be deemed to
have made the  representations  and  warranties  with  respect to the  Qualified
Substitute Mortgage Loan made in the related Seller Agreements as of the date of
substitution,   Residential   Funding   shall  be   deemed   to  have  made  the
representations and warranties with respect to the Qualified Substitute Mortgage
Loan  contained  in Exhibit N hereto,  as of the date of  substitution,  and the
covenants, representations and warranties set forth in this Section 2.04, and in
Section 2.03(b) hereof.

               In  connection  with the  substitution  of one or more  Qualified
Substitute  Mortgage Loans for one or more Deleted  Mortgage  Loans,  the Master
Servicer will  determine  the amount (if any) by which the  aggregate  principal
balance  of all  such  Qualified  Substitute  Mortgage  Loans  as of the date of
substitution  is less than the aggregate  Stated  Principal  Balance of all such
Deleted Mortgage Loans (in each case after  application of the principal portion
of the  Monthly  Payments  due in  the  month  of  substitution  that  are to be
distributed to  Certificateholders  in the month of  substitution).  Residential
Funding shall deposit the amount of such shortfall into the Custodial Account on
the day of substitution, without any reimbursement therefor. Residential Funding
shall give notice in writing to the Trustee of such event, which notice shall be
accompanied by an Officers'  Certificate as to the calculation of such shortfall
and  (subject to Section  10.01(f))  by an Opinion of Counsel to the effect that
such  substitution will not cause (a) any federal tax to be imposed on the Trust
Fund,  including  without  limitation,  any federal  tax imposed on  "prohibited
transactions"  under Section  860F(a)(1) of the Code or on "contributions  after
the startup date" under Section 860G(d)(1) of the Code or (b) any portion of the
Trust  Fund to fail to qualify  as a REMIC at any time that any  Certificate  is
outstanding.

               It is understood  and agreed that the obligation of the Seller or
Residential  Funding, as the case may be, to cure such breach or purchase (or in
the case of  Residential  Funding to  substitute  for) such  Mortgage Loan as to
which such a breach has occurred and is  continuing  shall  constitute  the sole
remedy respecting such breach available to  Certificateholders or the Trustee on
behalf of  Certificateholders.  If the Master  Servicer is Residential  Funding,
then the Trustee shall also have the right to give the  notification and require
the purchase or substitution  provided for in the second preceding  paragraph in
the event of such a breach of a  representation  or warranty made by Residential
Funding in the  Assignment  Agreement.  In  connection  with the  purchase of or
substitution  for any such Mortgage  Loan by  Residential  Funding,  the Trustee
shall  assign to  Residential  Funding all of the right,  title and  interest in
respect of the Seller's  Agreement and the  Assignment  Agreement  applicable to
such Mortgage Loan.

Section 2.05   Execution and Authentication of Certificates.

               The Trustee  acknowledges  the  assignment  to it of the Mortgage
Loans and the  delivery of the  Mortgage  Files to it, or any  Custodian  on its
behalf,  subject to any exceptions noted,  together with the assignment to it of
all  other  assets  included  in the  Trust  Fund,  receipt  of which is  hereby
acknowledged.  Concurrently  with such  delivery and in exchange  therefor,  the
Trustee, pursuant to the written request of the Depositor executed by an officer
of the Depositor,  has executed and caused to be authenticated  and delivered to
or upon the order of the Depositor the Certificates in authorized  denominations
which evidence ownership of the entire Trust Fund.

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<PAGE>

Section 2.06   Convertible Mortgage Loans.

(a) On or before the Certificate Account Deposit Date in the month following the
month in which a Convertible  Mortgage Loan becomes a Converted  Mortgage  Loan,
Residential  Funding shall repurchase such Converted Mortgage Loan for an amount
equal to the  Purchase  Price  therefor.  Residential  Funding  shall cause such
Purchase  Price to be  delivered  to the  Master  Servicer  for  deposit  in the
Certificate Account.

(b)  Upon  payment  of the  Purchase  Price,  the  Trustee  shall  reconvey  the
applicable Converted Mortgage Loan, without recourse,  to Residential Funding or
its designee and release or cause the Custodian to release the related  Mortgage
File to the order of Residential Funding.

(c)  Notwithstanding  that a  Convertible  Mortgage  Loan  becomes  a  Converted
Mortgage  Loan in any month,  such  Converted  Mortgage Loan shall remain in the
Trust Fund and all payments of principal  and interest in respect  thereof shall
remain in the Trust unless and until such Converted Mortgage Loan is repurchased
by Residential Funding.

(d) The  obligation of  Residential  Funding  provided in Section  2.06(a) shall
terminate   without   further  action  upon  the  bankruptcy  or  insolvency  of
Residential Funding.

                                  ARTICLE III

                 ADMINISTRATION AND SERVICING OF MORTGAGE LOANS

Section 3.01   Master Servicer to Act as Servicer.

(a) The Master  Servicer  shall  service and  administer  the Mortgage  Loans in
accordance  with the terms of this Agreement and the respective  Mortgage Loans,
following such procedures as it would employ in its good faith business judgment
and which are normal and usual in its general mortgage servicing units and shall
have full power and authority,  acting alone or through Subservicers as provided
in  Section  3.02,  to do any and all  things  which  it may deem  necessary  or
desirable in connection with such servicing and administration. Without limiting
the generality of the foregoing,  the Master  Servicer in its own name or in the
name of a Subservicer is hereby authorized and empowered by the Trustee when the
Master Servicer or the Subservicer,  as the case may be, believes it appropriate
in  its  best   judgment,   to   execute   and   deliver,   on   behalf  of  the
Certificateholders  and the Trustee or any of them,  any and all  instruments of
satisfaction or cancellation,  or of partial or full release or discharge, or of
consent to assumption or modification in connection with a proposed  conveyance,
or of  assignment  of any  Mortgage  and Mortgage  Note in  connection  with the
repurchase  of a Mortgage  Loan and all other  comparable  instruments,  or with
respect to the  modification  or  re-recording  of a Mortgage for the purpose of
correcting the Mortgage,  the subordination of the lien of the Mortgage in favor
of a public utility company or government  agency or unit with powers of eminent
domain, the taking of a deed in lieu of foreclosure,  the completion of judicial

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<PAGE>

or  non-judicial  foreclosure,  the  conveyance  of a Mortgaged  Property to the
related insurer, the acquisition of any property acquired by foreclosure or deed
in lieu of  foreclosure,  or the  management,  marketing  and  conveyance of any
property  acquired by foreclosure or deed in lieu of foreclosure with respect to
the Mortgage  Loans and with  respect to the  Mortgaged  Properties.  The Master
Servicer  further is authorized  and empowered by the Trustee,  on behalf of the
Certificateholders  and  the  Trustee,  in its own  name  or in the  name of the
Subservicer,  when the Master Servicer or the  Subservicer,  as the case may be,
believes it  appropriate  in its best  judgment to register any Mortgage Loan on
the MERS(R) System,  or cause the removal from the  registration of any Mortgage
Loan on the MERS(R) System, to execute and deliver, on behalf of the Trustee and
the Certificateholders or any of them, any and all instruments of assignment and
other comparable  instruments with respect to such assignment or re-recording of
a  Mortgage  in the name of MERS,  solely as  nominee  for the  Trustee  and its
successors  and assigns.  Any expenses  incurred in connection  with the actions
described in the  preceding  sentence  shall be borne by the Master  Servicer in
accordance with Section 3.16(c), with no right of reimbursement;  provided, that
if, as a result of MERS discontinuing or becoming unable to continue  operations
in connection with the MERS System,  it becomes necessary to remove any Mortgage
Loan from  registration  on the MERS System and to arrange for the assignment of
the  related  Mortgages  to the  Trustee,  then any  related  expenses  shall be
reimbursable to the Master Servicer. If the Mortgage relating to a Mortgage Loan
did  not  have a lien  senior  to the  Mortgage  Loan on the  related  Mortgaged
Property as of the Cut-off Date, then the Master Servicer, in such capacity, may
not  consent to the  placing  of a lien  senior to that of the  Mortgage  on the
related  Mortgaged  Property.  If the Mortgage relating to a Mortgage Loan had a
lien senior to the  Mortgage  Loan on the related  Mortgaged  Property as of the
Cut-off Date,  then the Master  Servicer,  in such capacity,  may consent to the
refinancing of the prior senior lien;  provided that (i) the resulting  Combined
Loan-to-Value  Ratio of such  Mortgage Loan is no higher than the greater of the
Combined  Loan-to-Value Ratio prior to such refinancing or 70% (or 80% for those
borrowers with a FICO "credit score" of 670 or greater),  (ii) the interest rate
for the  loan  evidencing  the  refinanced  senior  lien is no  higher  than the
interest rate on the loan evidencing the existing senior lien immediately  prior
to the date of such refinancing;  provided,  however, if the loan evidencing the
existing senior lien prior to the date of refinancing has an adjustable rate and
the loan  evidencing the refinanced  senior lien has a fixed rate, then the loan
evidencing  the  refinanced  senior  lien  may be up to  2.0%  higher  than  the
then-current  mortgage rate of the loan  evidencing the existing senior lien and
(iii) the loan evidencing the refinanced  senior lien is not subject to negative
amortization.

               The  Master  Servicer  will,  to the extent  consistent  with the
servicing  standards set forth herein, take whatever actions as may be necessary
to file a claim  under or enforce or allow the  Trustee to file a claim under or
enforce any title insurance  policy with respect to any Mortgage Loan including,
without  limitation,  joining in or causing  any Seller or  Subservicer  (or any
other party in possession of any title  insurance  policy) to join in any claims
process, negotiations, actions or proceedings necessary to make a claim under or
enforce any title insurance policy.  Notwithstanding  anything in this Agreement
to the  contrary,  the Master  Servicer  shall not (unless the  Mortgagor  is in
default with respect to the Mortgage Loan or such default is, in the judgment of
the Master Servicer,  reasonably  foreseeable)  make or permit any modification,
waiver, or amendment of any term of any Mortgage Loan that would both (i) effect
an exchange or  reissuance  of such Mortgage Loan under Section 1001 of the Code
(or final,  temporary or proposed Treasury regulations  promulgated  thereunder)
(other than in  connection  with a proposed  conveyance  or  assumption  of such
Mortgage  Loan that is treated as a  Principal  Prepayment  in Full  pursuant to
Section  3.13(d)  hereof) and (ii) cause any REMIC  formed  hereunder to fail to

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<PAGE>

qualify as a REMIC under the Code or the  imposition  of any tax on  "prohibited
transactions"  or  "contributions"  after  the  startup  date  under  the  REMIC
Provisions.  The Trustee  shall  furnish the Master  Servicer with any powers of
attorney  and other  documents  necessary  or  appropriate  to enable the Master
Servicer  to service  and  administer  the  Mortgage  Loans.  In  servicing  and
administering  any  Nonsubserviced  Mortgage Loan, the Master Servicer shall act
reasonably  and in good faith and,  to the  extent  not  inconsistent  with this
Agreement,  comply with the Program  Guide as if it were the  originator of such
Mortgage Loan and had retained the servicing  rights and  obligations in respect
thereof.

               In  connection  with  servicing  and  administering  the Mortgage
Loans,  the Master Servicer and any Affiliate of the Master Servicer may perform
services such as  appraisals  and  brokerage  services that are not  customarily
provided by servicers  of mortgage  loans,  and shall be entitled to  reasonable
compensation therefor in accordance with Section 3.10.

(b) All costs incurred by the Master  Servicer or by  Subservicers  in effecting
the timely payment of taxes and  assessments  on the  properties  subject to the
Mortgage Loans shall not, for the purpose of calculating  monthly  distributions
to the  Certificateholders,  be added to the  amount  owing  under  the  related
Mortgage Loans,  notwithstanding that the terms of such Mortgage Loan so permit,
and  such  costs  shall  be  recoverable  to the  extent  permitted  by  Section
3.10(a)(ii).

Section 3.02 Subservicing  Agreements  Between Master Servicer and Subservicers;
     Enforcement of Subservicers' and Sellers' Obligations.

(a) The Master Servicer may continue in effect  Subservicing  Agreements entered
into by Residential Funding and Subservicers prior to the execution and delivery
of  this  Agreement,  and  may  enter  into  new  Subservicing  Agreements  with
Subservicers,  for  the  servicing  and  administration  of all or  some  of the
Mortgage Loans. Each Subservicer shall be either (i) an institution the accounts
of which are  insured by the FDIC or (ii)  another  entity  that  engages in the
business of originating or servicing mortgage loans, and in either case shall be
authorized  to  transact  business  in the state or states in which the  related
Mortgaged  Properties  it is to  service  are  situated,  if and  to the  extent
required by applicable law to enable the  Subservicer to perform its obligations
hereunder and under the  Subservicing  Agreement,  and in either case shall be a
FHLMC,  FNMA or HUD  approved  mortgage  servicer and  acceptable  under the PMI
Policy.  Each  Subservicer  of a Mortgage  Loan shall be entitled to receive and
retain, as provided in the related  Subservicing  Agreement and in Section 3.07,
the related Subservicing Fee from payments of interest received on such Mortgage
Loan after payment of all amounts required to be remitted to the Master Servicer
in respect of such Mortgage Loan. For any Mortgage Loan that is a Nonsubserviced
Mortgage  Loan,  the Master  Servicer shall be entitled to receive and retain an
amount  equal to the  Subservicing  Fee from  payments of  interest.  Unless the
context otherwise requires,  references in this Agreement to actions taken or to
be taken by the Master  Servicer in servicing the Mortgage Loans include actions
taken or to be taken by a  Subservicer  on behalf of the Master  Servicer.  Each
Subservicing  Agreement  will be upon such terms and conditions as are generally
required  by,  permitted  by or  consistent  with the Program  Guide and are not
inconsistent  with this Agreement and as the Master Servicer and the Subservicer
have  agreed.  With the  approval  of the Master  Servicer,  a  Subservicer  may

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<PAGE>

delegate  its  servicing   obligations  to  third-party   servicers,   but  such
Subservicer will remain obligated under the related Subservicing Agreement.  The
Master  Servicer  and a  Subservicer  may enter  into  amendments  thereto  or a
different form of Subservicing  Agreement,  and the form referred to or included
in the Program Guide is merely  provided for information and shall not be deemed
to limit in any respect the discretion of the Master Servicer to modify or enter
into  different  Subservicing  Agreements;  provided,  however,  that  any  such
amendments  or  different  forms  shall be  consistent  with and not violate the
provisions of either this Agreement or the Program Guide in a manner which would
materially and adversely affect the interests of the Certificateholders.

(b) As part of its servicing activities hereunder,  the Master Servicer, for the
benefit of the Trustee and the Certificateholders, shall use its best reasonable
efforts  to  enforce  the  obligations  of each  Subservicer  under the  related
Subservicing  Agreement and of each Seller under the related Seller's Agreement,
to the  extent  that the  non-performance  of any such  obligation  would have a
material and adverse effect on a Mortgage Loan,  including,  without limitation,
the   obligation   to  purchase  a  Mortgage   Loan  on  account  of   defective
documentation,  as  described  in Section  2.02,  or on account of a breach of a
representation  or warranty,  as described in Section  2.04.  Such  enforcement,
including,  without limitation,  the legal prosecution of claims, termination of
Subservicing Agreements or Seller's Agreements, as appropriate,  and the pursuit
of other appropriate remedies,  shall be in such form and carried out to such an
extent and at such time as the Master  Servicer  would  employ in its good faith
business  judgment  and  which are  normal  and  usual in its  general  mortgage
servicing  activities.   The  Master  Servicer  shall  pay  the  costs  of  such
enforcement at its own expense, and shall be reimbursed therefor only (i) from a
general  recovery  resulting from such  enforcement to the extent,  if any, that
such recovery exceeds all amounts due in respect of the related Mortgage Loan or
(ii) from a specific  recovery of costs,  expenses or attorneys fees against the
party against whom such  enforcement  is directed For purposes of  clarification
only,  the parties  agree that the  foregoing  is not intended to, and does not,
limit the ability of the Master  Servicer to be reimbursed for expenses that are
incurred in connection  with the  enforcement of a Seller's  obligations and are
reimbursable pursuant to Section 3.10(a)(vii).

Section 3.03   Successor Subservicers.

               The  Master   Servicer   shall  be  entitled  to  terminate   any
Subservicing  Agreement  that  may  exist  in  accordance  with  the  terms  and
conditions of such  Subservicing  Agreement and without any limitation by virtue
of this Agreement;  provided,  however,  that in the event of termination of any
Subservicing  Agreement by the Master  Servicer or the  Subservicer,  the Master
Servicer shall either act as servicer of the related Mortgage Loan or enter into
a Subservicing Agreement with a successor Subservicer which will be bound by the
terms of the  related  Subservicing  Agreement.  If the Master  Servicer  or any
Affiliate of Residential Funding acts as servicer,  it will not assume liability
for the representations and warranties of the Subservicer which it replaces.  If
the Master  Servicer  enters  into a  Subservicing  Agreement  with a  successor
Subservicer,  the  Master  Servicer  shall use  reasonable  efforts  to have the
successor  Subservicer assume liability for the  representations  and warranties
made by the terminated Subservicer in respect of the related Mortgage Loans and,

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<PAGE>

in the event of any such  assumption  by the successor  Subservicer,  the Master
Servicer may, in the exercise of its business  judgment,  release the terminated
Subservicer from liability for such representations and warranties.

Section 3.04   Liability of the Master Servicer.

               Notwithstanding any Subservicing Agreement, any of the provisions
of this  Agreement  relating to  agreements or  arrangements  between the Master
Servicer or a Subservicer or reference to actions taken through a Subservicer or
otherwise,  the Master Servicer shall remain obligated and liable to the Trustee
and Certificateholders for the servicing and administering of the Mortgage Loans
in accordance  with the  provisions  of Section 3.01 without  diminution of such
obligation   or  liability  by  virtue  of  such   Subservicing   Agreements  or
arrangements  or by  virtue  of  indemnification  from  the  Subservicer  or the
Depositor  and to the same extent and under the same terms and  conditions as if
the Master Servicer alone were servicing and  administering  the Mortgage Loans.
The  Master  Servicer  shall be  entitled  to enter  into any  agreement  with a
Subservicer  or Seller for  indemnification  of the Master  Servicer and nothing
contained  in  this   Agreement   shall  be  deemed  to  limit  or  modify  such
indemnification.

Section 3.05 No  Contractual  Relationship  Between  Subservicer  and Trustee or
     Certificateholders.

               Any Subservicing Agreement that may be entered into and any other
transactions or services  relating to the Mortgage Loans involving a Subservicer
in its capacity as such and not as an  originator  shall be deemed to be between
the   Subservicer   and  the  Master   Servicer   alone  and  the   Trustee  and
Certificateholders shall not be deemed parties thereto and shall have no claims,
rights,  obligations,  duties or liabilities  with respect to the Subservicer in
its  capacity  as such  except  as set  forth in  Section  3.06.  The  foregoing
provision  shall  not in any way  limit a  Subservicer's  obligation  to cure an
omission or defect or to  repurchase  a Mortgage  Loan as referred to in Section
2.02 hereof.

Section 3.06   Assumption or Termination of Subservicing Agreements by Trustee.

(a) In the  event the  Master  Servicer  shall  for any  reason no longer be the
master servicer (including by reason of an Event of Default),  the Trustee,  its
designee  or  its  successor  shall  thereupon  assume  all of  the  rights  and
obligations of the Master  Servicer under each  Subservicing  Agreement that may
have been entered into. The Trustee,  its designee or the successor servicer for
the  Trustee  shall be  deemed  to have  assumed  all of the  Master  Servicer's
interest  therein  and to have  replaced  the Master  Servicer as a party to the
Subservicing  Agreement to the same extent as if the Subservicing  Agreement had
been assigned to the assuming  party except that the Master  Servicer  shall not
thereby be relieved  of any  liability  or  obligations  under the  Subservicing
Agreement.

(b) The Master Servicer shall, upon request of the Trustee but at the expense of
the Master  Servicer,  deliver to the assuming  party all  documents and records
relating  to each  Subservicing  Agreement  and the  Mortgage  Loans  then being
serviced and an accounting of amounts collected and held by it and otherwise use

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its  best  efforts  to  effect  the  orderly  and  efficient  transfer  of  each
Subservicing Agreement to the assuming party.

Section 3.07 Collection of Certain Mortgage Loan Payments; Deposits to Custodial
     Account.

(a) The Master  Servicer shall make  reasonable  efforts to collect all payments
called for under the terms and provisions of the Mortgage  Loans,  and shall, to
the extent such procedures shall be consistent with this Agreement and the terms
and provisions of any related Primary Insurance  Policy,  follow such collection
procedures as it would employ in its good faith business  judgment and which are
normal and usual in its general mortgage servicing  activities.  Consistent with
the  foregoing,  the Master  Servicer may in its  discretion  (i) waive any late
payment charge or any prepayment  charge or penalty  interest in connection with
the  prepayment of a Mortgage Loan and (ii) extend the Due Date for payments due
on a Mortgage Loan in accordance with the Program Guide, provided, however, that
the Master Servicer shall first determine that any such waiver or extension will
not impair the  coverage  of any  related  Primary  Insurance  Policy or the PMI
Policy or materially  adversely affect the lien of the related Mortgage.  In the
event of any such arrangement, the Master Servicer shall make timely advances on
the related  Mortgage  Loan during the scheduled  period in accordance  with the
amortization  schedule of such  Mortgage  Loan without  modification  thereof by
reason of such  arrangements  unless  otherwise  agreed to by the Holders of the
Classes  of  Certificates  affected  thereby;  provided,  however,  that no such
extension  shall  be made if any  advance  would  be a  Nonrecoverable  Advance.
Consistent with the terms of this Agreement, the Master Servicer may also waive,
modify or vary any term of any Mortgage Loan or consent to the  postponement  of
strict  compliance  with any such term or in any manner grant  indulgence to any
Mortgagor if in the Master Servicer's  determination such waiver,  modification,
postponement  or  indulgence is not  materially  adverse to the interests of the
Certificateholders  (taking into account any estimated  Realized Loss that might
result absent such action), provided,  however, that the Master Servicer may not
modify  materially  or permit  any  Subservicer  to modify  any  Mortgage  Loan,
including  without  limitation any  modification  that would change the Mortgage
Rate,  forgive the payment of any  principal or interest  (unless in  connection
with the  liquidation of the related  Mortgage Loan or except in connection with
prepayments to the extent that such  reamortization is not inconsistent with the
terms of the Mortgage  Loan), or extend the final maturity date of such Mortgage
Loan,  unless such Mortgage Loan is in default or, in the judgment of the Master
Servicer,  such  default  is  reasonably  foreseeable.  In  connection  with any
Curtailment  of a  Mortgage  Loan,  the  Master  Servicer,  to  the  extent  not
inconsistent with the terms of the Mortgage Note and local law and practice, may
permit the Mortgage  Loan to be  re-amortized  such that the Monthly  Payment is
recalculated  as an  amount  that  will  fully  amortize  the  remaining  Stated
Principal  Amount  thereof by the original  Maturity  Date based on the original
Mortgage Rate;  provided,  that such reamortization shall not be permitted if it
would  constitute  a  reissuance  of the  Mortgage  Loan for federal  income tax
purposes.

(b) The Master  Servicer  shall  establish  and maintain a Custodial  Account in
which the Master  Servicer  shall  deposit or cause to be  deposited  on a daily
basis, except as otherwise  specifically provided herein, the following payments
and  collections  remitted by  Subservicers  or received by it in respect of the
Mortgage  Loans  subsequent  to the  Cut-off  Date  (other  than in  respect  of

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principal  and interest on each  Mortgage  Loan due on or before the Due Date in
the month of the Cut-off Date.):

                      (i)  All  payments  on  account  of  principal,  including
        Principal  Prepayments  made by Mortgagors on the Mortgage Loans and the
        principal  component of any  Subservicer  Advance or of any REO Proceeds
        received in connection with an REO Property for which an REO Disposition
        has occurred;

                      (ii) All  payments on account of interest at the  Adjusted
        Mortgage Rate on the Mortgage  Loans,  including  Buydown Funds, if any,
        and the  interest  component  of any  Subservicer  Advance or of any REO
        Proceeds  received in  connection  with an REO Property for which an REO
        Disposition has occurred;

               (iii)  Insurance  Proceeds and  Liquidation  Proceeds (net of any
          related expenses of the Subservicer);

                      (iv) All proceeds of any Mortgage Loans purchased pursuant
        to Section 2.02, 2.03, 2.04, 2.06, 3.21 or 4.07 and all amounts required
        to be  deposited  in  connection  with the  substitution  of a Qualified
        Substitute Mortgage Loan pursuant to Section 2.03 or 2.04; and

               (v) Any  amounts  required  to be  deposited  pursuant to Section
          3.07(c) or 3.22.

The  foregoing  requirements  for  deposit  in the  Custodial  Account  shall be
exclusive,  it being understood and agreed that, without limiting the generality
of the foregoing, payments on the Mortgage Loans which are not part of the Trust
Fund  (consisting  of  payments  in respect of  principal  and  interest on each
Mortgage  Loan  due on or  before  the Due Date in  December)  and  payments  or
collections  in the  nature of  prepayment  charges or late  payment  charges or
assumption  fees may but need not be  deposited  by the Master  Servicer  in the
Custodial  Account.  In the event any amount not required to be deposited in the
Custodial Account is so deposited,  the Master Servicer may at any time withdraw
such amount from the Custodial  Account,  any  provision  herein to the contrary
notwithstanding.  The Custodial  Account may contain funds that belong to one or
more trust funds created for mortgage pass-through  certificates of other series
and may contain other funds  respecting  payments on mortgage loans belonging to
the Master  Servicer or  serviced or master  serviced by it on behalf of others.
Notwithstanding  such  commingling  of funds,  the  Master  Servicer  shall keep
records that  accurately  reflect the funds on deposit in the Custodial  Account
that have been identified by it as being attributable to the Mortgage Loans.

               With respect to Insurance  Proceeds,  Liquidation  Proceeds,  REO
Proceeds  and the  proceeds of the  purchase of any  Mortgage  Loan  pursuant to
Sections 2.02,  2.03,  2.04, 2.06, 3.21 and 4.07 received in any calendar month,
the Master  Servicer  may elect to treat such amounts as included in the related
Available Distribution Amount for the Distribution Date in the month of receipt,

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but is not  obligated to do so. If the Master  Servicer so elects,  such amounts
will be deemed to have been  received  (and any related  Realized  Loss shall be
deemed  to have  occurred)  on the last day of the  month  prior to the  receipt
thereof.

(c) The Master  Servicer  shall use its best  efforts  to cause the  institution
maintaining the Custodial  Account to invest the funds in the Custodial  Account
attributable to the Mortgage Loans in Permitted  Investments  which shall mature
not later than the  Certificate  Account Deposit Date next following the date of
such investment (with the exception of the Amount Held for Future  Distribution)
and which shall not be sold or disposed of prior to their maturities. All income
and gain  realized  from any such  investment  shall be for the  benefit  of the
Master Servicer as additional servicing compensation and shall be subject to its
withdrawal  or order from time to time.  The amount of any  losses  incurred  in
respect of any such  investments  attributable  to the  investment of amounts in
respect of the Mortgage Loans shall be deposited in the Custodial Account by the
Master Servicer out of its own funds immediately as realized.

(d) The Master  Servicer  shall give notice to the Trustee and the  Depositor of
any change in the  location of the  Custodial  Account  and the  location of the
Certificate Account prior to the use thereof.

Section 3.08   Subservicing Accounts; Servicing Accounts.

(a) In those cases where a Subservicer  is servicing a Mortgage Loan pursuant to
a  Subservicing  Agreement,  the Master  Servicer  shall cause the  Subservicer,
pursuant to the  Subservicing  Agreement,  to establish and maintain one or more
Subservicing  Accounts which shall be an Eligible Account or, if such account is
not an Eligible Account, shall generally satisfy the requirements of the Program
Guide and be otherwise acceptable to the Master Servicer and each Rating Agency.
The  Subservicer  will be  required  thereby  to deposit  into the  Subservicing
Account  on a daily  basis  all  proceeds  of  Mortgage  Loans  received  by the
Subservicer,  less its Subservicing Fees and unreimbursed advances and expenses,
to the extent  permitted  by the  Subservicing  Agreement.  If the  Subservicing
Account is not an Eligible Account,  the Master Servicer shall be deemed to have
received such monies upon receipt  thereof by the  Subservicer.  The Subservicer
shall not be  required  to  deposit  in the  Subservicing  Account  payments  or
collections  in the nature of  prepayment  charges or late charges or assumption
fees.  On or before the date  specified  in the Program  Guide,  but in no event
later  than  the  Determination  Date,  the  Master  Servicer  shall  cause  the
Subservicer,  pursuant  to the  Subservicing  Agreement,  to remit to the Master
Servicer for deposit in the Custodial Account all funds held in the Subservicing
Account with respect to each Mortgage Loan serviced by such Subservicer that are
required to be remitted to the Master  Servicer.  The  Subservicer  will also be
required,  pursuant to the Subservicing  Agreement, to advance on such scheduled
date of  remittance  amounts  equal to any  scheduled  monthly  installments  of
principal  and interest  less its  Subservicing  Fees on any Mortgage  Loans for
which payment was not received by the  Subservicer.  This  obligation to advance
with respect to each  Mortgage  Loan will continue up to and including the first
of the month following the date on which the related Mortgaged  Property is sold
at a  foreclosure  sale  or is  acquired  by the  Trust  Fund by deed in lieu of
foreclosure  or  otherwise.  All such advances  received by the Master  Servicer
shall be deposited promptly by it in the Custodial Account.

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(b)  The  Subservicer  may  also  be  required,  pursuant  to  the  Subservicing
Agreement,  to remit to the Master Servicer for deposit in the Custodial Account
interest at the Adjusted  Mortgage  Rate (or Modified Net Mortgage Rate plus the
rate per annum at which the Servicing  Fee and the related  Premium Rate accrues
in the case of a Modified  Mortgage  loan) on any  Curtailment  received by such
Subservicer in respect of a Mortgage Loan from the related  Mortgagor during any
month that is to be applied by the  Subservicer  to reduce the unpaid  principal
balance of the related Mortgage Loan as of the first day of such month, from the
date of application of such Curtailment to the first day of the following month.
Any amounts paid by a Subservicer  pursuant to the preceding  sentence  shall be
for the benefit of the Master Servicer as additional servicing  compensation and
shall be  subject  to its  withdrawal  or order  from time to time  pursuant  to
Sections 3.10(a)(iv) and (v).

(c) In addition to the Custodial Account and the Certificate Account, the Master
Servicer  shall  for any  Nonsubserviced  Mortgage  Loan,  and  shall  cause the
Subservicers  for Subserviced  Mortgage Loans to,  establish and maintain one or
more Servicing  Accounts and deposit and retain therein all collections from the
Mortgagors   (or  advances  from   Subservicers)   for  the  payment  of  taxes,
assessments,  hazard insurance premiums,  Primary Insurance Policy premiums,  if
applicable,  or  comparable  items  for  the  account  of the  Mortgagors.  Each
Servicing Account shall satisfy the requirements for a Subservicing Account and,
to the extent  permitted by the Program  Guide or as is otherwise  acceptable to
the Master Servicer, may also function as a Subservicing Account. Withdrawals of
amounts  related to the Mortgage  Loans from the Servicing  Accounts may be made
only to effect timely payment of taxes, assessments,  hazard insurance premiums,
Primary  Insurance  Policy  premiums,  if applicable,  or comparable  items,  to
reimburse the Master Servicer or Subservicer out of related  collections for any
payments made  pursuant to Sections 3.11 (with respect to the Primary  Insurance
Policy)  and  3.12(a)  (with  respect  to  hazard  insurance),  to refund to any
Mortgagors  any sums as may be  determined to be overages,  to pay interest,  if
required,  to Mortgagors  on balances in the  Servicing  Account or to clear and
terminate  the  Servicing  Account  at the  termination  of  this  Agreement  in
accordance with Section 9.01 or in accordance with the Program Guide. As part of
its servicing  duties,  the Master Servicer shall,  and the  Subservicers  will,
pursuant to the  Subservicing  Agreements,  be required to pay to the Mortgagors
interest on funds in this account to the extent required by law.

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

Section 3.09  Access to Certain  Documentation  and  Information  Regarding  the
     Mortgage Loans.

               In the event that  compliance  with this  Section 3.09 shall make
any Class of Certificates  legal for investment by federally insured savings and
loan associations,  the Master Servicer shall provide, or cause the Subservicers
to provide, to the Trustee, the Office of Thrift Supervision or the FDIC and the
supervisory  agents and examiners thereof access to the documentation  regarding
the Mortgage  Loans  required by applicable  regulations of the Office of Thrift

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Supervision,  such access being afforded without charge but only upon reasonable
request and during normal business hours at the offices designated by the Master
Servicer. The Master Servicer shall permit such representatives to photocopy any
such  documentation  and shall  provide  equipment  for that purpose at a charge
reasonably approximating the cost of such photocopying to the Master Servicer.

Section 3.10   Permitted Withdrawals from the Custodial Account.

(a) The  Master  Servicer  may,  from  time to time  as  provided  herein,  make
withdrawals from the Custodial Account of amounts on deposit therein pursuant to
Section  3.07 that are  attributable  to the  Mortgage  Loans for the  following
purposes:

               (i) to make deposits into the Certificate  Account in the amounts
          and in the manner provided for in Section 4.01;

                      (ii) to reimburse  itself or the related  Subservicer  for
        previously  unreimbursed  advances or expenses made pursuant to Sections
        3.01, 3.08, 3.12(a), 3.14 and 4.04 or otherwise reimbursable pursuant to
        the terms of this  Agreement,  such  withdrawal  right being  limited to
        amounts  received on  particular  Mortgage  Loans  (including,  for this
        purpose,  REO Proceeds,  Insurance  Proceeds,  Liquidation  Proceeds and
        proceeds  from the purchase of a Mortgage Loan pursuant to Section 2.02,
        2.03,  2.04, 2.06, 3.21 or 4.07) which represent (A) Late Collections of
        Monthly  Payments  for  which any such  advance  was made in the case of
        Subservicer  Advances or Advances  pursuant to Section 4.04 and (B) late
        recoveries of the payments for which such advances were made in the case
        of Servicing Advances;

                      (iii) to pay to itself or the related  Subservicer (if not
        previously retained by such Subservicer) out of each payment received by
        the  Master  Servicer  on  account of  interest  on a  Mortgage  Loan as
        contemplated  by  Sections  3.14  and  3.16,  an  amount  equal  to that
        remaining  portion of any such payment as to interest (but not in excess
        of the  Servicing  Fee  and  the  Subservicing  Fee,  if not  previously
        retained) which,  when deducted,  will result in the remaining amount of
        such interest being interest at a rate per annum equal to the sum of the
        Net  Mortgage  Rate  (or  Modified  Net  Mortgage  Rate in the case of a
        Modified  Mortgage Loan) plus the applicable  Premium Rate on the amount
        specified in the  amortization  schedule of the related Mortgage Loan as
        the principal  balance thereof at the beginning of the period respecting
        which  such  interest  was paid  after  giving  effect  to any  previous
        Curtailments;

                      (iv) to pay to itself as additional servicing compensation
        any  interest or  investment  income  earned on funds  deposited  in the
        Custodial  Account  that it is entitled to withdraw  pursuant to Section
        3.07(c);

                      (v) to pay to itself as additional servicing  compensation
        any  Foreclosure  Profits,  and any amounts  remitted by Subservicers as
        interest in respect of Curtailments pursuant to Section 3.08(b);

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<PAGE>

                      (vi)  to  pay  to  itself,   a   Subservicer,   a  Seller,
        Residential  Funding,  the Depositor or any other appropriate Person, as
        the case may be, with respect to each Mortgage Loan or property acquired
        in respect  thereof that has been  purchased  or  otherwise  transferred
        pursuant to Section 2.02,  2.03,  2.04,  2.06,  3.21,  4.07 or 9.01, all
        amounts   received  thereon  and  not  required  to  be  distributed  to
        Certificateholders  as of the date on which the related Stated Principal
        Balance or Purchase Price is determined;

               (vii) to  reimburse  itself or the  related  Subservicer  for any
          Nonrecoverable  Advance  or  Advances  in the manner and to the extent
          provided in subsection (c) below;

                      (viii) to reimburse  itself or the  Depositor for expenses
        incurred by and reimbursable to it or the Depositor  pursuant to Section
        3.14(c),  6.03, 10.01 or otherwise,  or in connection with enforcing any
        repurchase,  substitution  or  indemnification  obligation of any Seller
        (other  than an  Affiliate  of the  Depositor)  pursuant  to the related
        Seller's Agreement;

                      (ix) to  reimburse  itself for amounts  expended by it (a)
        pursuant  to  Section  3.14  in  good  faith  in  connection   with  the
        restoration  of  property  damaged  by an  Uninsured  Cause,  and (b) in
        connection  with the liquidation of a Mortgage Loan or disposition of an
        REO Property to the extent not otherwise  reimbursed  pursuant to clause
        (ii) or (viii) above; and

                      (x) to  withdraw  any amount  deposited  in the  Custodial
        Account  that was not  required  to be  deposited  therein  pursuant  to
        Section  3.07,  including  any  payoff  fees or  penalties  or any other
        additional  amounts  payable  to  the  Master  Servicer  or  Subservicer
        pursuant to the terms of the Mortgage Note.

(b) Since, in connection with withdrawals  pursuant to clauses (ii),  (iii), (v)
and (vi), the Master Servicer's entitlement thereto is limited to collections or
other  recoveries on the related  Mortgage Loan, the Master  Servicer shall keep
and maintain separate accounting, on a Mortgage Loan by Mortgage Loan basis, for
the purpose of justifying any withdrawal from the Custodial  Account pursuant to
such clauses.

(c) The Master  Servicer  shall be entitled to  reimburse  itself or the related
Subservicer  for any advance made in respect of a Mortgage  Loan that the Master
Servicer  determines  to be a  Nonrecoverable  Advance  by  withdrawal  from the
Custodial  Account of amounts on deposit  therein  attributable  to the Mortgage
Loans  on any  Certificate  Account  Deposit  Date  succeeding  the date of such
determination.  Such  right of  reimbursement  in  respect  of a  Nonrecoverable
Advance  on any such  Certificate  Account  Deposit  Date shall be limited to an
amount  not   exceeding  the  portion  of  such  advance   previously   paid  to
Certificateholders (and not theretofore reimbursed to the Master Servicer or the
related Subservicer).

Section 3.11   Maintenance of the PMI Policy and Primary Insurance Coverage.

(a) The Master  Servicer shall not take, or permit any  Subservicer to take, any
action which would result in noncoverage  under the PMI Policy or any applicable
Primary  Insurance  Policy of any loss which,  but for the actions of the Master
Servicer  or  Subservicer,  would have been  covered  thereunder.  To the extent

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coverage is  available,  the Master  Servicer  shall keep or cause to be kept in
full force and effect each such Primary  Insurance  Policy  until the  principal
balance of the related Mortgage Loan secured by a Mortgaged  Property is reduced
to 80% or less of the Appraised Value in the case of such a Mortgage Loan having
a  Loan-to-Value  Ratio (or, in the case of a Junior Mortgage Loan, the Combined
Loan-to-Value Ratio) at origination in excess of 80%, provided that such Primary
Insurance  Policy  was in place as of the  Cut-off  Date and the  Depositor  had
knowledge of such Primary Insurance Policy. The Master Servicer shall not cancel
or  refuse  to  renew  any  such  Primary   Insurance  Policy  applicable  to  a
Nonsubserviced  Mortgage  Loan,  or  consent  to any  Subservicer  canceling  or
refusing to renew any such Primary  Insurance  Policy  applicable  to a Mortgage
Loan subserviced by it, that is in effect at the date of the initial issuance of
the  Certificates  and is  required  to be kept in force  hereunder  unless  the
replacement  Primary Insurance Policy for such canceled or non-renewed policy is
maintained  with an insurer  whose  claims-paying  ability is acceptable to each
Rating Agency for mortgage pass-through certificates having a rating equal to or
better than the lower of the  then-current  rating or the rating assigned to the
Certificates  as of the Closing Date by such Rating Agency.  The Master Servicer
shall maintain the PMI Policy in full force and effect.

(b) In  connection  with its  activities  as  administrator  and servicer of the
Mortgage  Loans,  the Master  Servicer agrees to present or to cause the related
Subservicer to present,  on behalf of the Master Servicer,  the Subservicer,  if
any, the Trustee and  Certificateholders,  claims to the Mortgage  Insurer under
the PMI Policy and to the insurer  under any Primary  Insurance  Policies,  in a
timely manner in accordance with such policies,  and, in this regard, to take or
cause to be taken  such  reasonable  action  as shall  be  necessary  to  permit
recovery  under the PMI Policy and any  Primary  Insurance  Policies  respecting
defaulted  Mortgage  Loans.  Pursuant to Section 3.07,  any  Insurance  Proceeds
collected  by or  remitted  to the Master  Servicer  under the PMI Policy or any
Primary Insurance Policies shall be deposited in the Custodial Account,  subject
to withdrawal pursuant to Section 3.10.

Section 3.12  Maintenance of Fire Insurance and Omissions and Fidelity Coverage.

(a) The Master Servicer shall cause to be maintained for each Mortgage Loan fire
insurance  with  extended  coverage in an amount which is equal to the lesser of
the principal  balance owing on such Mortgage Loan  (together with the principal
balance of any  mortgage  loan  secured by a lien that is senior to the Mortgage
Loan) or 100  percent  of the  insurable  value of the  improvements;  provided,
however,  that such coverage may not be less than the minimum amount required to
fully  compensate  for any loss or damage on a  replacement  cost basis.  To the
extent it may do so without breaching the related  Subservicing  Agreement,  the
Master  Servicer  shall  replace  any  Subservicer  that  does  not  cause  such
insurance, to the extent it is available, to be maintained.  The Master Servicer
shall also cause to be maintained on property acquired upon foreclosure, or deed
in lieu of  foreclosure,  of any Mortgage  Loan,  fire  insurance  with extended
coverage in an amount  which is at least equal to the amount  necessary to avoid
the  application  of any  co-insurance  clause  contained in the related  hazard
insurance policy.  Pursuant to Section 3.07, any amounts collected by the Master
Servicer  under any such  policies  (other  than  amounts  to be  applied to the
restoration  or  repair of the  related  Mortgaged  Property  or  property  thus

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acquired or amounts  released to the  Mortgagor  in  accordance  with the Master
Servicer's  normal  servicing  procedures)  shall be deposited in the  Custodial
Account,  subject to withdrawal  pursuant to Section 3.10.  Any cost incurred by
the Master Servicer in maintaining any such insurance shall not, for the purpose
of calculating  monthly  distributions  to  Certificateholders,  be added to the
amount  owing under the  Mortgage  Loan,  notwithstanding  that the terms of the
Mortgage Loan so permit.  Such costs shall be recoverable by the Master Servicer
out of related late payments by the  Mortgagor or out of Insurance  Proceeds and
Liquidation  Proceeds to the extent  permitted by Section 3.10. It is understood
and agreed that no earthquake or other additional insurance is to be required of
any Mortgagor or  maintained on property  acquired in respect of a Mortgage Loan
other than pursuant to such applicable laws and regulations as shall at any time
be  in  force  and  as  shall  require  such  additional  insurance.   When  the
improvements  securing a Mortgage Loan are located at the time of origination of
such Mortgage  Loan in a federally  designated  special  flood hazard area,  the
Master  Servicer  shall cause flood  insurance  (to the extent  available) to be
maintained in respect thereof.  Such flood insurance shall be in an amount equal
to the lesser of (i) the amount required to compensate for any loss or damage to
the Mortgaged  Property on a replacement  cost basis and (ii) the maximum amount
of such  insurance  available  for the  related  Mortgaged  Property  under  the
national flood insurance program (assuming that the area in which such Mortgaged
Property is located is participating in such program).

               In the event that the Master Servicer shall obtain and maintain a
blanket fire insurance  policy with extended  coverage  insuring  against hazard
losses on all of the Mortgage  Loans,  it shall  conclusively  be deemed to have
satisfied  its  obligations  as set forth in the first  sentence of this Section
3.12(a),  it being  understood  and  agreed  that  such  policy  may  contain  a
deductible  clause,  in which case the Master  Servicer shall, in the event that
there shall not have been maintained on the related Mortgaged  Property a policy
complying with the first  sentence of this Section  3.12(a) and there shall have
been a loss  which  would  have been  covered  by such  policy,  deposit  in the
Certificate  Account the amount not otherwise  payable under the blanket  policy
because of such deductible clause. Any such deposit by the Master Servicer shall
be made on the Certificate  Account Deposit Date next preceding the Distribution
Date which occurs in the month  following the month in which  payments under any
such policy would have been  deposited in the Custodial  Account.  In connection
with its activities as  administrator  and servicer of the Mortgage  Loans,  the
Master  Servicer  agrees to  present,  on  behalf of  itself,  the  Trustee  and
Certificateholders, claims under any such blanket policy.

(b) The Master Servicer shall obtain and maintain at its own expense and keep in
full force and effect  throughout the term of this Agreement a blanket  fidelity
bond and an errors and omissions insurance policy covering the Master Servicer's
officers and employees and other persons acting on behalf of the Master Servicer
in connection with its activities  under this Agreement.  The amount of coverage
shall be at least equal to the coverage that would be required by FNMA or FHLMC,
whichever is greater, with respect to the Master Servicer if the Master Servicer
were servicing and  administering  the Mortgage Loans for FNMA or FHLMC.  In the
event that any such bond or policy ceases to be in effect,  the Master  Servicer
shall obtain a comparable  replacement bond or policy from an issuer or insurer,
as the case may be, meeting the  requirements,  if any, of the Program Guide and
acceptable to the Depositor.  Coverage of the Master  Servicer under a policy or
bond obtained by an Affiliate of the Master  Servicer and providing the coverage
required by this Section 3.12(b) shall satisfy the  requirements of this Section
3.12(b).

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Section 3.13  Enforcement of Due-on-Sale  Clauses;  Assumption and  Modification
     Agreements; Certain Assignments.

(a) When any  Mortgaged  Property  is  conveyed  by the  Mortgagor,  the  Master
Servicer or  Subservicer,  to the extent it has  knowledge  of such  conveyance,
shall enforce any due-on-sale clause contained in any Mortgage Note or Mortgage,
to the extent permitted under applicable law and governmental  regulations,  but
only to the extent that such enforcement will not adversely affect or jeopardize
coverage under any Required Insurance Policy. Notwithstanding the foregoing:

                      (i) the  Master  Servicer  shall  not be  deemed  to be in
        default  under  this  Section  3.13(a)  by  reason  of any  transfer  or
        assumption   which  the  Master  Servicer  is  restricted  by  law  from
        preventing; and

                      (ii)  if  the  Master  Servicer   determines  that  it  is
        reasonably  likely that any  Mortgagor  will bring,  or if any Mortgagor
        does  bring,   legal  action  to  declare  invalid  or  otherwise  avoid
        enforcement  of a due-on-sale  clause  contained in any Mortgage Note or
        Mortgage,  the Master  Servicer  shall not be  required  to enforce  the
        due-on-sale clause or to contest such action.

(b) Subject to the Master  Servicer's duty to enforce any due-on-sale  clause to
the  extent  set  forth in  Section  3.13(a),  in any case in which a  Mortgaged
Property  is to be conveyed  to a Person by a  Mortgagor,  and such Person is to
enter into an assumption or modification agreement or supplement to the Mortgage
Note  or  Mortgage  which  requires  the  signature  of  the  Trustee,  or if an
instrument of release signed by the Trustee is required  releasing the Mortgagor
from liability on the Mortgage Loan, the Master Servicer is authorized,  subject
to the requirements of the sentence next following,  to execute and deliver,  on
behalf of the  Trustee,  the  assumption  agreement  with the Person to whom the
Mortgaged  Property  is  to be  conveyed  and  such  modification  agreement  or
supplement  to the  Mortgage  Note  or  Mortgage  or  other  instruments  as are
reasonable  or necessary to carry out the terms of the Mortgage Note or Mortgage
or otherwise to comply with any  applicable  laws  regarding  assumptions or the
transfer of the Mortgaged Property to such Person;  provided,  however,  none of
such terms and requirements  shall both constitute a "significant  modification"
effecting an exchange or  reissuance  of such  Mortgage  Loan under the Code (or
final,  temporary or proposed Treasury regulations  promulgated  thereunder) and
cause any REMIC formed hereunder to fail to qualify as a REMIC under the Code or
(subject to Section 10.01(f)) result in the imposition of any tax on "prohibited
transactions"  or  constitute  "contributions"  after the startup date under the
REMIC  Provisions.  The Master Servicer shall execute and deliver such documents
only if it reasonably  determines  that (i) its  execution and delivery  thereof
will not  conflict  with or  violate  any terms of this  Agreement  or cause the
unpaid balance and interest on the Mortgage Loan to be uncollectible in whole or
in part, (ii) any required consents of the Mortgage Insurer under the PMI Policy
or insurers under any Required  Insurance  Policies have been obtained and (iii)
subsequent  to the  closing  of the  transaction  involving  the  assumption  or
transfer (A) the Mortgage Loan will  continue to be secured by a first  mortgage

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lien (or junior lien of the same  priority  in  relation to any senior  mortgage
loan, with respect to any Mortgage Loan secured by a junior  Mortgage)  pursuant
to the terms of the Mortgage, (B) such transaction will not adversely affect the
coverage  under  the PMI  Policy or any  Required  Insurance  Policies,  (C) the
Mortgage  Loan will fully  amortize  over the  remaining  term  thereof,  (D) no
material term of the Mortgage Loan  (including the interest rate on the Mortgage
Loan) will be altered nor will the term of the Mortgage  Loan be changed and (E)
if the  seller/transferor  of the  Mortgaged  Property  is to be  released  from
liability on the Mortgage Loan, the  buyer/transferee  of the Mortgaged Property
would be  qualified to assume the  Mortgage  Loan based on generally  comparable
credit  quality and such  release  will not (based on the Master  Servicer's  or
Subservicer's good faith  determination)  adversely affect the collectability of
the Mortgage  Loan.  Upon receipt of  appropriate  instructions  from the Master
Servicer  in  accordance  with the  foregoing,  the  Trustee  shall  execute any
necessary  instruments  for such  assumption  or  substitution  of  liability as
directed  by  the  Master  Servicer.   Upon  the  closing  of  the  transactions
contemplated by such documents, the Master Servicer shall cause the originals or
true and correct  copies of the assumption  agreement,  the release (if any), or
the  modification or supplement to the Mortgage Note or Mortgage to be delivered
to the Trustee or the Custodian  and  deposited  with the Mortgage File for such
Mortgage  Loan.  Any fee  collected  by the  Master  Servicer  or  such  related
Subservicer  for  entering  into an  assumption  or  substitution  of  liability
agreement  will be  retained  by the  Master  Servicer  or such  Subservicer  as
additional  servicing  compensation.

(c) The Master Servicer or the related Subservicer, as the case may be, shall be
entitled  to approve a request  from a  Mortgagor  for a partial  release of the
related  Mortgaged  Property,  the  granting of an easement  thereon in favor of
another Person,  any alteration or demolition of the related Mortgaged  Property
or other  similar  matters  if it has  determined,  exercising  its  good  faith
business  judgment  in the same  manner  as it would if it were the owner of the
related  Mortgage  Loan,  that  the  security  for,  and  the  timely  and  full
collectability  of, such Mortgage Loan would not be adversely  affected  thereby
and that no REMIC formed  hereunder would fail to continue to qualify as a REMIC
under the Code as a result thereof and (subject to Section 10.01(f)) that no tax
on "prohibited  transactions" or "contributions"  after the startup day would be
imposed on the REMIC as a result  thereof.  With respect to any Junior  Mortgage
Loan, a partial release pursuant to this Section 3.13 shall be permitted only if
the  Combined  Loan-to-Value  Ratio for such  Mortgage  Loan after such  partial
release does not exceed the Combined  Loan-to-Value Ratio for such Mortgage Loan
as of the Cut-off Date. Any fee collected by the Master  Servicer or the related
Subservicer  for  processing  such a  request  will be  retained  by the  Master
Servicer or such Subservicer as additional servicing compensation.

(d) Subject to any other applicable terms and conditions of this Agreement,  the
Trustee and Master  Servicer  shall be entitled to approve an assignment in lieu
of  satisfaction  with respect to any Mortgage  Loan,  provided the obligee with
respect to such Mortgage Loan  following such proposed  assignment  provides the
Trustee and Master  Servicer  with a "Lender  Certification  for  Assignment  of
Mortgage  Loan" in the form attached  hereto as Exhibit K, in form and substance
satisfactory to the Trustee and Master  Servicer,  providing the following:  (i)
that  the  Mortgage  Loan  is  secured  by  Mortgaged   Property  located  in  a
jurisdiction  in which an  assignment  in lieu of  satisfaction  is  required to
preserve lien priority,  minimize or avoid mortgage recording taxes or otherwise
comply with, or facilitate a refinancing  under, the laws of such  jurisdiction;
(ii)  that  the  substance  of the  assignment  is,  and is  intended  to be,  a

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refinancing of such Mortgage Loan and that the form of the transaction is solely
to comply with, or facilitate the transaction under, such local laws; (iii) that
the Mortgage Loan following the proposed assignment will have a rate of interest
more  than  the  greater  of (a)  1/4%  and (b) 5% of the  annual  yield  of the
unmodified  Mortgage Loan,  below or above the rate of interest on such Mortgage
Loan prior to such proposed assignment;  and (iv) that such assignment is at the
request of the borrower  under the related  Mortgage  Loan.  Upon approval of an
assignment in lieu of satisfaction with respect to any Mortgage Loan, the Master
Servicer shall receive cash in an amount equal to the unpaid  principal  balance
of and accrued  interest on such  Mortgage  Loan and the Master  Servicer  shall
treat  such  amount  as a  Principal  Prepayment  in Full with  respect  to such
Mortgage Loan for all purposes hereof.

Section 3.14   Realization Upon Defaulted Mortgage Loans.

(a) The Master  Servicer shall  foreclose upon or otherwise  comparably  convert
(which may include an REO Acquisition) the ownership of properties securing such
of the  Mortgage  Loans as come into and  continue in default and as to which no
satisfactory  arrangements  can be made for  collection of  delinquent  payments
pursuant  to  Section  3.07.  In  connection  with  such  foreclosure  or  other
conversion, the Master Servicer shall, consistent with Section 3.11, follow such
practices  and  procedures  (including,  in the case of any default on a related
senior  mortgage  loan, the advancing of funds to correct such default if deemed
to be  appropriate  by the  Master  Servicer)  as it  shall  deem  necessary  or
advisable,  as shall be  normal  and  usual in its  general  mortgage  servicing
activities and as shall be required or permitted by the Program Guide;  provided
that the Master  Servicer  shall not be liable in any respect  hereunder  if the
Master  Servicer  is acting in  connection  with any such  foreclosure  or other
conversion in a manner that is consistent with the provisions of this Agreement.
The Master Servicer,  however,  shall not be required to expend its own funds or
incur  other  reimbursable  charges  in  connection  with  any  foreclosure,  or
attempted  foreclosure which is not completed,  or towards the correction of any
default on a related  senior  mortgage  loan, or towards the  restoration of any
property unless it shall determine (i) that such restoration  and/or foreclosure
will  increase the proceeds of  liquidation  of the Mortgage  Loan to Holders of
Certificates  of one or more  Classes  after  reimbursement  to itself  for such
expenses or charges and (ii) that such expenses and charges will be  recoverable
to  it  through  Liquidation  Proceeds,  Insurance  Proceeds,  or  REO  Proceeds
(respecting  which it shall have priority for purposes of  withdrawals  from the
Custodial  Account  pursuant to Section  3.10,  whether or not such expenses and
charges are actually  recoverable from related Liquidation  Proceeds,  Insurance
Proceeds or REO Proceeds).  In the event of such a  determination  by the Master
Servicer pursuant to this Section 3.14(a), the Master Servicer shall be entitled
to reimbursement of its funds so expended pursuant to Section 3.10. Concurrently
with the  foregoing,  the Master  Servicer may pursue any  remedies  that may be
available in  connection  with a breach of a  representation  and warranty  with
respect to any such  Mortgage  Loan in  accordance  with Sections 2.03 and 2.04.
However,  the  Master  Servicer  is not  required  to  continue  to pursue  both
foreclosure  (or  similar  remedies)  with  respect  to the  Mortgage  Loans and
remedies in  connection  with a breach of a  representation  and warranty if the
Master Servicer determines in its reasonable  discretion that one such remedy is
more likely to result in a greater  recovery as to the Mortgage  Loan.  Upon the
occurrence of a Cash  Liquidation or REO  Disposition,  following the deposit in
the Custodial Account of all Insurance Proceeds,  Liquidation Proceeds and other
payments and recoveries  referred to in the definition of "Cash  Liquidation" or

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"REO  Disposition,"  as  applicable,  upon  receipt  by the  Trustee  of written
notification of such deposit signed by a Servicing  Officer,  the Trustee or any
Custodian,  as the case may be, shall release to the Master Servicer the related
Mortgage  File and the Trustee  shall  execute and deliver such  instruments  of
transfer or  assignment  prepared by the Master  Servicer,  in each case without
recourse,  as shall be necessary to vest in the Master Servicer or its designee,
as the case may be, the related Mortgage Loan, and thereafter such Mortgage Loan
shall not be part of the Trust Fund.  Notwithstanding the foregoing or any other
provision of this  Agreement,  in the Master  Servicer's  sole  discretion  with
respect  to any  defaulted  Mortgage  Loan or REO  Property  as to either of the
following provisions, (i) a Cash Liquidation or REO Disposition may be deemed to
have occurred if substantially all amounts expected by the Master Servicer to be
received in connection with the related defaulted  Mortgage Loan or REO Property
have been  received,  and (ii) for  purposes  of  determining  the amount of any
Liquidation  Proceeds,  Insurance  Proceeds,  REO Proceeds or other  unscheduled
collections  or the amount of any Realized  Loss,  the Master  Servicer may take
into account minimal amounts of additional  receipts  expected to be received or
any  estimated  additional  liquidation  expenses  expected  to be  incurred  in
connection with the related defaulted Mortgage Loan or REO Property.

(b) In the event that title to any  Mortgaged  Property is acquired by the Trust
Fund as an REO Property by  foreclosure or by deed in lieu of  foreclosure,  the
deed or  certificate of sale shall be issued to the Trustee or to its nominee on
behalf of Certificateholders.  Notwithstanding any such acquisition of title and
cancellation  of the related  Mortgage Loan,  such REO Property shall (except as
otherwise expressly provided herein) be considered to be an Outstanding Mortgage
Loan held in the Trust Fund until such time as the REO  Property  shall be sold.
Consistent with the foregoing for purposes of all calculations hereunder so long
as such REO Property shall be considered to be an  Outstanding  Mortgage Loan it
shall be assumed that,  notwithstanding  that the indebtedness  evidenced by the
related  Mortgage  Note shall have been  discharged,  such Mortgage Note and the
related  amortization  schedule in effect at the time of any such acquisition of
title  (after  giving  effect  to  any  previous  Curtailments  and  before  any
adjustment  thereto by reason of any  bankruptcy  or similar  proceeding  or any
moratorium or similar waiver or grace period) remain in effect.

(c) In the event that any REMIC  formed  hereunder  acquires any REO Property as
aforesaid  or otherwise in  connection  with a default or imminent  default on a
Mortgage Loan, the Master  Servicer,  on behalf of such REMIC,  shall dispose of
such REO  Property  within  three  full  years  after  the  taxable  year of its
acquisition  by such REMIC for  purposes of Section  860G(a)(8)  of the Code (or
such shorter period as may be necessary  under  applicable  state law (including
any state in which such  property is  located)  to  maintain  the status of each
REMIC  formed  hereunder as a REMIC under  applicable  state law and avoid taxes
resulting from such property failing to be foreclosure property under applicable
state law) or, at the expense of the  applicable  REMIC,  request,  more than 60
days  before the day on which such  grace  period  would  otherwise  expire,  an
extension of such grace period  unless the Master  Servicer  (subject to Section
10.01(f))  obtains  for the  Trustee  an Opinion of  Counsel,  addressed  to the
Trustee  and  the  Master  Servicer,  to the  effect  that  the  holding  by the
applicable REMIC of such REO Property  subsequent to such period will not result
in the  imposition of taxes on "prohibited  transactions"  as defined in Section
860F of the Code,  or cause any REMIC  formed  hereunder to fail to qualify as a

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REMIC  under  the  Code at any time  that any  Certificates  of such  REMIC  are
outstanding,  in which case such REMIC may  continue  to hold such REO  Property
(subject to any  conditions  contained in such  Opinion of Counsel).  The Master
Servicer shall be entitled to be reimbursed  from the Custodial  Account for any
costs  incurred in  obtaining  such  Opinion of Counsel,  as provided in Section
3.10.  Notwithstanding  any other provision of this  Agreement,  no REO Property
acquired by any REMIC formed  hereunder  shall be rented (or allowed to continue
to be  rented)  or  otherwise  used  by or on  behalf  of  such  REMIC  in  such
circumstances  or manner or  pursuant to any terms that would (i) cause such REO
Property  to fail to qualify as  "foreclosure  property"  within the  meaning of
Section  860G(a)(8) of the Code or (ii) subject such REMIC to the  imposition of
any federal income taxes on the income earned from such REO Property,  including
any taxes  imposed by reason of Section  860G(c) of the Code,  unless the Master
Servicer has agreed to indemnify and hold  harmless each REMIC formed  hereunder
with respect to the imposition of any such taxes.

(d) The  proceeds  of any Cash  Liquidation,  REO  Disposition  or  purchase  or
repurchase of any Mortgage Loan pursuant to the terms of this Agreement, as well
as any recovery resulting from a collection of Liquidation  Proceeds,  Insurance
Proceeds or REO Proceeds,  will be applied in the  following  order of priority:
first, to reimburse the Master Servicer or the related Subservicer in accordance
with Section  3.10(a)(ii);  second, to the  Certificateholders  to the extent of
accrued and unpaid  interest on the Mortgage  Loan,  and any related REO Imputed
Interest,  at the Net Mortgage  Rate (or the  Modified Net Mortgage  Rate in the
case of a Modified  Mortgage  Loan),  to the Due Date in the  related Due Period
prior to the  Distribution  Date on which such  amounts  are to be  distributed;
third, to the Certificateholders as a recovery of principal on the Mortgage Loan
(or REO Property);  fourth,  to all Servicing Fees and Subservicing Fees payable
therefrom (and the Master Servicer and the Subservicer  shall have no claims for
any  deficiencies  with  respect to such fees which  result  from the  foregoing
allocation); and fifth, to Foreclosure Profits.

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

Section 3.15   Trustee to Cooperate; Release of Mortgage Files.

(a) Upon becoming aware of the payment in full of any Mortgage Loan, or upon the
receipt by the Master  Servicer of a  notification  that payment in full will be
escrowed in a manner  customary  for such  purposes,  the Master  Servicer  will
immediately  notify the Trustee (if it holds the related  Mortgage  File) or the
Custodian by a certification of a Servicing Officer (which  certification  shall
include a statement to the effect that all amounts received or to be received in
connection with such payment which are required to be deposited in the Custodial
Account   pursuant  to  Section  3.07  have  been  or  will  be  so  deposited),
substantially  in one of the forms attached hereto as Exhibit E, or, in the case

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of the Custodian,  an electronic  request in a form acceptable to the Custodian,
requesting   delivery  to  it  of  the  Mortgage  File.  Upon  receipt  of  such
certification  and request,  the Trustee shall  promptly  release,  or cause the
Custodian to release,  the related  Mortgage  File to the Master  Servicer.  The
Master  Servicer  is  authorized  to execute and  deliver to the  Mortgagor  the
request for  reconveyance,  deed of  reconveyance  or release or satisfaction of
mortgage or such  instrument  releasing the lien of the Mortgage,  together with
the Mortgage Note with, as appropriate, written evidence of cancellation thereon
and to cause the removal  from the  registration  on the MERS(R)  System of such
Mortgage  and to  execute  and  deliver,  on  behalf  of  the  Trustee  and  the
Certificateholders  or any of them, any and all  instruments of  satisfaction or
cancellation or of partial or full release.  No expenses  incurred in connection
with any instrument of satisfaction or deed of reconveyance  shall be chargeable
to the Custodial Account or the Certificate Account.

(b) From time to time as is appropriate  for the servicing or foreclosure of any
Mortgage Loan, the Master  Servicer shall deliver to the Custodian,  with a copy
to the Trustee, a certificate of a Servicing Officer substantially in one of the
forms  attached  as  Exhibit E  hereto,  or,  in the case of the  Custodian,  an
electronic  request  in a form  acceptable  to the  Custodian,  requesting  that
possession  of all, or any document  constituting  part of, the Mortgage File be
released to the Master Servicer and certifying as to the reason for such release
and that such release will not  invalidate  any insurance  coverage  provided in
respect of the Mortgage Loan under any Required  Insurance Policy.  Upon receipt
of the foregoing,  the Trustee shall deliver, or cause the Custodian to deliver,
the Mortgage  File or any document  therein to the Master  Servicer.  The Master
Servicer  shall cause each Mortgage File or any document  therein so released to
be returned to the Trustee,  or the  Custodian as agent for the Trustee when the
need therefor by the Master  Servicer no longer exists,  unless (i) the Mortgage
Loan has been liquidated and the Liquidation  Proceeds  relating to the Mortgage
Loan have been  deposited in the Custodial  Account or (ii) the Mortgage File or
such  document  has been  delivered  directly  or  through a  Subservicer  to an
attorney,  or to a public  trustee or other public  official as required by law,
for purposes of initiating or pursuing legal action or other proceedings for the
foreclosure of the Mortgaged Property either judicially or  non-judicially,  and
the Master  Servicer  has  delivered  directly or through a  Subservicer  to the
Trustee a  certificate  of a  Servicing  Officer  certifying  as to the name and
address of the Person to which such Mortgage File or such document was delivered
and the purpose or purposes of such delivery. In the event of the liquidation of
a Mortgage  Loan, the Trustee shall deliver the Request for Release with respect
thereto to the Master Servicer upon deposit of the related Liquidation  Proceeds
in the Custodial Account.

(c) The Trustee or the Master Servicer on the Trustee's behalf shall execute and
deliver to the Master Servicer, if necessary, any court pleadings,  requests for
trustee's sale or other documents necessary to the foreclosure or trustee's sale
in respect of a  Mortgaged  Property  or to any legal  action  brought to obtain
judgment  against any  Mortgagor on the Mortgage Note or Mortgage or to obtain a
deficiency judgment,  or to enforce any other remedies or rights provided by the
Mortgage Note or Mortgage or otherwise  available at law or in equity.  Together
with such documents or pleadings (if signed by the Trustee), the Master Servicer
shall deliver to the Trustee a  certificate  of a Servicing  Officer  requesting
that such pleadings or documents be executed by the Trustee and certifying as to
the reason such  documents or pleadings  are required and that the execution and
delivery thereof by the Trustee will not invalidate any insurance coverage under
any Required  Insurance Policy or invalidate or otherwise affect the lien of the

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Mortgage,  except  for the  termination  of such a lien upon  completion  of the
foreclosure or trustee's sale.

Section 3.16   Servicing and Other Compensation; Compensating Interest.

(a) The Master Servicer, as compensation for its activities hereunder,  shall be
entitled  to receive  on each  Distribution  Date the  amounts  provided  for by
clauses (iii),  (iv), (v) and (vi) of Section  3.10(a).  The amount of servicing
compensation  provided for in such clauses  shall be accounted for on a Mortgage
Loan-by-Mortgage Loan basis. In the event that Liquidation  Proceeds,  Insurance
Proceeds and REO Proceeds  (net of amounts  reimbursable  therefrom  pursuant to
Section  3.10(a)(ii)) in respect of a Cash Liquidation or REO Disposition exceed
the unpaid principal  balance of such Mortgage Loan plus unpaid interest accrued
thereon  (including  REO  Imputed  Interest)  at a per annum  rate  equal to the
related Net Mortgage  Rate (or the  Modified Net Mortgage  Rate in the case of a
Modified  Mortgage  Loan),  the  Master  Servicer  shall be  entitled  to retain
therefrom and to pay to itself and/or the related  Subservicer,  any Foreclosure
Profits and any Servicing Fee or  Subservicing  Fee considered to be accrued but
unpaid.

(b)  Additional  servicing  compensation  in the  form  of  prepayment  charges,
assumption  fees,  late  payment  charges,  investment  income on amounts in the
Custodial  Account or the Certificate  Account or otherwise shall be retained by
the Master Servicer or the Subservicer to the extent provided herein, subject to
clause (e) below.

(c) The Master  Servicer  shall be  required  to pay,  or cause to be paid,  all
expenses  incurred by it in connection with its servicing  activities  hereunder
(including  payment of premiums for the Primary Insurance  Policies,  if any, to
the extent such premiums are not required to be paid by the related  Mortgagors,
and the fees and  expenses of the Trustee  and any  Custodian)  and shall not be
entitled to reimbursement  therefor except as specifically  provided in Sections
3.10 and 3.14.

(d) The Master  Servicer's  right to receive  servicing  compensation may not be
transferred in whole or in part except in connection with the transfer of all of
its   responsibilities  and  obligations  of  the  Master  Servicer  under  this
Agreement.

(e)  Notwithstanding  clauses  (a)  and  (b)  above,  the  amount  of  servicing
compensation  that the Master  Servicer  shall be  entitled  to receive  for its
activities  hereunder for the period ending on each  Distribution  Date shall be
reduced  (but not below zero) by an amount  equal to  Compensating  Interest (if
any) for such  Distribution  Date.  Such reduction  shall be applied during such
period as follows:  first, to any Servicing Fee or Subservicing Fee to which the
Master Servicer is entitled  pursuant to Section  3.10(a)(iii);  second,  to any
income or gain  realized  from any  investment  of funds  held in the  Custodial
Account or the  Certificate  Account to which the Master  Servicer  is  entitled
pursuant to Sections 3.07(c) or 4.01(b), respectively; and third, to any amounts
of servicing  compensation to which the Master Servicer is entitled  pursuant to
Section  3.10(a)(v) or (vi). In making such reduction,  the Master Servicer will
not withdraw from the Custodial  Account any such amount  representing  all or a
portion  of the  Servicing  Fee to  which it is  entitled  pursuant  to  Section
3.10(a)(iii);  (ii) will not withdraw from the Custodial  Account or Certificate
Account any such amount to which it is entitled  pursuant to Section  3.07(c) or
4.01(b) and (iii) will not withdraw from the  Custodial  Account any such amount

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of servicing compensation to which it is entitled pursuant to Section 3.10(a)(v)
or (vi).  Compensating  Interest shall be allocated on any Distribution  Date to
each Loan Group pro rata based upon the Prepayment  Interest Shortfalls for each
such Loan Group for such  Distribution  Date.  With respect to any  Distribution
Date,  Compensating  Interest  derived  from Loan  Group I shall be used on such
Distribution Date (i) to cover any Prepayment Interest Shortfalls on the Group I
Loans  and (ii) to cover  any  Prepayment  Interest  Shortfalls  on the Group II
Loans, but only to the extent not covered by Compensating  Interest derived from
Loan Group II. With  respect to any  Distribution  Date,  Compensating  Interest
derived from Loan Group II shall be used on such  Distribution Date (i) to cover
any Prepayment  Interest  Shortfalls on the Group II Loans and (ii) to cover any
Prepayment  Interest Shortfalls on the Group I Loans, but only to the extent not
covered by Compensating Interest derived from Loan Group I.

Section 3.17 Reports to the Trustee and the Depositor.

               Not later than fifteen  days after each  Distribution  Date,  the
Master  Servicer  shall  forward to the Trustee and the  Depositor a  statement,
certified  by a Servicing  Officer,  setting  forth the status of the  Custodial
Account as of the close of business on such  Distribution  Date as it relates to
the Mortgage Loans and showing,  for the period covered by such  statement,  the
aggregate of deposits in or withdrawals from the Custodial Account in respect of
the Mortgage  Loans for each  category of deposit  specified in Section 3.07 and
each category of withdrawal specified in Section 3.10.

Section 3.18   Annual Statement as to Compliance.

               The Master Servicer will deliver to the Depositor and the Trustee
on or before June 31 of each year,  beginning with the first June 31 that occurs
at least six months after the Cut-off Date, an Officers' Certificate stating, as
to each  signer  thereof,  that (i) a review  of the  activities  of the  Master
Servicer during the preceding calendar year related to its servicing of mortgage
loans  and of its  performance  under  the  pooling  and  servicing  agreements,
including this Agreement,  has been made under such officers' supervision,  (ii)
to the best of such  officers'  knowledge,  based  on such  review,  the  Master
Servicer  has  complied in all  material  respects  with the  minimum  servicing
standards  set forth in the Uniform  Single  Attestation  Program  for  Mortgage
Bankers  and has  fulfilled  all of its  material  obligations  in all  material
respects throughout such year, or, if there has been material noncompliance with
such  servicing  standards  or a  default  in the  fulfillment  in all  material
respects of any such obligation relating to this Agreement, such statement shall
include a description of such noncompliance or specify each such default, as the
case may be, known to such officer and the nature and status thereof and that no
Event  of  Default  has  occurred,  or if an  Event  of  Default  has  occurred,
specifying  the nature  thereof,  which  statement  with  respect to an Event of
Default may be delivered as a separate  Officers'  Certificate  and (iii) to the
best of such officers' knowledge,  each Subservicer has complied in all material
respects with the minimum  servicing  standards set forth in the Uniform  Single
Attestation  Program for Mortgage  Bankers and has fulfilled all of its material
obligations under its Subservicing Agreement in all material respects throughout

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such  year,  or if there has been  material  noncompliance  with such  servicing
standards or a material default in the fulfillment of such obligations  relating
to this Agreement, specifying such statement shall include a description of such
noncompliance  or specify each such  default,  as the case may be, known to such
officer and the nature and status thereof.

Section 3.19   Annual Independent Public Accountants' Servicing Report.

               On or before June 31 of each year,  beginning with the first June
31 that occurs at least six months after the Cut-off Date,  the Master  Servicer
at its expense shall cause a firm of independent public accountants which is any
one  of  the  six  major  nationally  recognized  firms  of  independent  public
accountants  and which is also a member of the  American  Institute of Certified
Public  Accountants to furnish a report to the Depositor and the Trustee stating
its  opinion  that,  on the  basis  of an  examination  conducted  by such  firm
substantially in accordance with standards established by the American Institute
of Certified  Public  Accountants,  the assertions made pursuant to Section 3.18
regarding  compliance  with the  minimum  servicing  standards  set forth in the
Uniform  Single  Attestation  Program for Mortgage  Bankers during the preceding
calendar  year are  fairly  stated in all  material  respects,  subject  to such
exceptions  and other  qualifications  that,  in the opinion of such firm,  such
accounting  standards  require it to report.  In rendering such statement,  such
firm may rely, as to matters  relating to the direct servicing of mortgage loans
by  Subservicers,  upon  comparable  statements  for  examinations  conducted by
independent  public  accountants  substantially  in  accordance  with  standards
established by the American Institute of Certified Public Accountants  (rendered
within one year of such statement) with respect to such Subservicers.

Section 3.20 Right of the Depositor in Respect of the Master Servicer.

               The Master  Servicer shall afford the Depositor,  upon reasonable
notice,  during normal  business  hours access to all records  maintained by the
Master Servicer in respect of its rights and obligations hereunder and access to
officers of the Master Servicer responsible for such obligations.  Upon request,
the Master  Servicer shall furnish the Depositor with its most recent  financial
statements and such other information as the Master Servicer possesses regarding
its business,  affairs,  property and  condition,  financial or  otherwise.  The
Master   Servicer  shall  also  cooperate  with  all  reasonable   requests  for
information  including,  but not limited to, notices, tapes and copies of files,
regarding  itself,  the Mortgage  Loans or the  Certificates  from any Person or
Persons identified by the Depositor or Residential  Funding.  The Depositor may,
but is not obligated to perform,  or cause a designee to perform,  any defaulted
obligation of the Master Servicer hereunder or exercise the rights of the Master
Servicer  hereunder;  provided that the Master Servicer shall not be relieved of
any of its obligations  hereunder by virtue of such performance by the Depositor
or its designee.  The Depositor shall not have the  responsibility  or liability
for any action or failure to act by the Master  Servicer and is not obligated to
supervise  the  performance  of the  Master  Servicer  under this  Agreement  or
otherwise.

Section 3.21   [Reserved].

Section 3.22   Administration of Buydown Funds.

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(a) With respect to any Buydown  Mortgage  Loan, the  Subservicer  has deposited
Buydown Funds in an account that satisfies the  requirements  for a Subservicing
Account  (the  "Buydown   Account").   The  Master   Servicer  shall  cause  the
Subservicing  Agreement to require  that upon receipt from the  Mortgagor of the
amount due on a Due Date for each Buydown  Mortgage Loan, the  Subservicer  will
withdraw from the Buydown Account the  predetermined  amount that, when added to
the amount due on such date from the Mortgagor,  equals the full Monthly Payment
and  transmit  that  amount in  accordance  with the  terms of the  Subservicing
Agreement to the Master  Servicer  together with the related payment made by the
Mortgagor or advanced by the Subservicer.

(b) If the  Mortgagor  on a  Buydown  Mortgage  Loan  prepays  such  loan in its
entirety  during  the period  (the  "Buydown  Period")  when  Buydown  Funds are
required to be applied to such Buydown  Mortgage Loan, the Subservicer  shall be
required to  withdraw  from the  Buydown  Account  and remit any  Buydown  Funds
remaining  in the  Buydown  Account  in  accordance  with  the  related  buydown
agreement.  The amount of Buydown Funds which may be remitted in accordance with
the related  buydown  agreement may reduce the amount required to be paid by the
Mortgagor  to fully  prepay the related  Mortgage  Loan.  If the  Mortgagor on a
Buydown  Mortgage Loan defaults on such Mortgage Loan during the Buydown  Period
and the property  securing such Buydown Mortgage Loan is sold in the liquidation
thereof  (either by the Master  Servicer or the insurer  under the PMI Policy or
any related Primary  Insurance  Policy),  the  Subservicer  shall be required to
withdraw from the Buydown  Account the Buydown  Funds for such Buydown  Mortgage
Loan still held in the Buydown Account and remit the same to the Master Servicer
in  accordance  with the  terms of the  Subservicing  Agreement  and the  Master
Servicer  shall  deposit  such  Buydown  Funds in the  Custodial  Account or, if
instructed  by the Master  Servicer,  pay to the Mortgage  Insurer under the PMI
Policy  or the  insurer  under  any  related  Primary  Insurance  Policy  if the
Mortgaged  Property is  transferred to such insurer and such insurer pays all of
the loss (including expenses) incurred in respect of such default. Any amount so
remitted pursuant to the preceding  sentence will be deemed to reduce the amount
owed on the Mortgage Loan.

                                   ARTICLE IV

                         PAYMENTS TO CERTIFICATEHOLDERS

Section 4.01   Certificate Account.

(a) The Master  Servicer  acting as agent of the  Trustee  shall  establish  and
maintain a Certificate  Account in which the Master  Servicer  shall cause to be
deposited  on behalf of the Trustee on or before 2:00 P.M. New York time on each
Certificate Account Deposit Date by wire transfer of immediately available funds
an amount  equal to the sum of (i) any  Advance for the  immediately  succeeding
Distribution  Date,  (ii) any amount required to be deposited in the Certificate
Account pursuant to Section  3.12(a),  (iii) any amount that the Master Servicer
is not permitted to withdraw from the  Certificate  Account  pursuant to Section
3.16(e),  (iv) any amount  required to be deposited in the  Certificate  Account
pursuant  to  Section  4.07,  (v) any amount  required  to be  deposited  in the
Certificate  Account  pursuant  to  Section  9.01,  (vi) an amount  equal to the
Premium  payable  on  such   Distribution  Date  and  (vii)  all  other  amounts

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constituting  the  Available  Distribution  Amount  for each Loan  Group for the
immediately succeeding Distribution Date.

(b) On each Distribution Date, prior to making any other distributions  referred
to in Section 4.02  herein,  the Trustee  shall  withdraw  from the  Certificate
Account  and pay to the  Mortgage  Insurer,  by  wire  transfer  of  immediately
available funds, the Premium for such Distribution Date.

(c) The Trustee shall, upon written request from the Master Servicer,  invest or
cause the institution maintaining the Certificate Account to invest the funds in
the Certificate Account in Permitted  Investments  designated in the name of the
Trustee for the benefit of the Certificateholders,  which shall mature not later
than the Business Day next  preceding the  Distribution  Date next following the
date of such investment  (except that (i) any investment in the institution with
which the Certificate Account is maintained may mature on such Distribution Date
and (ii) any  other  investment  may  mature  on such  Distribution  Date if the
Trustee shall advance funds on such Distribution Date to the Certificate Account
in the amount  payable on such  investment on such  Distribution  Date,  pending
receipt  thereof  to  the  extent   necessary  to  make   distributions  on  the
Certificates) and shall not be sold or disposed of prior to maturity. All income
and gain  realized  from any such  investment  shall be for the  benefit  of the
Master  Servicer  and shall be subject to its  withdrawal  or order from time to
time. The amount of any losses incurred in respect of any such investments shall
be deposited in the  Certificate  Account by the Master  Servicer out of its own
funds immediately as realized.

Section 4.02   Distributions.

(a) On each Distribution Date, the Group I Available Distribution Amount, in the
following order of priority, shall be deemed to have been distributed by REMIC I
and REMIC IA, respectively,  to REMIC III on account of the REMIC I and REMIC IA
Regular  Interests,  respectively,  or shall  be  withdrawn  from the  Custodial
Account  and  distributed  to the  holders  of the  Class  R-I  and  Class  R-IA
Certificates, respectively, as the case may be:

(i)  to the Holders of REMIC I and REMIC IA Regular Interests,  respectively, as
     provided in Section 1.03; and

(ii) any  remaining  portion,  to the  Holders  of the  Class  R-I and Class RIA
     Certificates, respectively.

(b) On each Distribution  Date, the Group II Available  Distribution  Amount, in
the following  order of priority,  shall be deemed to have been  distributed  by
REMIC II to REMIC III on account of the REMIC II Regular  Interests  or shall be
withdrawn from the Custodial Account and distributed to the holders of the Class
R-II Certificates, as the case may be:

(i)  to the Holders of REMIC II Regular  Interests as provided in Section  1.03;
     and

(ii) any remaining portion, to the Holders of the Class R-II Certificates.

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(c) On each  Distribution  Date, the Master Servicer on behalf of the Trustee or
the  Paying  Agent   appointed  by  the  Trustee   shall   distribute   to  each
Certificateholder  of record on the next  preceding  Record  Date (other than as
provided  in  Section  9.01  respecting  the  final   distribution)   either  in
immediately  available  funds (by wire  transfer or otherwise) to the account of
such  Certificateholder at a bank or other entity having appropriate  facilities
therefor,  if such  Certificateholder has so notified the Master Servicer or the
Paying  Agent,  as the case may be,  or,  if such  Certificateholder  has not so
notified the Master  Servicer or the Paying  Agent by the Record Date,  by check
mailed to such  Certificateholder at the address of such Holder appearing in the
Certificate Register such  Certificateholder's  share (based on the aggregate of
the Percentage  Interests  represented by Certificates  of the applicable  Class
held by such  Holder)  of the  following  amounts,  in the  following  order  of
priority,  in each case to the  extent  of the  related  Available  Distribution
Amount that is attributable to such Class for such Distribution Date:

(i)     to the Offered Certificateholders,  Accrued Certificate Interest thereon
        for such  Distribution  Date minus, (A) with respect to the Loan Group I
        Certificates,  any  Group I  Prepayment  Interest  Shortfalls  for  such
        Distribution   Date  and  (B)  with   respect   to  the  Loan  Group  II
        Certificates,  any Group II Prepayment  Interest Shortfalls plus in each
        case Accrued  Certificate  Interest  thereon  remaining  unpaid from any
        previous Distribution Date, sequentially,  to the related Class A, Class
        M-1, Class M-2 and Class M-3 Certificates, in that order;

(ii)    (A) For a Loan Group and each Distribution Date (a) prior to the related
        Stepdown Date or (b) on which a related Trigger Event is in effect,  the
        related  Principal   Distribution  Amount  in  the  following  order  of
        priority:

                             first,   to  the  related  Class  A   Certificates,
                      allocated  as provided  in (ii)(C) or (ii)(D)  below until
                      the aggregate Certificate Principal Balance of those Class
                      A Certificates has been reduced to zero;

                             second,  to the  related  Class  M-1  Certificates,
                      until the Certificate Principal Balance of those Class M-1
                      Certificates has been reduced to zero;

                             third, to the related Class M-2 Certificates, until
                      the  Certificate  Principal  Balance  of those  Class  M-2
                      Certificates has been reduced to zero; and

                             fourth,  to the  related  Class  M-3  Certificates,
                      until the Certificate Principal Balance of those Class M-3
                      Certificates has been reduced to zero.

                      (B) For a Loan Group and each  Distribution Date (a) on or
               after  the  related  Stepdown  Date  and (b) on  which a  related
               Trigger  Event is not in  effect,  the  holders  of each Class of
               Offered  Certificates related to that Loan Group distributions in
               respect  of  principal  to the  extent of the  related  Principal
               Distribution  Amount  in  the  following  amounts  and  order  of
               priority:

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<PAGE>

                             first, the lesser of (x) the Principal Distribution
                      Amount and (y) the Class A Principal  Distribution Amount,
                      to the related Class A Certificates, allocated as provided
                      in   (ii)(C)  or  (ii)(D)   below   until  the   aggregate
                      Certificate   Principal   Balance   of   those   Class   A
                      Certificates has been reduced to zero;

                             second,  the  lesser  of (x) the  excess of (1) the
                      Principal   Distribution   Amount   over  (2)  the  amount
                      distributed  to the  holders  of the Class A  Certificates
                      under clause first above,  and (y) the Class M-1 Principal
                      Distribution    Amount,   to   the   related   Class   M-1
                      Certificates,  until the Certificate  Principal Balance of
                      the Class M-1 Certificates has been reduced to zero;

                             third,  the  lesser  of (x) the  excess  of (1) the
                      Principal  Distribution  Amount  over  (2)  the sum of the
                      amounts   distributed  to  the  holders  of  the  Class  A
                      Certificates  under  clause first above and to the holders
                      of the Class M-1  Certificates  under clause second above,
                      and (y) the Class M-2 Principal  Distribution  Amount,  to
                      the related Class M-2 Certificates,  until the Certificate
                      Principal  Balance of the Class M-2  Certificates has been
                      reduced to zero; and

                             fourth,  the  lesser  of (x) the  excess of (1) the
                      Principal  Distribution  Amount  over  (2)  the sum of the
                      amounts   distributed  to  the  holders  of  the  Class  A
                      Certificates  under clause first above,  to the holders of
                      the Class M-1  Certificates  under clause second above and
                      to the holders of the Class M-2 Certificates  under clause
                      third above, and (y) the Class M-3 Principal  Distribution
                      Amount, to the related Class M-3  Certificates,  until the
                      Certificate   Principal   Balance   of   the   Class   M-3
                      Certificates has been reduced to zero.

                      Notwithstanding  this  priority,   if  only  the  Class  A
               Certificates or only a single class of Class M Certificates for a
               Loan Group is  outstanding,  that Class will  receive  the entire
               Principal Distribution Amount for that Loan Group.

                      (C) to the Class  A-I  Certificateholders,  the  Principal
               Distribution Amount or Class A Principal  Distribution Amount, as
               applicable,  with  respect to Loan Group I for such  Distribution
               Date, in the following order of priority;

                             first, to the Class A-I-6  Certificates,  the Class
                      A-I-6 Lockout  Distribution  Amount for such  Distribution
                      Date, until the Certificate  Principal Balance thereof has
                      been reduced to zero;

                         second,  to the  Class  A-I-1  Certificates  until  the
                    Certificate  Principal  Balance  thereof has been reduced to
                    zero;

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

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

                         fifth,  to the  Class  A-I-4  Certificates,  until  the
                    Certificate  Principal  Balance  thereof has been reduced to
                    zero;

                         sixth,  to the  Class  A-I-5  Certificates,  until  the
                    Certificate  Principal  Balance  thereof has been reduced to
                    zero; and

                         seventh,  to the Class  A-I-6  Certificates,  until the
                    Certificate  Principal  Balance  thereof has been reduced to
                    zero.

                      (D) to the Class A-II  Certificateholders,  the  Principal
               Distribution Amount or Class A Principal  Distribution Amount, as
               applicable,  with respect to Loan Group II for such  Distribution
               Date,  until the Certificate  Principal  Balance thereof has been
               reduced to zero;

                      (E)  following  the  distributions  set forth above and in
               Section 4.02(d),  to the Class SB-I  Certificateholders,  payable
               from Loan Group I Available  Distribution  Amount remaining after
               such distributions,  the amounts as set forth in Section 1.03 and
               to the Class SB-II Certificateholders, payable from Loan Group II
               Available    Distribution    Amounts    remaining    after   such
               distributions, the amounts as set forth in Section 1.03; and

                      (F)  following  the  distributions  set forth above and in
               Section  4.02(d),  to the  Class  R-III  Certificateholders,  any
               amounts remaining after the above distributions.

(d) In addition to the foregoing  distributions,  on each  Distribution Date the
following  amounts shall be  distributed  by the Trustee in the manner set forth
above as follows:

     (i) Loan  Group I Excess  Cash  Flow for  such  Distribution  Date  will be
applied:  first,  to pay to the  holders  of the Loan Group I  Certificates  the
principal  portion of Realized Losses incurred (or deemed to have been incurred)
on the Group I Loans for the  preceding  Prepayment  Period  (other  than Excess
Special Hazard Losses,  Excess Fraud Losses or Extraordinary Losses with respect
to such  Loan  Group);  second,  to pay to the  holders  of the  Loan  Group  II
Certificates  the principal  portion of Realized  Losses  incurred (or deemed to
have been incurred) on the Group II Loans for the preceding Prepayment Period to
the extent not  covered by Loan Group II Excess  Cash Flow  (other  than  Excess
Special Hazard Losses,  Excess Fraud Losses or Extraordinary Losses with respect
to such Loan Group);  third,  to pay any related  Subordination  Increase Amount
with  respect to Loan Group I;  fourth,  to pay the  holders of the Loan Group I
Certificates pro rata the amount of any Group I Prepayment  Interest  Shortfalls

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<PAGE>

allocated  thereto;  fifth,  to  pay  to  the  holders  of  the  Loan  Group  II
Certificates pro rata the amount of any Group II Prepayment  Interest Shortfalls
allocated  thereto,  to the extent not covered by Loan Group II Excess Cash Flow
on such  Distribution  Date;  sixth,  to pay the  holders  of the  Loan  Group I
Certificates  pro rata any  Group I  Prepayment  Interest  Shortfalls  remaining
unpaid from prior  Distribution  Dates  together  with  interest  thereon at the
related  Pass-Through  Rate for such Class of Loan Group I Certificates to which
such Group I Prepayment  Interest  Shortfalls  were  allocated (as adjusted from
time to time), until such Group I Prepayment  Interest Shortfalls have been paid
in full;  seventh,  to pay the Loan Group II Certificates  pro rata any Group II
Prepayment  Interest  Shortfalls  remaining unpaid from prior Distribution Dates
together with interest thereon at the related  Pass-Through  Rate for such Class
of Loan Group II Certificates (as adjusted from time to time),  until such Group
II Prepayment  Interest  Shortfalls,  to the extent not covered by Loan Group II
Excess  Cash  Flow,  have  been  paid  in  full;  eighth,  to the  Loan  Group I
Certificates,  any Allocated Loss Amounts,  sequentially,  to the Class A-I (and
pro rata among the classes of Class A-I Certificates),  Class M-I-1, Class M-I-2
and  Class  M-I-3  Certificates,  in that  order;  ninth,  to the Loan  Group II
Certificates,  any related  Allocated  Loss Amounts to the extent not covered by
the Group II Available Excess Cash Flow; and

     (ii) Loan  Group II Excess  Cash  Flow for such  Distribution  Date will be
applied:  first,  to pay to the  holders of the Loan Group II  Certificates  the
principal  portion of Realized Losses incurred (or deemed to have been incurred)
on the Group II Loans for the  preceding  Prepayment  Period  (other than Excess
Special Hazard Losses,  Excess Fraud Losses or Extraordinary Losses with respect
to  such  Loan  Group);  second,  to pay to the  holders  of the  Loan  Group  I
Certificates  the principal  portion of Realized  Losses  incurred (or deemed to
have been incurred) on the Group I Loans for the preceding  Prepayment Period to
the extent  not  covered by Loan Group I Excess  Cash Flow  (other  than  Excess
Special Hazard Losses,  Excess Fraud Losses or Extraordinary Losses with respect
to such Loan  Group);  third,  (a) FIRST to fund the Initial Loan Group II Basis
Risk Reserve Fund Deposit and (b) THEN to pay any related Subordination Increase
Amount  with  respect to Loan Group II;  fourth,  to pay the holders of the Loan
Group II  Certificates  pro rata the amount of any Group II Prepayment  Interest
Shortfalls  allocated thereto;  fifth, to pay to the holders of the Loan Group I
Certificates pro rata the amount of any Group I Prepayment  Interest  Shortfalls
allocated thereto, to the extent not covered by Loan Group I Excess Cash Flow on
such  Distribution  Date;  sixth,  to pay  the  holders  of the  Loan  Group  II
Certificates  pro rata any Group II  Prepayment  Interest  Shortfalls  remaining
unpaid from prior  Distribution  Dates  together  with  interest  thereon at the
related  Pass-Through Rate for such Loan Group II Certificates (as adjusted from
time to time), until such Group II Prepayment Interest Shortfalls have been paid
in full;  seventh,  to pay the Loan  Group I  Certificates  pro rata any Group I
Prepayment  Interest  Shortfalls  remaining unpaid from prior Distribution Dates
together with interest thereon at the related  Pass-Through  Rate for such Class
of Loan  Group  I  Certificates  to  which  such  Group  I  Prepayment  Interest
Shortfalls were allocated (as adjusted from time to time),  until the payment of
such Group I Prepayment Interest  Shortfalls,  to the extent not covered by Loan
Group I Excess Cash Flow, have been paid in full;  eighth,  to the Loan Group II
Certificates, any Allocated Loss Amounts, sequentially, to the Class A-II, Class
M-II-1, Class M-II-2 and Class M-II-3 Certificates, in that order; ninth, to the
Loan Group I Certificates,  any related Allocated Loss Amounts to the extent not
covered by the Group I Available  Excess Cash Flow; and tenth, to the Loan Group

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II Basis Risk Reserve Fund the Loan Group II Basis Risk Reserve Fund Deposit for
distribution  to the  holders  of the Loan  Group II  Certificates  pro rata the
amount of any Loan Group II Basis Risk  Shortfalls for such  Distribution  Date,
and Loan  Group II Basis  Risk  Shortfalls  remaining  unpaid  with  respect  to
previous  Distribution  Dates,  together  with  interest  thereon at the related
Pass-Through Rates.

(e) In addition to the  foregoing  distributions,  with  respect to any Mortgage
Loan that was previously the subject of a Cash Liquidation or an REO Disposition
that resulted in a Realized Loss, in the event that within two years of the date
on which such Realized Loss was determined to have occurred the Master  Servicer
receives  amounts  which the Master  Servicer  reasonably  believes to represent
subsequent recoveries (net of any related liquidation  expenses),  or determines
that it holds surplus amounts  previously  reserved to cover estimated  expenses
specifically  related to such  Mortgage  Loan  (including,  but not  limited to,
recoveries  (net  of  any  related  liquidation  expenses)  in  respect  of  the
representations  and  warranties  made by the  related  Seller  pursuant  to the
applicable  Seller's  Agreement),  the Master  Servicer  shall  distribute  such
amounts to the Class or Classes to which such Realized Loss was allocated  (with
the  amounts  to be  distributed  allocated  among  such  Classes  in  the  same
proportions as such Realized Loss was allocated),  and within each such Class to
the Certificateholders of record as of the Record Date immediately preceding the
date of such  distribution  (or of  such  Class  of  Certificates  is no  longer
outstanding,  to the Certificateholders of record at the time that such Realized
Loss  was  allocated);  provided  that  no such  distribution  to any  Class  of
Certificates of subsequent  recoveries  related to a Mortgage Loan shall exceed,
either individually or in the aggregate and together with any other amounts paid
in  reimbursement  therefor,  the amount of the related  Realized  Loss that was
allocated  to such  Class of  Certificates.  For the  purposes  of this  Section
4.02(f) any  allocation  of a Realized  Loss to Loan Group I Excess Cash Flow or
Loan Group II Excess  Cash Flow will be treated as an  allocation  of a Realized
Loss to the Class SB-I Certificates or Class SB-II  Certificates,  respectively.
Any amounts to be so distributed  shall not be remitted to or  distributed  from
the Trust Fund,  and shall  constitute  subsequent  recoveries  with  respect to
Mortgage Loans that are no longer assets of the Trust Fund.

(f) Each distribution with respect to a Book-Entry  Certificate shall be paid to
the Depository,  as Holder thereof,  and the Depository shall be responsible for
crediting  the amount of such  distribution  to the  accounts of its  Depository
Participants  in  accordance  with  its  normal   procedures.   Each  Depository
Participant  shall  be  responsible  for  disbursing  such  distribution  to the
Certificate  Owners  that  it  represents  and to  each  indirect  participating
brokerage firm (a "brokerage firm" or "indirect  participating  firm") for which
it acts as agent.  Each brokerage firm shall be responsible for disbursing funds
to the  Certificate  Owners  that it  represents  and none of the  Trustee,  the
Certificate  Registrar,  the  Depositor  or the Master  Servicer  shall have any
responsibility therefor.

(g) Except as  otherwise  provided  in  Section  9.01,  if the  Master  Servicer
anticipates that a final  distribution with respect to any Class of Certificates
will be made on the next Distribution  Date, the Master Servicer shall, no later
than the Determination Date in the month of such final distribution,  notify the
Trustee and the Trustee  shall,  no later than two (2) Business  Days after such
Determination  Date,  mail  on  such  date  to each  Holder  of  such  Class  of
Certificates a notice to the effect that: (i) the Trustee  anticipates  that the
final  distribution  with respect to such Class of Certificates  will be made on
such  Distribution  Date  but  only  upon  presentation  and  surrender  of such
Certificates at the office of the Trustee or as otherwise specified therein, and
(ii) no interest shall accrue on such Certificates from and after the end of the

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prior  calendar  month.  In the event that  Certificateholders  do not surrender
their Certificates for final cancellation, the Trustee shall cause such funds to
be withdrawn  from the  Certificate  Account and  credited to a separate  escrow
account  for the  benefit  of such  Certificateholders  as  provided  in Section
9.01(d).

Section 4.03   Statements to Certificateholders.

(a) Concurrently with each distribution  charged to the Certificate  Account and
with respect to each  Distribution Date the Master Servicer shall forward to the
Trustee  and the  Trustee  shall  forward by mail or  otherwise  make  available
electronically  to each Holder and the  Depositor a statement  setting forth the
following  information as to each Class of Certificates  and each Loan Group, in
each case to the extent applicable:

(i)     (a) the amount of such  distribution to the  Certificateholders  of such
        Class applied to reduce the Certificate  Principal Balance thereof,  and
        (b)  the  aggregate  amount  included  therein  representing   Principal
        Prepayments;

(ii) the amount of such  distribution  to Holders of such Class of  Certificates
     allocable to interest;

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

(iv) the amount of any Advance by the Master Servicer pursuant to Section 4.04;

(v)     the  number  of  Group I Loans  and the Loan  Group I  Stated  Principal
        Balance  after giving  effect to the  distribution  of principal on such
        Distribution Date and the number of Group II Loans and the Loan Group II
        Stated  Principal  Balance  after giving effect to the  distribution  of
        principal on such Distribution Date;

(vi)    the  aggregate  Certificate  Principal  Balance  of  each  Class  of the
        Certificates  after  giving  effect to the amounts  distributed  on such
        Distribution Date,  separately  identifying any reduction thereof due to
        Realized  Losses  other  than  pursuant  to an  actual  distribution  of
        principal;

(vii)   on the basis of the most recent reports furnished to it by Subservicers,
        the number and aggregate  principal  balances of Mortgage Loans that are
        Delinquent  (A) one month,  (B) two months and (C) three or more  months
        and the number and aggregate  principal  balance of Mortgage  Loans that
        are in foreclosure;

(viii) the  number,  aggregate  principal  balance  and  book  value  of any REO
     Properties;

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(ix)    the aggregate Accrued Certificate Interest remaining unpaid, if any, for
        each Class of Certificates, after giving effect to the distribution made
        on such Distribution Date;

(x)  the related Targeted  Subordinated  Amount and Subordinated  Amount,  after
     giving effect to distributions made on such Distribution Date;

(xi)    the aggregate amount of Realized Losses for such  Distribution  Date and
        the aggregate  amount of Realized  Losses on the Mortgage Loans incurred
        since the Cut-off Date;

(xii)the aggregate amount of any recoveries on previously  foreclosed loans from
     Sellers due to a breach of representation or warranty;

(xiii)  the weighted  average  remaining  term to maturity of the Mortgage Loans
        after  giving  effect to the amounts  distributed  on such  Distribution
        Date;

(xiv)   the weighted  average  Mortgage Rates of the Mortgage Loans after giving
        effect to the amounts distributed on such Distribution Date;

(xv)    [Reserved]

(xvi)   the  Special  Hazard  Amount  and Fraud  Loss  Amount as of the close of
        business on such  Distribution  Date and a description  of any change in
        the calculation of such amounts;

(xvii) the Pass-Through  Rates on the Fixed Rate Certificates and the Adjustable
     Rate Certificates for such Distribution Date;

(xviii)  [Reserved]

(xix)the amount of Group I Prepayment Interest  Shortfalls,  Group II Prepayment
     Interest  Shortfalls  and  Loan  Group II Basis  Risk  Shortfalls  for such
     Distribution Date and the amount of Group I Prepayment Interest Shortfalls,
     Group  II  Prepayment  Interest  Shortfalls  and Loan  Group II Basis  Risk
     Shortfalls for any previous Distribution Date that remain unpaid,  together
     with accrued interest thereon;

(xx) with  respect to the related Due Period,  (i) the number of Mortgage  Loans
     for which a payment was made by the Mortgage  Insurer  under the PMI Policy
     since the Closing Date and the aggregate amount of any such payments,  (ii)
     the number of Mortgage  Loans for which a claim has been  presented  to the
     Mortgage  Insurer  under  the PMI  Policy  since the  Closing  Date and the
     aggregate  amount of any such outstanding  claims,  and (iii) the number of
     Mortgage  Loans for which a claim was  presented  to the  Mortgage  Insurer
     under the PMI Policy  since the Closing  Date which claim was denied by the
     Mortgage Insurer and the aggregate amount of any such denied claims.

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<PAGE>

In the case of information furnished pursuant to clauses (i) and (ii) above, the
amounts  shall be expressed  as a dollar  amount per  Certificate  with a $1,000
denomination.  In addition to the statement provided to the Trustee as set forth
in this Section  4.03(a),  the Master Servicer shall provide to any manager of a
trust  fund  consisting  of some  or all of the  Certificates,  upon  reasonable
request,  such additional  information as is reasonably obtainable by the Master
Servicer at no additional expense to the Master Servicer.

               The  Trustee  will make the reports  referred to in this  Section
(and, at its option,  any additional files containing the same information in an
alternative format) available each month to Certificateholders and other parties
to this  Agreement  via the  Trustee's  website,  which is presently  located at
http://www-apps.gis.deutsche-bank.com/inver.  Persons that are unable to use the
above  website are  entitled to have a paper copy mailed to them via first class
mail by calling the Trustee at 1-800-735-7777.  The Trustee shall have the right
to change the way the reports  referred to in this  Section are  distributed  in
order to make such  distribution  more convenient  and/or more accessible to the
parties to this  Agreement  and to the  Certificateholders.  The  Trustee  shall
provide  timely and adequate  notification  to all the above  parties and to the
Certificateholders  regarding any such change.

     (b) Within a reasonable period of time after the end of each calendar year,
the Master  Servicer  shall  prepare,  or cause to be prepared,  and the Trustee
shall forward,  or cause to be forwarded,  to each Person who at any time during
the  calendar  year  was  the  Holder  of a  Certificate,  other  than a Class R
Certificate, a statement containing the information set forth in clauses (i) and
(ii) of  subsection  (a) above  aggregated  for such calendar year or applicable
portion  thereof  during  which  such  Person  was  a  Certificateholder.   Such
obligation  of the  Master  Servicer  and  Trustee  shall be deemed to have been
satisfied  to the extent  that  substantially  comparable  information  shall be
provided by the Master Servicer and Trustee  pursuant to any requirements of the
Code.

     (c) Within a reasonable period of time after the end of each calendar year,
the Master  Servicer  shall  prepare,  or cause to be prepared,  and the Trustee
shall forward,  or cause to be forwarded,  to each Person who at any time during
the  calendar  year  was  the  Holder  of a  Class R  Certificate,  a  statement
containing the applicable  distribution  information  provided  pursuant to this
Section 4.03  aggregated  for such calendar year or applicable  portion  thereof
during  which  such  Person  was  the  Holder  of a Class  R  Certificate.  Such
obligation  of the  Master  Servicer  and  Trustee  shall be deemed to have been
satisfied  to the extent  that  substantially  comparable  information  shall be
provided by the Master Servicer and Trustee  pursuant to any requirements of the
Code.

     (d) As soon as  reasonably  practicable,  upon the  written  request of any
Certificateholder,   the  Master   Servicer   shall   provide   the   requesting
Certificateholder with such information as is necessary and appropriate,  in the
Master  Servicer's  sole  discretion,  for  purposes  of  satisfying  applicable
reporting requirements under Rule 144A.

Section 4.04 Distribution of Reports to the Trustee and the Depositor;  Advances
     by the Master Servicer.

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<PAGE>

(a) Prior to the close of  business on the  Business  Day next  succeeding  each
Determination Date, the Master Servicer shall furnish a written statement (which
may be in a mutually  agreeable  electronic  format) to the Trustee,  any Paying
Agent and the Depositor (the  information in such statement to be made available
to  Certificateholders  by the Master  Servicer on request)  (provided  that the
Master Servicer will use its best efforts to deliver such written  statement not
later  than 12:00 p.m.  New York time on the  second  Business  Day prior to the
Distribution Date) setting forth (i) the Available Distribution Amount, (ii) the
amounts  required to be withdrawn from the Custodial  Account and deposited into
the  Certificate  Account  on the  immediately  succeeding  Certificate  Account
Deposit Date pursuant to clause (iii) of Section 4.01(a),  (iii) the Premium for
such  Distribution  Date,  (iv)  the  amount  of  Group  I  Prepayment  Interest
Shortfalls or Group II Prepayment  Interest  Shortfalls  and Loan Group II Basis
Risk  Shortfalls,  (v) the  amount of the Loan  Group II Basis  Risk  Shortfalls
remaining unpaid with respect to the prior Distribution  Dates, (vi) interest on
the Loan Group II Basis Risk  Shortfalls at the applicable  Pass-Through  Rates,
(vii) the amount to be deposited  to or  withdrawn  from the Loan Group II Basis
Risk Reserve Fund pursuant to Section 5.07(b) and (viii) to the extent required,
a report  detailing  the  Stated  Principal  Balance,  Mortgage  Rate,  Modified
Mortgage Rate,  remaining term to maturity and Monthly  Payment for any Modified
Mortgage Loan pursuant to Section 3.07. The determination by the Master Servicer
of such amounts shall, in the absence of obvious error, be presumptively  deemed
to be correct for all purposes  hereunder  and the Trustee shall be protected in
relying upon the same without any independent check or verification.

(b) On or before 2:00 P.M.  New York time on each  Certificate  Account  Deposit
Date, the Master  Servicer shall either (i) deposit in the  Certificate  Account
from its own funds, or funds received therefor from the Subservicers,  an amount
equal to the  Advances  to be made by the  Master  Servicer  in  respect  of the
related  Distribution  Date,  which shall be in an aggregate amount equal to the
aggregate  amount of  Monthly  Payments  (with  each  interest  portion  thereof
adjusted to a per annum rate equal to the sum of the Net Mortgage  Rate plus the
applicable   Premium   Rate),   less  the  amount  of  any   related   Servicing
Modifications,  Debt Service  Reductions or reductions in the amount of interest
collectable from the Mortgagor pursuant to the Relief Act or similar legislation
or  regulations  then in effect,  on the  Outstanding  Mortgage  Loans as of the
related  Due  Date in the  related  Due  Period,  which  Monthly  Payments  were
delinquent  as of the close of business as of the  related  Determination  Date;
provided that no Advance shall be made if it would be a Nonrecoverable  Advance,
(ii) withdraw  from amounts on deposit in the  Custodial  Account and deposit in
the  Certificate  Account  all  or a  portion  of the  Amount  Held  for  Future
Distribution  in discharge of any such  Advance,  or (iii) make  advances in the
form of any combination of (i) and (ii)  aggregating the amount of such Advance.
Any portion of the Amount Held for Future Distribution so used shall be replaced
by the Master Servicer by deposit in the Certificate  Account on or before 11:00
A.M. New York time on any future Certificate  Account Deposit Date to the extent
that  funds  attributable  to the  Mortgage  Loans  that  are  available  in the
Custodial  Account for deposit in the  Certificate  Account on such  Certificate
Account Deposit Date shall be less than payments to Certificateholders  required
to be made on the following  Distribution  Date.  The Master  Servicer  shall be
entitled  to use any  Advance  made by a  Subservicer  as  described  in Section
3.07(b)  that has been  deposited  in the  Custodial  Account on or before  such
Distribution Date as part of the Advance made by the Master Servicer pursuant to
this Section 4.04.

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<PAGE>

               The  determination  by the  Master  Servicer  that it has  made a
Nonrecoverable Advance or that any proposed Advance, if made, would constitute a
Nonrecoverable  Advance,  shall be  evidenced  by a  certificate  of a Servicing
Officer delivered to the Depositor and the Trustee.

               In the  event  that  the  Master  Servicer  determines  as of the
Business Day  preceding  any  Certificate  Account  Deposit Date that it will be
unable to deposit in the  Certificate  Account  an amount  equal to the  Advance
required to be made for the immediately  succeeding  Distribution Date, it shall
give notice to the Trustee of its inability to advance (such notice may be given
by  telecopy),  not later than 3:00 P.M.,  New York time,  on such Business Day,
specifying  the portion of such  amount  that it will be unable to deposit.  Not
later than 3:00 P.M., New York time, on the Certificate Account Deposit Date the
Trustee  shall,  unless by 12:00  Noon,  New York time,  on such day the Trustee
shall have been notified in writing (by telecopy) that the Master Servicer shall
have directly or indirectly deposited in the Certificate Account such portion of
the  amount of the  Advance  as to which the  Master  Servicer  shall have given
notice  pursuant  to the  preceding  sentence,  pursuant  to Section  7.01,  (a)
terminate all of the rights and  obligations  of the Master  Servicer under this
Agreement  in  accordance  with  Section  7.01 and (b)  assume  the  rights  and
obligations  of the Master  Servicer  hereunder,  including  the  obligation  to
deposit  in the  Certificate  Account  an amount  equal to the  Advance  for the
immediately succeeding Distribution Date.

               The Trustee shall deposit all funds it receives  pursuant to this
Section 4.04 into the Certificate Account.

Section 4.05   Allocation of Realized Losses.

(a) Prior to each  Distribution  Date, the Master  Servicer shall  determine the
total  amount  of  Realized  Losses,   if  any,  that  resulted  from  any  Cash
Liquidation,   Servicing  Modifications,   Debt  Service  Reduction,   Deficient
Valuation or REO Disposition that occurred during the related  Prepayment Period
or, in the case of a Servicing  Modification that constitutes a reduction of the
interest  rate on a Mortgage  Loan,  the amount of the reduction in the interest
portion of the Monthly Payment due in the month in which such  Distribution Date
occurs.  The amount of each  Realized  Loss shall be  evidenced  by an Officers'
Certificate.  All Realized  Losses  (other than Excess  Special  Hazard  Losses,
Extraordinary Losses and Excess Fraud Losses), will be allocated:  first, to the
Loan Group I Excess Cash Flow for the related  Distribution  Date in the case of
Realized  Losses on the Group I Loans and to the Loan Group II Excess  Cash Flow
for the related Distribution Date in the case of Realized Losses on the Group II
Loans; second, to the Loan Group I Excess Cash Flow for the related Distribution
Date in the case of  Realized  Losses  on the  Group II Loans  (but  only to the
extent remaining after covering  Realized Losses related to Loan Group I) and to
the Loan Group II Excess Cash Flow for the related Distribution Date in the case
of Realized Losses on the Group I Loans (but only to the extent  remaining after
covering  Realized Losses related to Loan Group II); third, to the related Class
SB  Certificates  up to an amount equal to (i) in the case of the Group I Loans,
the excess,  if any, of (x) the then aggregate Stated  Principal  Balance of the
Group I Loans over (y) the then aggregate  Certificate  Principal Balance of the
Loan  Group I  Certificates  and (ii) in the case of the  Group  II  Loans,  the
excess,  if any, of (x) the then aggregate Stated Principal Balance of the Group

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II Loans over (y) the then aggregate  Certificate  Principal Balance of the Loan
Group II Certificates; and fourth, in the case of Realized Losses on the Group I
Loans, sequentially,  to the Class M-I-3, Class M-I-2, Class M-I-1 and Class A-I
Certificates, in that order, and among all the classes of Class A-I Certificates
on a pro  rata  basis  and in the case of  Realized  Losses  on Group II  Loans,
sequentially,  to the Class M-II-3,  Class  M-II-2,  Class M-II-1 and Class A-II
Certificates,  in that order.  Any Excess Special  Hazard  Losses,  Excess Fraud
Losses and Extraordinary Losses will be allocated among all the Loan Group I and
Class SB-I  Certificates,  in the case of such losses on Mortgage  Loans in Loan
Group I, and among all the Loan Group II and Class  SB-II  Certificates,  in the
case of such  losses on  Mortgage  Loans in Loan Group II, in each case on a pro
rata basis, as described below.

               As used herein,  an  allocation of a Realized Loss on a "pro rata
basis" among two or more specified  Classes of Certificates  means an allocation
on a pro rata basis, among the various Classes so specified,  to each such Class
of Certificates  on the basis of their then  outstanding  Certificate  Principal
Balances prior to giving effect to distributions to be made on such Distribution
Date in the case of the  principal  portion of a Realized  Loss or in accordance
with the definition of Accrued  Certificate  Interest in the case of an interest
portion of a Realized Loss. Any allocation of the principal  portion of Realized
Losses (other than Debt Service  Reductions) to a Class of Certificates shall be
made by reducing  the  Certificate  Principal  Balance  thereof by the amount so
allocated,   which   allocation  shall  be  deemed  to  have  occurred  on  such
Distribution Date. Any allocation of the principal portion of Realized Losses to
the Class SB  Certificates,  shall be made by  operation  of the  definition  of
"Certificate  Principal  Balance" and by operation of the  provisions of Section
4.02(c).  Allocations of the interest  portions of Realized Losses shall be made
by  operation  of  the  definition  of  "Accrued  Certificate  Interest"  and by
operation of the  provisions  of Section  4.02(c).  All Realized  Losses and all
other losses  allocated to a Class of  Certificates  hereunder will be allocated
among the  Certificates of such Class in proportion to the Percentage  Interests
evidenced thereby.

(b) All Realized  Losses on the Group I Mortgage Loans shall be allocated to the
REMIC I Regular  Interests in accordance  with Section 1.03.  Realized Losses on
the Group II  Mortgage  Loans shall be  allocated  to each Class of the REMIC II
Regular Interests in accordance with Section 1.03.

Section 4.06   Reports of Foreclosures and Abandonment of Mortgaged Property.

               The Master Servicer or the  Subservicers  shall file  information
returns with respect to the receipt of mortgage  interest received in a trade or
business, the reports of foreclosures and abandonments of any Mortgaged Property
and the  informational  returns relating to cancellation of indebtedness  income
with respect to any Mortgaged  Property  required by Sections  6050H,  6050J and
6050P of the  Code,  respectively,  and  deliver  to the  Trustee  an  Officers'
Certificate  on or before June 31 of each year  stating  that such  reports have
been filed.  Such reports shall be in form and substance  sufficient to meet the
reporting  requirements  imposed by such Sections 6050H,  6050J and 6050P of the
Code.

Section 4.07   Optional Purchase of Defaulted Mortgage Loans.

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<PAGE>

               As to any Mortgage Loan which is delinquent in payment by 90 days
or more,  the Master  Servicer  may, at its option,  purchase such Mortgage Loan
from  the  Trustee  at the  Purchase  Price  therefor;  provided,  that any such
Mortgage Loan that becomes 90 days or more delinquent  during any given Calendar
Quarter shall only be eligible for purchase  pursuant to this Section during the
period  beginning on the first Business Day of the following  Calendar  Quarter,
and ending at the close of business on the  second-to-last  Business Day of such
following Calendar Quarter; and provided further,  that such Mortgage Loan is 90
days or more delinquent at the time of repurchase.  Such option if not exercised
shall  not  thereafter  be  reinstated  as to  any  Mortgage  Loan,  unless  the
delinquency is cured and the Mortgage Loan thereafter  again becomes  delinquent
in payment by 90 days or more in a subsequent  Calendar Quarter.  If at any time
the Master  Servicer  makes a payment to the  Certificate  Account  covering the
amount of the Purchase Price for such a Mortgage  Loan, and the Master  Servicer
provides to the Trustee a  certification  signed by a Servicing  Officer stating
that the amount of such payment has been deposited in the  Certificate  Account,
then the Trustee  shall  execute the  assignment  of such  Mortgage  Loan at the
request of the Master  Servicer  without  recourse to the Master  Servicer which
shall  succeed to all the  Trustee's  right,  title and  interest in and to such
Mortgage Loan, and all security and documents relative thereto.  Such assignment
shall be an assignment  outright and not for security.  The Master Servicer will
thereupon own such Mortgage,  and all such security and  documents,  free of any
further  obligation  to the  Trustee  or  the  Certificateholders  with  respect
thereto.

                                   ARTICLE V

                                THE CERTIFICATES

Section 5.01   The Certificates.

(a)  The  Class  A,  Class  M,  Class  SB and  Class  R  Certificates  shall  be
substantially  in the forms set forth in Exhibits A-1, A-2, and B and shall,  on
original  issue,  be executed and  delivered  by the Trustee to the  Certificate
Registrar for  authentication and delivery to or upon the order of the Depositor
upon receipt by the Trustee or one or more Custodians of the documents specified
in Section 2.01. The Class A Certificates,  Class M-I-1  Certificates  and Class
M-II-1  Certificates,  shall be  issuable  in minimum  dollar  denominations  of
$25,000  and  integral  multiples  of $1 in  excess  thereof.  The  Class  M-I-2
Certificates,  Class M-I-3  Certificates,  Class M-II-2  Certificates  and Class
M-II-3  Certificates,  shall be  issuable  in minimum  dollar  denominations  of
$250,000  and  integral  multiples  of  $1  in  excess  thereof.  The  Class  SB
Certificates  shall be issuable  in minimum  Percentage  Interests  of 10.0% and
integral  multiples of .01% in excess thereof.  The Class R Certificates of each
respective REMIC shall be issuable in minimum percentage  interests of 20.0% and
integral multiples of 0.01% in excess thereof; provided, however, that one Class
R  Certificate  will be  issuable  to the REMIC  Administrator  as "tax  matters
person"  pursuant to Section 10.01(c) in a minimum  denomination  representing a
Percentage Interest of not less than 0.01%.

               The  Certificates  shall  be  executed  by  manual  or  facsimile
signature  on behalf  of an  authorized  officer  of the  Trustee.  Certificates
bearing the manual or facsimile  signatures of individuals  who were at any time
the proper officers of the Trustee shall bind the Trustee,  notwithstanding that
such  individuals  or any of them have ceased to hold such offices  prior to the
authentication  and delivery of such Certificate or did not hold such offices at

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the date of such  Certificates.  No Certificate shall be entitled to any benefit
under this Agreement,  or be valid for any purpose, unless there appears on such
Certificate a certificate of  authentication  substantially in the form provided
for herein executed by the Certificate  Registrar by manual signature,  and such
certificate  upon any  Certificate  shall be conclusive  evidence,  and the only
evidence,  that such  Certificate  has been  duly  authenticated  and  delivered
hereunder. All Certificates shall be dated the date of their authentication.

(b)  The  Offered  Certificates  shall  initially  be  issued  as  one  or  more
Certificates registered in the name of the Depository or its nominee and, except
as provided below,  registration of such  Certificates may not be transferred by
the Trustee except to another  Depository that agrees to hold such  Certificates
for the respective  Certificate  Owners with Ownership  Interests  therein.  The
Certificate  Owners shall hold their  respective  Ownership  Interests in and to
each of the Offered  Certificates,  through  the  book-entry  facilities  of the
Depository and,  except as provided  below,  shall not be entitled to Definitive
Certificates  in  respect  of  such  Ownership   Interests.   All  transfers  by
Certificate  Owners of their  respective  Ownership  Interests in the Book-Entry
Certificates shall be made in accordance with the procedures  established by the
Depository  Participant or brokerage firm representing  such Certificate  Owner.
Each Depository  Participant shall transfer the Ownership  Interests only in the
Book-Entry  Certificates  of  Certificate  Owners it  represents or of brokerage
firms  for which it acts as agent in  accordance  with the  Depository's  normal
procedures.

               The Trustee,  the Master  Servicer and the  Depositor may for all
purposes  (including  the making of payments  due on the  respective  Classes of
Book-Entry   Certificates)   deal  with  the   Depository   as  the   authorized
representative of the Certificate  Owners with respect to the respective Classes
of  Book-Entry  Certificates  for the  purposes  of  exercising  the  rights  of
Certificateholders  hereunder.  The rights of Certificate Owners with respect to
the  respective  Classes of  Book-Entry  Certificates  shall be limited to those
established  by law and  agreements  between  such  Certificate  Owners  and the
Depository  Participants  and  brokerage  firms  representing  such  Certificate
Owners.  Multiple  requests and directions from, and votes of, the Depository as
Holder of any Class of Book-Entry  Certificates  with respect to any  particular
matter  shall  not be  deemed  inconsistent  if they are made  with  respect  to
different Certificate Owners. The Trustee may establish a reasonable record date
in   connection   with   solicitations   of   consents   from   or   voting   by
Certificateholders and shall give notice to the Depository of such record date.

               If (i)(A) the  Depositor  advises the Trustee in writing that the
Depository   is  no  longer   willing  or  able  to   properly   discharge   its
responsibilities  as  Depository  and (B) the  Depositor  is  unable to locate a
qualified  successor or (ii) the Depositor at its option  advises the Trustee in
writing  that  it  elects  to  terminate  the  book-entry   system  through  the
Depository,  the  Trustee  shall  notify all  Certificate  Owners,  through  the
Depository,  of the  occurrence  of any such  event and of the  availability  of
Definitive   Certificates  to  Certificate  Owners  requesting  the  same.  Upon
surrender  to the  Trustee of the  Book-Entry  Certificates  by the  Depository,
accompanied by registration instructions from the Depository for registration of
transfer,  the Trustee  shall  issue the  Definitive  Certificates.  Neither the

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Depositor,  the Master  Servicer nor the Trustee shall be liable for any actions
taken by the Depository or its nominee, including, without limitation, any delay
in  delivery of such  instructions  and may  conclusively  rely on, and shall be
protected  in relying on, such  instructions.  Upon the  issuance of  Definitive
Certificates  all  references  herein  to  obligations  imposed  upon  or  to be
performed by the  Depositor in  connection  with the issuance of the  Definitive
Certificates  pursuant to this  Section  5.01 shall be deemed to be imposed upon
and  performed by the  Trustee,  and the Trustee and the Master  Servicer  shall
recognize  the  Holders of the  Definitive  Certificates  as  Certificateholders
hereunder.

Section 5.02   Registration of Transfer and Exchange of Certificates.

(a) The  Trustee  shall cause to be kept at one of the offices or agencies to be
appointed by the Trustee in  accordance  with the  provisions  of Section 8.12 a
Certificate Register in which, subject to such reasonable  regulations as it may
prescribe, the Trustee shall provide for the registration of Certificates and of
transfers  and  exchanges of  Certificates  as herein  provided.  The Trustee is
initially  appointed  Certificate  Registrar  for  the  purpose  of  registering
Certificates and transfers and exchanges of Certificates as herein provided. The
Certificate Registrar,  or the Trustee, shall provide the Master Servicer with a
certified list of Certificateholders as of each Record Date prior to the related
Determination Date.

(b) Upon surrender for registration of transfer of any Certificate at any office
or agency of the Trustee  maintained  for such purpose  pursuant to Section 8.12
and, in the case of any Class SB or Class R Certificate,  upon  satisfaction  of
the  conditions set forth below,  the Trustee shall execute and the  Certificate
Registrar  shall  authenticate  and  deliver,  in the  name  of  the  designated
transferee  or  transferees,  one or more new  Certificates  of a like Class and
aggregate Percentage Interest.

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

(d) No  transfer,  sale,  pledge or other  disposition  of a Class SB or Class R
Certificate  shall  be  made  unless  such  transfer,   sale,  pledge  or  other
disposition is exempt from the  registration  requirements of the Securities Act
of 1933, as amended (the "1933 Act"),  and any applicable  state securities laws
or is made in accordance with said Act and laws. Except as otherwise provided in
this  Section  5.02(d),  in the event that a  transfer  of a Class SB or Class R
Certificate  is to be  made,  (i)  unless  the  Depositor  directs  the  Trustee
otherwise,  the Trustee shall require a written Opinion of Counsel acceptable to
and in form and substance  satisfactory  to the Trustee and the  Depositor  that
such transfer may be made pursuant to an exemption,  describing  the  applicable
exemption  and the  basis  therefor,  from  said Act and  laws or is being  made
pursuant to said Act and laws,  which Opinion of Counsel shall not be an expense
of the Trustee,  the Trust Fund, the Depositor or the Master Servicer,  and (ii)
the Trustee shall require the  transferee  to execute a  representation  letter,

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substantially  in the form of Exhibit G-1 hereto,  and the Trustee shall require
the transferor to execute a representation letter,  substantially in the form of
Exhibit I hereto,  each acceptable to and in form and substance  satisfactory to
the  Depositor  and the Trustee  certifying to the Depositor and the Trustee the
facts surrounding such transfer,  which  representation  letters shall not be an
expense of the Trustee, the Trust Fund, the Depositor or the Master Servicer. In
lieu of the requirements set forth in the preceding sentence, transfers of Class
SB or Class R Certificates  may be made in accordance  with this Section 5.02(d)
if the prospective transferee of such a Certificate provides the Trustee and the
Master Servicer with an investment letter substantially in the form of Exhibit L
attached hereto, which investment letter shall not be an expense of the Trustee,
the Depositor,  or the Master Servicer, and which investment letter states that,
among other things, such transferee (i) is a "qualified  institutional buyer" as
defined  under Rule 144A,  acting for its own  account or the  accounts of other
"qualified  institutional  buyers" as defined under Rule 144A, and (ii) is aware
that the proposed  transferor intends to rely on the exemption from registration
requirements  under the 1933 Act provided by Rule 144A. The Holder of a Class SB
or Class R Certificate  desiring to effect any transfer,  sale,  pledge or other
disposition  shall,  and does  hereby  agree  to,  indemnify  the  Trustee,  the
Depositor,  the  Master  Servicer  and the  Certificate  Registrar  against  any
liability that may result if the transfer,  sale, pledge or other disposition is
not so exempt or is not made in accordance  with such federal and state laws and
this Agreement.

(e) In the  case  of  any  Class  M-I-3,  Class  M-II-3,  Class  SB or  Class  R
Certificate  presented for  registration in the name of an employee benefit plan
or other plan subject to the prohibited  transaction  provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of
the Code (or comparable  provisions of any subsequent  enactments) or any Person
(including an  investment  manager,  a named  fiduciary or a trustee of any such
plan) who is using "plan  assets" of any such plan to effect  such  acquisition,
either (i) the Trustee shall require an Opinion of Counsel  acceptable to and in
form and  substance  satisfactory  to the Trustee,  the Depositor and the Master
Servicer to the effect that the purchase or holding of such Class M, Class SB or
Class R Certificate,  as applicable,  is permissible  under applicable law, will
not constitute or result in any non-exempt prohibited  transaction under Section
406 of  ERISA or  Section  4975 of the Code  (or  comparable  provisions  of any
subsequent  enactments),  and will not subject the Trustee, the Depositor or the
Master  Servicer  to any  obligation  or  liability  (including  obligations  or
liabilities  under  ERISA or  Section  4975 of the  Code) in  addition  to those
undertaken in this  Agreement,  which Opinion of Counsel shall not be an expense
of the Trustee,  the  Depositor or the Master  Servicer or (ii) the  prospective
transferee  shall be required  to provide the  Trustee,  the  Depositor  and the
Master Servicer with a certification  to the effect set forth in Exhibit P (with
respect to a Class M) (which certification shall be deemed to have been given by
a Class M  Certificateholder  who  acquires  a  Book-Entry  Certificate  without
delivery  of  any  documentation),  Exhibit  G  (with  respect  to  a  Class  SB
Certificate) or in paragraph  fourteen of Exhibit F-1 (with respect to a Class R
Certificate),  which  the  Trustee  may rely upon  without  further  inquiry  or
investigation,  or such  certifications  as the  Trustee may deem  desirable  or
necessary in order to establish that such transferee or the Person in whose name
such  registration  is requested  either (a) is not an employee  benefit plan or
other plan subject to the prohibited  transaction provisions of ERISA or Section
4975 of the Code,  or any  Person  (including  an  investment  manager,  a named
fiduciary or a trustee of any such plan) who is using "plan  assets" of any such
plan to effect such  acquisition or (b) in the case of any Class SB Certificate,

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the following  conditions  are  satisfied:  (i) such  Transferee is an insurance
company,  (ii) the source of funds used to purchase or hold such Certificate (or
interest therein) is an "insurance  company general account" (as defined in U.S.
Department of Labor Prohibited  Transaction Class Exemption  ("PTCE") 95-60, and
(iii) the  conditions  set forth in  Section I and III of PTCE  95-60  have been
satisfied  (each entity that satisfies  this clause (b), a "Complying  Insurance
Company").

(a) Each  Person who has or who  acquires  any  Ownership  Interest in a Class R
Certificate  shall be deemed by the  acceptance or acquisition of such Ownership
Interest  to have  agreed to be bound by the  following  provisions  and to have
irrevocably  authorized the Trustee or its designee under clause  (iii)(A) below
to deliver  payments  to a Person  other than such Person and to  negotiate  the
terms of any  mandatory  sale under  clause  (iii)(B)  below and to execute  all
instruments of transfer and to do all other things  necessary in connection with
any such sale. The rights of each Person  acquiring any Ownership  Interest in a
Class R Certificate are expressly subject to the following provisions:

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

                             (A) In connection with any proposed Transfer of any
               Ownership  Interest in a Class R  Certificate,  the Trustee shall
               require  delivery to it, and shall not  register  the Transfer of
               any Class R  Certificate  until its receipt of, (I) an  affidavit
               and agreement (a "Transfer  Affidavit and Agreement," in the form
               attached hereto as Exhibit F-1) from the proposed Transferee,  in
               form  and  substance   satisfactory   to  the  Master   Servicer,
               representing  and  warranting,  among other things,  that it is a
               Permitted  Transferee,  that it is not  acquiring  its  Ownership
               Interest  in the Class R  Certificate  that is the subject of the
               proposed  Transfer as a nominee,  trustee or agent for any Person
               who is not a Permitted Transferee, that for so long as it retains
               its Ownership Interest in a Class R Certificate, it will endeavor
               to remain a Permitted  Transferee,  and that it has  reviewed the
               provisions  of this  Section  5.02(f)  and  agrees to be bound by
               them,  and (II) a  certificate,  in the form  attached  hereto as
               Exhibit  F-2,  from the Holder  wishing to  transfer  the Class R
               Certificate,  in form and  substance  satisfactory  to the Master
               Servicer,  representing and warranting,  among other things, that
               no purpose of the proposed  Transfer is to impede the  assessment
               or collection of tax.

                             (A)  Notwithstanding  the  delivery  of a  Transfer
               Affidavit and Agreement by a proposed Transferee under clause (B)
               above, if a Responsible Officer of the Trustee who is assigned to
               this Agreement has actual knowledge that the proposed  Transferee
               is  not a  Permitted  Transferee,  no  Transfer  of an  Ownership
               Interest in a Class R  Certificate  to such  proposed  Transferee
               shall be effected.

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                             (A) Each Person  holding or acquiring any Ownership
               Interest  in a Class R  Certificate  shall agree (x) to require a
               Transfer  Affidavit and  Agreement  from any other Person to whom
               such  Person  attempts to transfer  its  Ownership  Interest in a
               Class  R  Certificate  and  (y)  not to  transfer  its  Ownership
               Interest  unless it provides a certificate  to the Trustee in the
               form attached hereto as Exhibit F-2.

                             (E) Each Person  holding or  acquiring an Ownership
               Interest in a Class R  Certificate,  by  purchasing  an Ownership
               Interest in such Certificate,  agrees to give the Trustee written
               notice that it is a  "pass-through  interest  holder"  within the
               meaning    of    Temporary    Treasury     Regulations    Section
               1.67-3T(a)(2)(i)(A)   immediately  upon  acquiring  an  Ownership
               Interest  in a Class R  Certificate,  if it is, or is  holding an
               Ownership  Interest  in a Class R  Certificate  on  behalf  of, a
               "pass-through interest holder."

                      (ii) The Trustee will register the Transfer of any Class R
               Certificate only if it shall have received the Transfer Affidavit
               and  Agreement,  a  certificate  of the  Holder  requesting  such
               transfer  in the form  attached  hereto as Exhibit F-2 and all of
               such other  documents as shall have been  reasonably  required by
               the Trustee as a condition to such registration. Transfers of the
               Class  R   Certificates   to   Non-United   States   Persons  and
               Disqualified  Organizations (as defined in Section  860E(e)(5) of
               the Code) are prohibited.

                      (iii) (A) If any Disqualified  Organization shall become a
               holder  of  a  Class  R  Certificate,  then  the  last  preceding
               Permitted  Transferee shall be restored,  to the extent permitted
               by  law,  to  all  rights  and   obligations  as  Holder  thereof
               retroactive to the date of  registration of such Transfer of such
               Class R Certificate. If a Non-United States Person shall become a
               holder of a Class R Certificate,  then the last preceding  United
               States Person shall be restored,  to the extent permitted by law,
               to all rights and  obligations as Holder  thereof  retroactive to
               the  date of  registration  of  such  Transfer  of  such  Class R
               Certificate.   If  a  transfer  of  a  Class  R  Certificate   is
               disregarded  pursuant to the  provisions of Treasury  Regulations
               Section  1.860E-1 or Section  1.860G-3,  then the last  preceding
               Permitted  Transferee shall be restored,  to the extent permitted
               by  law,  to  all  rights  and   obligations  as  Holder  thereof
               retroactive to the date of  registration of such Transfer of such
               Class R  Certificate.  The Trustee shall be under no liability to
               any  Person  for  any  registration  of  Transfer  of a  Class  R
               Certificate that is in fact not permitted by this Section 5.02(f)
               or for making any payments due on such  Certificate to the holder
               thereof  or for  taking  any other  action  with  respect to such
               holder under the provisions of this Agreement.

                             (B) If any  purported  Transferee  shall  become  a
               Holder of a Class R Certificate in violation of the  restrictions
               in this  Section  5.02(f) and to the extent that the  retroactive
               restoration  of  the  rights  of  the  Holder  of  such  Class  R
               Certificate  as  described  in  clause  (iii)(A)  above  shall be
               invalid, illegal or unenforceable, then the Master Servicer shall
               have the right,  without notice to the holder or any prior holder
               of such Class R Certificate,  to sell such Class R Certificate to

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               a purchaser  selected by the Master Servicer on such terms as the
               Master  Servicer  may choose.  Such  purported  Transferee  shall
               promptly   endorse  and  deliver  each  Class  R  Certificate  in
               accordance  with the  instructions of the Master  Servicer.  Such
               purchaser may be the Master  Servicer  itself or any Affiliate of
               the  Master  Servicer.  The  proceeds  of such  sale,  net of the
               commissions (which may include  commissions payable to the Master
               Servicer or its Affiliates), expenses and taxes due, if any, will
               be remitted by the Master Servicer to such purported  Transferee.
               The terms and  conditions of any sale under this clause  (iii)(B)
               shall  be  determined  in  the  sole  discretion  of  the  Master
               Servicer,  and the  Master  Servicer  shall  not be liable to any
               Person having an Ownership Interest in a Class R Certificate as a
               result of its exercise of such discretion.

                      (iv) The Master Servicer, on behalf of the Trustee,  shall
               make  available,  upon  written  request  from the  Trustee,  all
               information  necessary to compute any tax imposed (A) as a result
               of the Transfer of an Ownership Interest in a Class R Certificate
               to any Person who is a Disqualified  Organization,  including the
               information   regarding  "excess  inclusions"  of  such  Class  R
               Certificates  required  to be provided  to the  Internal  Revenue
               Service and certain Persons as described in Treasury  Regulations
               Sections  1.860D-1(b)(5) and 1.860E-2(a)(5),  and (B) as a result
               of any  regulated  investment  company,  real  estate  investment
               trust,   common  trust  fund,   partnership,   trust,  estate  or
               organization  described in Section 1381 of the Code that holds an
               Ownership  Interest in a Class R Certificate  having as among its
               record  holders  at any time  any  Person  who is a  Disqualified
               Organization.   Reasonable   compensation   for  providing   such
               information  may be  required  by the Master  Servicer  from such
               Person.

                      (v) The provisions of this Section 5.02(f) set forth prior
               to this  clause  (v) may be  modified,  added  to or  eliminated,
               provided that there shall have been  delivered to the Trustee the
               following:

                      (A) written  notification  from each Rating  Agency to the
               effect that the modification,  addition to or elimination of such
               provisions  will not cause such Rating  Agency to  downgrade  its
               then-current  ratings,  if  any,  of any  Class  of  the  Offered
               Certificates  below the lower of the  then-current  rating or the
               rating  assigned to such  Certificates  as of the Closing Date by
               such Rating Agency; and

                      (B)  subject to Section  10.01(f),  a  certificate  of the
               Master Servicer  stating that the Master Servicer has received an
               Opinion of Counsel,  in form and  substance  satisfactory  to the
               Master Servicer,  to the effect that such modification,  addition
               to or  absence  of such  provisions  will not  cause any REMIC to
               cease to  qualify  as a REMIC and will not cause (x) any REMIC to
               be subject to an  entity-level  tax caused by the Transfer of any
               Class  R  Certificate   to  a  Person  that  is  a   Disqualified
               Organization or (y) a  Certificateholder  or another Person to be

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               subject to a REMIC-related  tax caused by the Transfer of a Class
               R Certificate to a Person that is not a Permitted Transferee.

(g) No service charge shall be made for any transfer or exchange of Certificates
of any Class,  but the Trustee may require  payment of a sum sufficient to cover
any tax or  governmental  charge  that may be  imposed  in  connection  with any
transfer or exchange of Certificates.

(h) All Certificates surrendered for transfer and exchange shall be destroyed by
the Certificate Registrar.

Section 5.03   Mutilated, Destroyed, Lost or Stolen Certificates.

               If  (i)  any  mutilated   Certificate   is   surrendered  to  the
Certificate  Registrar,  or the Trustee and the  Certificate  Registrar  receive
evidence  to  their  satisfaction  of the  destruction,  loss  or  theft  of any
Certificate,  and (ii) there is  delivered  to the Trustee  and the  Certificate
Registrar  such security or indemnity as may be required by them to save each of
them harmless,  then, in the absence of notice to the Trustee or the Certificate
Registrar that such Certificate has been acquired by a bona fide purchaser,  the
Trustee shall  execute and the  Certificate  Registrar  shall  authenticate  and
deliver,  in exchange for or in lieu of any such mutilated,  destroyed,  lost or
stolen  Certificate,  a new  Certificate  of like  tenor,  Class and  Percentage
Interest  but  bearing  a number  not  contemporaneously  outstanding.  Upon the
issuance of any new Certificate under this Section,  the Trustee may require the
payment of a sum sufficient to cover any tax or other  governmental  charge that
may be imposed in relation  thereto and any other  expenses  (including the fees
and expenses of the Trustee and the Certificate  Registrar) connected therewith.
Any  duplicate  Certificate  issued  pursuant to this Section  shall  constitute
complete  and  indefeasible  evidence  of  ownership  in the Trust  Fund,  as if
originally  issued,  whether or not the lost,  stolen or  destroyed  Certificate
shall be found at any time.

Section 5.04   Persons Deemed Owners.

               Prior to due  presentation of a Certificate  for  registration of
transfer,  the Depositor,  the Master  Servicer,  the Trustee,  the  Certificate
Registrar and any agent of the Depositor,  the Master  Servicer,  the Trustee or
the Certificate  Registrar may treat the Person in whose name any Certificate is
registered  as the  owner  of such  Certificate  for the  purpose  of  receiving
distributions  pursuant to Section 4.02 and for all other  purposes  whatsoever,
except as and to the extent  provided in the  definition of  "Certificateholder"
and in Section  4.08,  and  neither  the  Depositor,  the Master  Servicer,  the
Trustee,  the Certificate  Registrar nor any agent of the Depositor,  the Master
Servicer,  the Trustee or the Certificate  Registrar shall be affected by notice
to the contrary except as provided in Section 5.02(f).

Section 5.05   Appointment of Paying Agent.

               The Trustee may appoint a Paying  Agent for the purpose of making
distributions  to  Certificateholders  pursuant to Section 4.02. In the event of
any such appointment,  on or prior to each Distribution Date the Master Servicer
on behalf of the Trustee shall deposit or cause to be deposited  with the Paying
Agent a sum sufficient to make the payments to Certificateholders in the amounts
and in the manner provided for in Section 4.02, such sum to be held in trust for
the benefit of Certificateholders.

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               The Trustee  shall cause each Paying Agent to execute and deliver
to the Trustee an  instrument  in which such  Paying  Agent shall agree with the
Trustee  that such Paying Agent will hold all sums held by it for the payment to
Certificateholders in trust for the benefit of the  Certificateholders  entitled
thereto  until such sums shall be paid to such  Certificateholders.  Any sums so
held by such Paying Agent shall be held only in Eligible  Accounts to the extent
such sums are not distributed to the  Certificateholders  on the date of receipt
by such Paying Agent.

Section 5.06   Reserved.

Section 5.07   Loan Group II Basis Risk Reserve Fund.

(a) On the Closing Date,  the Trustee shall  establish and maintain in its name,
in trust for the benefit of the Loan Group II Certificateholders, the Loan Group
II Basis Risk Reserve  Fund.  The Loan Group II Basis Risk Reserve Fund shall be
an Eligible  Account,  and funds on deposit  therein  shall be held separate and
apart  from,  and shall not be  commingled  with,  any other  moneys,  including
without limitation, other moneys held by the Trustee pursuant to this Agreement.
The Loan Group II Basis  Risk  Reserve  Fund  shall be  treated  as an  "outside
reserve fund" under applicable Treasury  regulations and will not be part of any
REMIC.  Distributions made to any outside reserve fund under this document shall
be treated as made to, and any  investment  earnings  on the Loan Group II Basis
Risk  Reserve  Fund will be treated as owned by, the Class SB-I and Class  SB-II
Certificateholders  (in the same proportions as amounts have been contributed to
such Funds under Sections 4.02(d)(i) and 4.02(d)(ii), respectively).

(b) On each  Distribution  Date, the Trustee shall deposit amounts from the Loan
Group II Excess Cash Flow to the Loan Group II Basis Risk Reserve Fund  pursuant
to Section  4.02(d)(i)  and (ii).  The amount  required to be deposited into the
Loan Group II Basis Risk Reserve Fund on the first  Distribution Date will equal
the  Initial  Loan  Group  II  Basis  Risk  Reserve  Deposit  and on  any  other
Distribution  Date will be an amount (the "Loan Group II Basis Risk Reserve Fund
Deposit") equal to any Loan Group II Basis Risk Shortfall for such  Distribution
Date and Loan Group II Basis Risk  Shortfalls  remaining  unpaid with respect to
prior Distribution Dates,  together with interest thereon at the then applicable
Pass-Through Rates for the Loan Group II Certificates, as well as an amount such
that when added to amounts  remaining on deposit in the Loan Group II Basis Risk
Reserve  Fund after  distributions  therefrom  on such  Distribution  Date,  the
aggregate  amount on deposit in the Loan  Group II Basis  Risk  Reserve  Fund is
equal to $10,000.  The  Trustee  shall make  withdrawals  from the Loan Group II
Basis Risk Reserve Fund to make distributions pursuant to Section 4.02(d)(i) and
(ii) hereof.

(c)  Funds in the Loan  Group II Basis  Risk  Reserve  Fund may be  invested  in
Permitted  Investments.  Any  earnings on such  amounts  shall be payable to the
Class SB-I and Class SB-II Certificates (in the same proportions as amounts have
been  contributed  to such Funds  under  Sections  4.02(d)(i)  and  4.02(d)(ii),
respectively).  The  Class  SB-I and Class  SB-II  Certificates  shall  evidence
ownership  of the Loan Group II Basis Risk Reserve Fund for federal tax purposes
as  described  in (a) above and shall  direct  the  Trustee in writing as to the
investment of amounts therein.

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<PAGE>

(d) Upon  termination of the Trust,  any amounts  remaining in the Loan Group II
Basis Risk Reserve Fund shall be  distributed to the  Certificateholders  of the
Class SB-I and Class SB-II Certificates (in the same proportions as amounts have
been  contributed  to such funds  under  Sections  4.02(d)(i)  and  4.02(d)(ii),
respectively).

                                   ARTICLE VI

                      THE DEPOSITOR AND THE MASTER SERVICER

Section 6.01   Respective Liabilities of the Depositor and the Master Servicer.

               The  Depositor  and the Master  Servicer  shall each be liable in
accordance  herewith  only to the  extent of the  obligations  specifically  and
respectively  imposed  upon  and  undertaken  by the  Depositor  and the  Master
Servicer herein. By way of illustration and not limitation, the Depositor is not
liable for the servicing and  administration  of the Mortgage  Loans,  nor is it
obligated by Section 3.21, 7.01 or 10.01 to assume any obligations of the Master
Servicer or to appoint a designee to assume such  obligations,  nor is it liable
for any other obligation  hereunder that it may, but is not obligated to, assume
unless it elects to assume such obligation in accordance herewith.

Section 6.02 Merger or  Consolidation  of the Depositor or the Master  Servicer;
     Assignment of Rights and Delegation of Duties by Master Servicer.

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

(b) Any Person into which the Depositor or the Master  Servicer may be merged or
consolidated,  or any corporation  resulting from any merger or consolidation to
which the  Depositor  or the  Master  Servicer  shall be a party,  or any Person
succeeding to the business of the Depositor or the Master Servicer, shall be the
successor  of the  Depositor  or  the  Master  Servicer,  as the  case  may  be,
hereunder,  without the  execution  or filing of any paper or any further act on
the  part  of  any  of the  parties  hereto,  anything  herein  to the  contrary
notwithstanding;  provided,  however,  that the successor or surviving Person to
the Master  Servicer  shall be qualified to service  mortgage loans on behalf of
FNMA or FHLMC; and provided further that each Rating Agency's  ratings,  if any,
of the  Offered  Certificates  in  effect  immediately  prior to such  merger or
consolidation  will not be qualified,  reduced or withdrawn as a result  thereof
(as evidenced by a letter to such effect from each Rating Agency).

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(c)  Notwithstanding  anything else in this Section 6.02 and Section 6.04 to the
contrary,  the Master Servicer may assign its rights and delegate its duties and
obligations  under  this  Agreement;  provided  that the Person  accepting  such
assignment  or  delegation  shall be a  Person  which is  qualified  to  service
mortgage  loans on behalf of FNMA or FHLMC,  is reasonably  satisfactory  to the
Trustee and the Depositor, is willing to service the Mortgage Loans and executes
and  delivers  to the  Depositor  and the  Trustee  an  agreement,  in form  and
substance  reasonably  satisfactory  to the  Depositor  and the  Trustee,  which
contains an  assumption by such Person of the due and punctual  performance  and
observance  of each  covenant  and  condition to be performed or observed by the
Master Servicer under this Agreement; provided further that each Rating Agency's
rating of the Classes of Certificates that have been rated in effect immediately
prior to such  assignment  and  delegation  will not be  qualified,  reduced  or
withdrawn  as a result of such  assignment  and  delegation  (as  evidenced by a
letter  to such  effect  from  each  Rating  Agency).  In the  case of any  such
assignment  and  delegation,  the Master  Servicer  shall be  released  from its
obligations  under this Agreement,  except that the Master Servicer shall remain
liable for all  liabilities  and  obligations  incurred by it as Master Servicer
hereunder  prior to the  satisfaction  of the conditions to such  assignment and
delegation set forth in the next preceding sentence.

Section 6.03  Limitation on Liability of the Depositor,  the Master Servicer and
     Others.

               Neither  the  Depositor,  the  Master  Servicer  nor  any  of the
directors, officers, employees or agents of the Depositor or the Master Servicer
shall be under any liability to the Trust Fund or the Certificateholders for any
action  taken or for  refraining  from the  taking of any  action in good  faith
pursuant to this Agreement, or for errors in judgment;  provided,  however, that
this provision shall not protect the Depositor,  the Master Servicer or any such
Person  against any breach of warranties or  representations  made herein or any
liability which would otherwise be imposed by reason of willful misfeasance, bad
faith or gross  negligence in the performance of duties or by reason of reckless
disregard  of  obligations  and  duties  hereunder.  The  Depositor,  the Master
Servicer and any  director,  officer,  employee or agent of the Depositor or the
Master  Servicer  may rely in good faith on any document of any kind prima facie
properly  executed and submitted by any Person  respecting  any matters  arising
hereunder.  The  Depositor,  the  Master  Servicer  and any  director,  officer,
employee or agent of the Depositor or the Master  Servicer  shall be indemnified
by the Trust  Fund and held  harmless  against  any loss,  liability  or expense
incurred in connection  with any legal action  relating to this Agreement or the
Certificates,  other than any loss, liability or expense related to any specific
Mortgage Loan or Mortgage  Loans (except as any such loss,  liability or expense
shall be  otherwise  reimbursable  pursuant  to this  Agreement)  and any  loss,
liability  or expense  incurred by reason of willful  misfeasance,  bad faith or
gross negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties hereunder.

               Neither the Depositor nor the Master  Servicer shall be under any
obligation to appear in, prosecute or defend any legal or administrative action,
proceeding,  hearing or  examination  that is not  incidental to its  respective
duties  under this  Agreement  and which in its  opinion  may  involve it in any
expense  or  liability;  provided,  however,  that the  Depositor  or the Master
Servicer may in its discretion undertake any such action, proceeding, hearing or
examination that it may deem necessary or desirable in respect to this Agreement
and the  rights  and  duties of the  parties  hereto  and the  interests  of the

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Certificateholders  hereunder.  In such event,  the legal  expenses and costs of
such action,  proceeding,  hearing or  examination  and any liability  resulting
therefrom  shall be expenses,  costs and  liabilities of the Trust Fund, and the
Depositor and the Master  Servicer  shall be entitled to be reimbursed  therefor
out of amounts  attributable  to the Mortgage  Loans on deposit in the Custodial
Account as provided by Section 3.10 and, on the Distribution  Date(s)  following
such reimbursement,  the aggregate of such expenses and costs shall be allocated
in reduction of the Accrued Certificate  Interest on each Class entitled thereto
in the same  manner as if such  expenses  and  costs  constituted  a  Prepayment
Interest Shortfall.

Section 6.04   Depositor and Master Servicer Not to Resign.

               Subject to the provisions of Section 6.02,  neither the Depositor
nor the Master Servicer shall resign from its respective  obligations and duties
hereby imposed on it except upon  determination that its duties hereunder are no
longer permissible under applicable law. Any such  determination  permitting the
resignation  of the  Depositor or the Master  Servicer  shall be evidenced by an
Opinion  of  Counsel  (at the  expense of the  resigning  party) to such  effect
delivered to the  Trustee.  No such  resignation  by the Master  Servicer  shall
become  effective  until the Trustee or a successor  servicer shall have assumed
the Master  Servicer's  responsibilities  and  obligations  in  accordance  with
Section 7.02.

                                  ARTICLE VII

                                     DEFAULT

Section 7.01   Events of Default.

               Event of  Default,  wherever  used  herein,  means any one of the
following events (whatever reason for such Event of Default and whether it shall
be  voluntary or  involuntary  or be effected by operation of law or pursuant to
any judgment,  decree or order of any court or any order,  rule or regulation of
any administrative or governmental body):

               (i) the Master  Servicer  shall fail to distribute or cause to be
distributed to Holders of Certificates of any Class any distribution required to
be made under the terms of the  Certificates  of such  Class and this  Agreement
and, in either case,  such failure shall  continue  unremedied for a period of 5
days after the date upon which written  notice of such failure,  requiring  such
failure to be  remedied,  shall have been  given to the Master  Servicer  by the
Trustee  or the  Depositor  or to the Master  Servicer,  the  Depositor  and the
Trustee by the  Holders of  Certificates  of such  Class  evidencing  Percentage
Interests aggregating not less than 25%; or

               (ii) the Master  Servicer shall fail to observe or perform in any
material  respect any other of the  covenants or  agreements  on the part of the
Master Servicer  contained in the Certificates of any Class or in this Agreement
and such failure shall continue  unremedied for a period of 30 days (except that
such  number of days shall be 15 in the case of a failure to pay the premium for
any Required  Insurance  Policy) after the date on which written  notice of such
failure,  requiring the same to be remedied, shall have been given to the Master
Servicer  by the  Trustee  or the  Depositor,  or to the  Master  Servicer,  the
Depositor  and  the  Trustee  by  the  Holders  of  Certificates  of  any  Class
evidencing,  as to such Class,  Percentage  Interests  aggregating not less than
25%; or

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               (iii) a  decree  or order of a court  or  agency  or  supervisory
authority  having  jurisdiction in the premises in an involuntary case under any
present or future  federal or state  bankruptcy,  insolvency  or similar  law or
appointing  a  conservator   or  receiver  or  liquidator  in  any   insolvency,
readjustment  of  debt,   marshalling  of  assets  and  liabilities  or  similar
proceedings,  or for the winding-up or  liquidation  of its affairs,  shall have
been  entered  against the Master  Servicer  and such decree or order shall have
remained in force undischarged or unstayed for a period of 60 days; or

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

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

               (vi) the Master  Servicer  shall  notify the Trustee  pursuant to
Section  4.04(b)  that it is unable to  deposit  in the  Certificate  Account an
amount equal to the Advance.

               If an Event of  Default  described  in  clauses  (i)-(v)  of this
Section  shall  occur,  then,  and in each and every such case,  so long as such
Event of  Default  shall not have been  remedied,  either the  Depositor  or the
Trustee or at the direction of Holders of Certificates  entitled to at least 51%
of the Voting  Rights by notice in writing  to the Master  Servicer  (and to the
Depositor if given by the Trustee or to the Trustee if given by the  Depositor),
terminate all of the rights and  obligations  of the Master  Servicer under this
Agreement and in and to the Mortgage Loans and the proceeds thereof,  other than
its rights as a Certificateholder hereunder. If an Event of Default described in
clause (vi) hereof  shall  occur,  the  Trustee  shall,  by notice to the Master
Servicer  and  the  Depositor,  immediately  terminate  all  of the  rights  and
obligations  of the  Master  Servicer  under  this  Agreement  and in and to the
Mortgage  Loans  and  the  proceeds   thereof,   other  than  its  rights  as  a
Certificateholder  hereunder  as  provided in Section  4.04(b).  On or after the
receipt by the Master Servicer of such written  notice,  all authority and power
of the  Master  Servicer  under  this  Agreement,  whether  with  respect to the
Certificates  (other  than  as a  Holder  thereof)  or  the  Mortgage  Loans  or
otherwise, shall subject to Section 7.02 pass to and be vested in the Trustee or
the  Trustee's  designee  appointed  pursuant  to  Section  7.02;  and,  without
limitation,  the  Trustee is hereby  authorized  and  empowered  to execute  and
deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise, any
and all documents and other instruments,  and to do or accomplish all other acts
or things  necessary  or  appropriate  to effect the  purposes of such notice of
termination,  whether to complete the transfer and  endorsement or assignment of
the Mortgage  Loans and related  documents,  or otherwise.  The Master  Servicer
agrees to cooperate with the Trustee in effecting the  termination of the Master

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Servicer's responsibilities and rights hereunder, including, without limitation,
the transfer to the Trustee or its designee for administration by it of all cash
amounts  which  shall at the time be credited  to the  Custodial  Account or the
Certificate  Account or  thereafter  be received  with  respect to the  Mortgage
Loans. No such  termination  shall release the Master Servicer for any liability
that it would  otherwise  have  hereunder  for any act or omission  prior to the
effective time of such termination.
               Notwithstanding  any termination of the activities of Residential
Funding in its capacity as Master Servicer hereunder,  Residential Funding shall
be entitled to receive,  out of any late  collection  of a Monthly  Payment on a
Mortgage  Loan  which  was  due  prior  to the  notice  terminating  Residential
Funding's rights and obligations as Master Servicer hereunder and received after
such notice,  that portion to which Residential Funding would have been entitled
pursuant to Sections 3.10(a)(ii), (vi) and (vii) as well as its Servicing Fee in
respect thereof,  and any other amounts payable to Residential Funding hereunder
the  entitlement  to which  arose  prior to the  termination  of its  activities
hereunder.  Upon the  termination  of  Residential  Funding  as Master  Servicer
hereunder  the  Depositor  shall  deliver to the  Trustee a copy of the  Program
Guide.

Section 7.02   Trustee or Depositor to Act; Appointment of Successor.

(a) On and after the time the Master  Servicer  receives a notice of termination
pursuant to Section 7.01 or resigns in accordance  with Section 6.04 the Trustee
or, upon notice to the Depositor and with the  Depositor's  consent (which shall
not be  unreasonably  withheld) a designee  (which meets the standards set forth
below) of the  Trustee,  shall be the  successor  in all  respects to the Master
Servicer in its capacity as servicer under this  Agreement and the  transactions
set  forth  or   provided   for   herein   and  shall  be  subject  to  all  the
responsibilities,  duties and liabilities  relating thereto placed on the Master
Servicer (except for the  responsibilities,  duties and liabilities contained in
Sections 2.02 and 2.03(a),  excluding the duty to notify related Subservicers or
Sellers as set forth in such Sections, and its obligations to deposit amounts in
respect of losses incurred prior to such notice or termination on the investment
of funds  in the  Custodial  Account  or the  Certificate  Account  pursuant  to
Sections  3.07(c) and  4.01(c) by the terms and  provisions  hereof);  provided,
however,  that any failure to perform such duties or responsibilities  caused by
the  preceding  Master  Servicer's  failure to provide  information  required by
Section  4.04 shall not be  considered  a default by the Trustee  hereunder.  As
compensation  therefor,  the Trustee shall be entitled to all funds  relating to
the Mortgage Loans which the Master  Servicer would have been entitled to charge
to the Custodial  Account or the Certificate  Account if the Master Servicer had
continued to act  hereunder  and, in  addition,  shall be entitled to the income
from any Permitted  Investments  made with amounts  attributable to the Mortgage
Loans held in the Custodial Account or the Certificate  Account.  If the Trustee
has become the successor to the Master  Servicer in accordance with Section 6.04
or Section 7.01, then notwithstanding the above, the Trustee may, if it shall be
unwilling to so act, or shall, if it is unable to so act, appoint, or petition a
court of competent  jurisdiction to appoint,  any  established  housing and home
finance institution,  which is also a FNMA- or FHLMC-approved mortgage servicing
institution, having a net worth of not less than $10,000,000 as the successor to
the  Master  Servicer  hereunder  in the  assumption  of all or any  part of the
responsibilities,  duties  or  liabilities  of the  Master  Servicer  hereunder.

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<PAGE>

Pending appointment of a successor to the Master Servicer hereunder, the Trustee
shall become  successor to the Master Servicer and shall act in such capacity as
hereinabove  provided.  In connection with such appointment and assumption,  the
Trustee may make such arrangements for the compensation of such successor out of
payments on  Mortgage  Loans as it and such  successor  shall  agree;  provided,
however,  that no such  compensation  shall be in excess of that  permitted  the
initial Master Servicer hereunder. The Depositor, the Trustee, the Custodian and
such successor shall take such action,  consistent with this Agreement, as shall
be  necessary to  effectuate  any such  succession.  The  Servicing  Fee for any
successor  Master  Servicer  appointed  pursuant  to this  Section  7.02 will be
lowered with respect to those Mortgage Loans, if any, where the Subservicing Fee
accrues at a rate of less than  0.50% per annum in the event that the  successor
Master  Servicer  is  not  servicing  such  Mortgage  Loans  directly  and it is
necessary to raise the related  Subservicing Fee to a rate of 0.50% per annum in
order to hire a Subservicer with respect to such Mortgage Loans.

(b) In connection  with the  termination or  resignation of the Master  Servicer
hereunder,  either (i) the successor Master  Servicer,  including the Trustee if
the Trustee is acting as successor Master Servicer,  shall represent and warrant
that it is a member of MERS in good  standing  and shall  agree to comply in all
material  respects with the rules and procedures of MERS in connection  with the
servicing of the Mortgage Loans that are registered with MERS, in which case the
predecessor  Master Servicer shall cooperate with the successor  Master Servicer
in causing  MERS to revise its records to reflect the  transfer of  servicing to
the successor Master Servicer as necessary under MERS' rules and regulations, or
(ii) the predecessor  Master Servicer shall cooperate with the successor  Master
Servicer in causing  MERS to execute and  deliver an  assignment  of Mortgage in
recordable form to transfer the Mortgage from MERS to the Trustee and to execute
and  deliver  such other  notices,  documents  and other  instruments  as may be
necessary or desirable to effect a transfer of such  Mortgage  Loan or servicing
of such Mortgage Loan on the MERS(R)  System to the successor  Master  Servicer.
The  predecessor  Master  Servicer  shall  file or cause  to be  filed  any such
assignment in the appropriate  recording office. The predecessor Master Servicer
shall  bear any and all fees of MERS,  costs of  preparing  any  assignments  of
Mortgage,  and fees and costs of filing any  assignments of Mortgage that may be
required under this  subsection  (b). The successor  Master Servicer shall cause
such  assignment to be delivered to the Trustee or the  Custodian  promptly upon
receipt of the original with evidence of recording  thereon or a copy  certified
by the public recording office in which such assignment was recorded.

Section 7.03   Notification to Certificateholders.

(a) Upon any such  termination  or  appointment  of a  successor  to the  Master
Servicer,   the  Trustee   shall  give   prompt   written   notice   thereof  to
Certificateholders  at their respective  addresses  appearing in the Certificate
Register.

(b) Within 60 days after the  occurrence  of any Event of  Default,  the Trustee
shall transmit by mail to all Holders of Certificates  notice of each such Event
of Default  hereunder  known to the Trustee,  unless such Event of Default shall
have been cured or waived as provided in Section 7.04 hereof.

Section 7.04   Waiver of Events of Default.

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               The  Holders  representing  at least 66% of the Voting  Rights of
Certificates  affected by a default or Event of Default  hereunder may waive any
default or Event of Default;  provided,  however, that (a) a default or Event of
Default  under  clause  (i) of  Section  7.01 may be  waived  only by all of the
Holders of Certificates  affected by such default or Event of Default and (b) no
waiver pursuant to this Section 7.04 shall affect the Holders of Certificates in
the manner set forth in Section 11.01(b)(i), (ii) or (iii). Upon any such waiver
of a default or the Holders  representing  the  requisite  percentage  of Voting
Rights of  Certificates  affected  by such  default  or Event of  Default,  such
default  or Event of  Default  shall  cease to exist and shall be deemed to have
been  remedied for every purpose  hereunder.  No such waiver shall extend to any
subsequent or other  default or Event of Default or impair any right  consequent
thereon except to the extent expressly so waived.

                                  ARTICLE VIII

                             CONCERNING THE TRUSTEE

Section 8.01   Duties of Trustee.

(a) The Trustee,  prior to the  occurrence  of an Event of Default and after the
curing of all Events of Default which may have  occurred,  undertakes to perform
such  duties  and  only  such  duties  as are  specifically  set  forth  in this
Agreement. In case an Event of Default has occurred (which has not been cured or
waived),  the Trustee shall  exercise such of the rights and powers vested in it
by this  Agreement,  and use the same degree of care and skill in their exercise
as a prudent  investor  would  exercise  or use under the  circumstances  in the
conduct of such investor's own affairs.

(b) The Trustee,  upon  receipt of all  resolutions,  certificates,  statements,
opinions,  reports,  documents,  orders or other  instruments  furnished  to the
Trustee  which  are  specifically  required  to be  furnished  pursuant  to  any
provision  of this  Agreement,  shall  examine  them to  determine  whether they
conform to the  requirements  of this  Agreement.  The Trustee  shall notify the
Certificateholders  of any such documents which do not materially conform to the
requirements  of  this  Agreement  in the  event  that  the  Trustee,  after  so
requesting, does not receive satisfactorily corrected documents.

               The Trustee  shall  forward or cause to be  forwarded in a timely
fashion the  notices,  reports and  statements  required to be  forwarded by the
Trustee  pursuant to Sections 4.03,  4.06,  7.03,  and 10.01.  The Trustee shall
furnish in a timely  fashion  to the Master  Servicer  such  information  as the
Master Servicer may reasonably request from time to time for the Master Servicer
to fulfill its duties as set forth in this Agreement.  The Trustee covenants and
agrees that it shall  perform  its  obligations  hereunder  in a manner so as to
maintain  the status of each  REMIC as a REMIC  under the REMIC  Provisions  and
(subject to Section 10.01(f)) to prevent the imposition of any federal, state or
local income, prohibited transaction,  contribution or other tax on any REMIC to
the extent that  maintaining  such status and avoiding such taxes are reasonably
within the  control of the Trustee  and are  reasonably  within the scope of its
duties under this Agreement.

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<PAGE>

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

(i)  Prior to the  occurrence  of an Event of  Default,  and after the curing or
     waiver of all such Events of Default  which may have  occurred,  the duties
     and  obligations  of the Trustee shall be determined  solely by the express
     provisions  of this  Agreement,  the Trustee shall not be liable except for
     the  performance  of such duties and  obligations as are  specifically  set
     forth in this Agreement,  no implied covenants or obligations shall be read
     into this Agreement against the Trustee and, in the absence of bad faith on
     the part of the Trustee, the Trustee may conclusively rely, as to the truth
     of the statements and the  correctness of the opinions  expressed  therein,
     upon any certificates or opinions furnished to the Trustee by the Depositor
     or the Master  Servicer  and which on their  face,  do not  contradict  the
     requirements of this Agreement;

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

(iii)   The Trustee  shall not be  personally  liable with respect to any action
        taken, suffered or omitted to be taken by it in good faith in accordance
        with the direction of the Certificateholders  holding Certificates which
        evidence,  Percentage  Interests  aggregating  not less  than 25% of the
        affected  classes  as to the time,  method and place of  conducting  any
        proceeding  for any remedy  available to the Trustee,  or exercising any
        trust or power conferred upon the Trustee, under this Agreement;

(iv)    The Trustee  shall not be charged with  knowledge of any default  (other
        than a default in payment to the  Trustee)  specified in clauses (i) and
        (ii) of Section 7.01 or an Event of Default  under clauses  (iii),  (iv)
        and (v) of Section  7.01  unless a  Responsible  Officer of the  Trustee
        assigned to and working in the  Corporate  Trust Office  obtains  actual
        knowledge  of such  failure  or event or the  Trustee  receives  written
        notice of such failure or event at its  Corporate  Trust Office from the
        Master Servicer, the Depositor or any Certificateholder; and

(v)     Except to the extent  provided in Section  7.02,  no  provision  in this
        Agreement  shall  require  the  Trustee  to expend or risk its own funds
        (including,  without limitation, the making of any Advance) or otherwise
        incur any personal financial  liability in the performance of any of its
        duties as Trustee hereunder,  or in the exercise of any of its rights or
        powers, if the Trustee shall have reasonable  grounds for believing that
        repayment of funds or adequate  indemnity against such risk or liability
        is not reasonably assured to it.

(d) The Trustee shall timely pay, from its own funds,  the amount of any and all
federal,  state and local  taxes  imposed  on the  Trust  Fund or its  assets or
transactions including, without limitation, (A) "prohibited transaction" penalty
taxes as defined in Section 860F of the Code,  if, when and as the same shall be
due and payable,  (B) any tax on contributions to a REMIC after the Closing Date
imposed  by  Section  860G(d)  of the Code and (C) any tax on "net  income  from

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foreclosure  property"  as defined in Section  860G(c) of the Code,  but only if
such taxes  arise out of a breach by the Trustee of its  obligations  hereunder,
which breach constitutes negligence or willful misconduct of the Trustee.

(e) No provision in this  Agreement  shall require the Trustee to expend or risk
its own funds or otherwise incur any personal financial  liability in connection
with the enforcement of the Policies, or in the exercise of any of its rights or
powers  thereunder,  if the Trustee shall have reasonable  grounds for believing
that repayment of funds or adequate  indemnity against such risk or liability is
not reasonably assured to it.

Section 8.02   Certain Matters Affecting the Trustee.

(a)     Except as otherwise provided in Section 8.01:

(i)     The Trustee may rely and shall be protected in acting or refraining from
        acting  upon  any  resolution,  Officers'  Certificate,  certificate  of
        auditors  or any  other  certificate,  statement,  instrument,  opinion,
        report, notice, request,  consent, order, appraisal, bond or other paper
        or  document  believed  by it to be genuine  and to have been  signed or
        presented by the proper party or parties;

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

(iii)The Trustee  shall be under no  obligation to exercise any of the trusts or
     powers vested in it by this  Agreement or to  institute,  conduct or defend
     any  litigation  hereunder or in relation  hereto at the request,  order or
     direction of any of the  Certificateholders,  pursuant to the provisions of
     this Agreement,  unless such  Certificateholders  shall have offered to the
     Trustee  reasonable  security or indemnity against the costs,  expenses and
     liabilities  which may be incurred  therein or thereby;  nothing  contained
     herein  shall,  however,  relieve the Trustee of the  obligation,  upon the
     occurrence of an Event of Default  (which has not been cured),  to exercise
     such of the rights and powers  vested in it by this  Agreement,  and to use
     the same degree of care and skill in their  exercise as a prudent  investor
     would  exercise  or use  under the  circumstances  in the  conduct  of such
     investor's own affairs;

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

(v)  Prior to the  occurrence  of an Event of  Default  hereunder  and after the
     curing of all Events of Default which may have occurred,  the Trustee shall
     not be bound to make any investigation  into the facts or matters stated in
     any  resolution,   certificate,  statement,  instrument,  opinion,  report,
     notice, request, consent, order, approval, bond or other paper or document,
     unless  requested in writing so to do by the Holders of Certificates of any
     Class evidencing,  as to such Class, Percentage Interests,  aggregating not
     less than 50%; provided,  however,  that if the payment within a reasonable

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     time to the  Trustee of the costs,  expenses  or  liabilities  likely to be
     incurred  by it in the making of such  investigation  is, in the opinion of
     the Trustee, not reasonably assured to the Trustee by the security afforded
     to it by the terms of this  Agreement,  the Trustee may require  reasonable
     indemnity   against  such  expense  or  liability  as  a  condition  to  so
     proceeding.  The reasonable expense of every such examination shall be paid
     by the Master  Servicer,  if an Event of Default shall have occurred and is
     continuing,   and  otherwise  by  the   Certificateholder   requesting  the
     investigation;

(vi) The Trustee may  execute any of the trusts or powers  hereunder  or perform
     any duties  hereunder  either directly or by or through agents or attorneys
     provided  that the Trustee  shall remain liable for any acts of such agents
     or attorneys; and

(vii)To the extent  authorized  under the Code and the  regulations  promulgated
     thereunder,  each  Holder  of a  Class  R  Certificate  hereby  irrevocably
     appoints and authorizes the Trustee to be its attorney-in-fact for purposes
     of  signing  any Tax  Returns  required  to be filed on behalf of the Trust
     Fund. The Trustee shall sign on behalf of the Trust Fund and deliver to the
     Master Servicer in a timely manner any Tax Returns prepared by or on behalf
     of the Master  Servicer  that the Trustee is required to sign as determined
     by the Master Servicer pursuant to applicable  federal,  state or local tax
     laws,  provided that the Master  Servicer  shall  indemnify the Trustee for
     signing any such Tax Returns that contain errors or omissions.

(b) Following the issuance of the Certificates, the Trustee shall not accept any
contribution of assets to the Trust Fund unless it (subject to Section 10.01(f))
shall have obtained or been  furnished  with an Opinion of Counsel to the effect
that such  contribution will not (i) cause any REMIC formed hereunder to fail to
qualify as a REMIC at any time that any  Certificates  are  outstanding  or (ii)
cause  the  Trust  Fund to be  subject  to any  federal  tax as a result of such
contribution  (including  the  imposition  of any  federal  tax  on  "prohibited
transactions" imposed under Section 860F(a) of the Code).

Section 8.03   Trustee Not Liable for Certificates or Mortgage Loans.

               The recitals contained herein and in the Certificates (other than
the execution of the  Certificates and relating to the acceptance and receipt of
the Mortgage  Loans) shall be taken as the  statements  of the  Depositor or the
Master  Servicer as the case may be, and the Trustee  assumes no  responsibility
for their  correctness.  The Trustee makes no representations as to the validity
or  sufficiency  of this  Agreement  or of the  Certificates  (except  that  the
Certificates  shall be duly and  validly  executed  and  authenticated  by it as
Certificate  Registrar) or of any Mortgage Loan or related document,  or of MERS
or MERS(R) System. Except as otherwise provided herein, the Trustee shall not be
accountable  for the use or application by the Depositor or the Master  Servicer
of any of the Certificates or of the proceeds of such  Certificates,  or for the
use or application of any funds paid to the Depositor or the Master  Servicer in
respect of the Mortgage  Loans or deposited in or withdrawn  from the  Custodial
Account or the Certificate Account by the Depositor or the Master Servicer.

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Section 8.04   Trustee May Own Certificates.

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

Section  8.05   Master   Servicer   to  Pay   Trustee's   Fees   and   Expenses;
     Indemnification.

(a) The  Master  Servicer  covenants  and agrees to pay to the  Trustee  and any
co-trustee  from  time to time,  and the  Trustee  and any  co-trustee  shall be
entitled  to,  reasonable  compensation  (which  shall  not  be  limited  by any
provision of law in regard to the compensation of a trustee of an express trust)
for all services  rendered by each of them in the execution of the trusts hereby
created  and in the  exercise  and  performance  of any of the powers and duties
hereunder of the Trustee and any co-trustee, and the Master Servicer will pay or
reimburse  the  Trustee  and any  co-trustee  upon  request  for all  reasonable
expenses,  disbursements  and  advances  incurred  or made by the Trustee or any
co-trustee in accordance with any of the provisions of this Agreement (including
the reasonable  compensation  and the expenses and  disbursements of its counsel
and of all persons not regularly in its employ, and the expenses incurred by the
Trustee or any  co-trustee in connection  with the  appointment  of an office or
agency  pursuant  to Section  8.12)  except any such  expense,  disbursement  or
advance as may arise from its negligence or bad faith.

(b) The Master  Servicer  agrees to  indemnify  the Trustee for, and to hold the
Trustee  harmless  against,  any loss,  liability  or expense  incurred  without
negligence or willful  misconduct on its part,  arising out of, or in connection
with, the acceptance and  administration of the Trust Fund,  including the costs
and expenses (including  reasonable legal fees and expenses) of defending itself
against any claim in connection  with the exercise or  performance of any of its
powers or duties under this Agreement, provided that:

(i)     with respect to any such claim,  the Trustee shall have given the Master
        Servicer  written notice  thereof  promptly after the Trustee shall have
        actual knowledge thereof;

(ii)    while  maintaining  control  over its own  defense,  the  Trustee  shall
        cooperate and consult fully with the Master  Servicer in preparing  such
        defense; and

(iii)   notwithstanding  anything in this Agreement to the contrary,  the Master
        Servicer  shall not be liable for settlement of any claim by the Trustee
        entered  into  without the prior  consent of the Master  Servicer  which
        consent shall not be unreasonably withheld.

               No  termination of this  Agreement  shall affect the  obligations
created by this Section  8.05(b) of the Master Servicer to indemnify the Trustee
under the conditions and to the extent set forth herein.

               Notwithstanding the foregoing,  the  indemnification  provided by
the Master  Servicer  in this  Section  8.05(b)  shall not  pertain to any loss,
liability  or  expense  of the  Trustee,  including  the costs and  expenses  of
defending  itself  against any claim,  incurred in  connection  with any actions
taken by the  Trustee at the  direction  of  Certificateholders  pursuant to the
terms of this Agreement.

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Section 8.06   Eligibility Requirements for Trustee.

               The Trustee  hereunder  shall at all times be a national  banking
association or a New York banking  corporation  having its principal office in a
state and city  acceptable to the  Depositor  and  organized and doing  business
under the laws of such state or the United States of America,  authorized  under
such laws to exercise  corporate  trust  powers,  having a combined  capital and
surplus of at least  $50,000,000  and subject to  supervision  or examination by
federal or state authority.  If such corporation or national banking association
publishes  reports of  condition  at least  annually,  pursuant to law or to the
requirements of the aforesaid  supervising or examining authority,  then for the
purposes of this  Section the combined  capital and surplus of such  corporation
shall be deemed to be its combined  capital and surplus as set forth in its most
recent report of condition so  published.  In case at any time the Trustee shall
cease to be eligible in accordance  with the  provisions  of this  Section,  the
Trustee shall resign  immediately in the manner and with the effect specified in
Section 8.07.

Section 8.07 Resignation and Removal of the Trustee.

(a) The Trustee may at any time resign and be discharged  from the trusts hereby
created by giving written  notice thereof to the Depositor.  Upon receiving such
notice of resignation,  the Depositor shall promptly appoint a successor trustee
by written  instrument,  in  duplicate,  one copy of which  instrument  shall be
delivered to the resigning Trustee and one copy to the successor trustee.  If no
successor  trustee shall have been so appointed  and have  accepted  appointment
within  30 days  after  the  giving  of such  notice  of  resignation,  then the
resigning  Trustee may  petition  any court of  competent  jurisdiction  for the
appointment of a successor trustee.

(b) If at any time the Trustee shall cease to be eligible in accordance with the
provisions  of  Section  8.06 and shall  fail to resign  after  written  request
therefor by the Depositor or if at any time the Trustee  shall become  incapable
of acting,  or shall be  adjudged  bankrupt or  insolvent,  or a receiver of the
Trustee or of its property shall be appointed,  or any public officer shall take
charge or control of the  Trustee or of its  property or affairs for the purpose
of  rehabilitation,  conservation or liquidation,  then the Depositor may remove
the Trustee and appoint a successor trustee by written instrument, in duplicate,
one copy of which  instrument  shall be  delivered to the Trustee so removed and
one copy to the successor trustee. In addition,  in the event that the Depositor
determines  that  the  Trustee  has  failed  (i) to  distribute  or  cause to be
distributed  to  Certificateholders   any  amount  required  to  be  distributed
hereunder  if such amount is held by the Trustee or its Paying Agent (other than
the Master  Servicer or the  Depositor)  for  distribution  or (ii) to otherwise
observe or perform in any material  respect any of its covenants,  agreements or
obligations  hereunder,  and such failure shall continue unremedied for a period
of 5 days (in respect of clause (i) above) or 30 days (in respect of clause (ii)
above) after the date on which written  notice of such failure,  requiring  that
the same be  remedied,  shall have been given to the  Trustee by the  Depositor,
then the  Depositor  may remove the Trustee  and appoint a successor  trustee by
written  instrument  delivered  as  provided  in  the  preceding  sentence.   In

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connection with the appointment of a successor trustee pursuant to the preceding
sentence,  the  Depositor  shall,  on or  before  the  date on  which  any  such
appointment   becomes   effective,   obtain  from  each  Rating  Agency  written
confirmation  that the appointment of any such successor trustee will not result
in the  reduction  of the  ratings  on any class of the  Certificates  below the
lesser of the then current or original ratings on such Certificates.

(c) The Holders of  Certificates  entitled to at least 51% of the Voting  Rights
may at any time remove the  Trustee  and appoint a successor  trustee by written
instrument  or  instruments,  in  triplicate,  signed by such  Holders  or their
attorneys-in-fact  duly authorized,  one complete set of which instruments shall
be  delivered to the  Depositor,  one complete set to the Trustee so removed and
one complete set to the successor so appointed.

(d) Any  resignation  or removal of the Trustee and  appointment  of a successor
trustee pursuant to any of the provisions of this Section shall become effective
upon  acceptance of appointment by the successor  trustee as provided in Section
8.08.

Section 8.08   Successor Trustee.

(a) Any successor  trustee  appointed as provided in Section 8.07 shall execute,
acknowledge  and  deliver to the  Depositor  and to its  predecessor  trustee an
instrument accepting such appointment  hereunder,  and thereupon the resignation
or removal of the predecessor  trustee shall become effective and such successor
trustee shall become effective and such successor  trustee,  without any further
act, deed or conveyance,  shall become fully vested with all the rights, powers,
duties and obligations of its predecessor hereunder,  with the like effect as if
originally named as trustee herein. The predecessor trustee shall deliver to the
successor  trustee all Mortgage Files and related  documents and statements held
by it hereunder  (other than any Mortgage Files at the time held by a Custodian,
which  shall  become  the agent of any  successor  trustee  hereunder),  and the
Depositor,  the Master  Servicer and the  predecessor  trustee shall execute and
deliver such  instruments and do such other things as may reasonably be required
for more fully and certainly vesting and confirming in the successor trustee all
such rights, powers, duties and obligations.

(b) No successor  trustee shall accept  appointment  as provided in this Section
unless at the time of such acceptance  such successor  trustee shall be eligible
under the provisions of Section 8.06.

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

Section 8.09   Merger or Consolidation of Trustee.

               Any corporation or national  banking  association  into which the
Trustee may be merged or converted or with which it may be  consolidated  or any
corporation  or  national  banking   association   resulting  from  any  merger,
conversion  or  consolidation  to which  the  Trustee  shall be a party,  or any
corporation or national  banking  association  succeeding to the business of the

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Trustee,  shall  be  the  successor  of the  Trustee  hereunder,  provided  such
corporation  or  national  banking  association  shall  be  eligible  under  the
provisions of Section 8.06,  without the execution or filing of any paper or any
further act on the part of any of the  parties  hereto,  anything  herein to the
contrary  notwithstanding.  The Trustee  shall mail notice of any such merger or
consolidation  to the  Certificateholders  at  their  address  as  shown  in the
Certificate Register.

Section 8.10 Appointment of Co-Trustee or Separate Trustee.

(a) Notwithstanding any other provisions hereof, at any time, for the purpose of
meeting  any legal  requirements  of any  jurisdiction  in which any part of the
Trust Fund or property securing the same may at the time be located,  the Master
Servicer and the Trustee  acting  jointly shall have the power and shall execute
and  deliver all  instruments  to appoint  one or more  Persons  approved by the
Trustee to act as  co-trustee  or  co-trustees,  jointly  with the  Trustee,  or
separate trustee or separate trustees, of all or any part of the Trust Fund, and
to vest in such Person or  Persons,  in such  capacity,  such title to the Trust
Fund, or any part thereof,  and, subject to the other provisions of this Section
8.10, such powers, duties, obligations, rights and trusts as the Master Servicer
and the Trustee may consider  necessary  or  desirable.  If the Master  Servicer
shall not have joined in such appointment within 15 days after the receipt by it
of a request so to do, or in case an Event of Default shall have occurred and be
continuing, the Trustee alone shall have the power to make such appointment.  No
co-trustee or separate trustee  hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 8.06 hereunder and no notice to
Holders  of  Certificates  of  the  appointment  of  co-trustee(s)  or  separate
trustee(s) shall be required under Section 8.08 hereof.

(b) In the case of any appointment of a co-trustee or separate  trustee pursuant
to this Section 8.10 all rights,  powers,  duties and  obligations  conferred or
imposed upon the Trustee  shall be  conferred  or imposed upon and  exercised or
performed by the  Trustee,  and such  separate  trustee or  co-trustee  jointly,
except  to the  extent  that  under  any law of any  jurisdiction  in which  any
particular act or acts are to be performed  (whether as Trustee  hereunder or as
successor to the Master Servicer hereunder), the Trustee shall be incompetent or
unqualified  to perform such act or acts,  in which event such  rights,  powers,
duties and obligations  (including the holding of title to the Trust Fund or any
portion  thereof in any such  jurisdiction)  shall be exercised and performed by
such separate trustee or co-trustee at the direction of the Trustee.

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

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

Section 8.11   Appointment of Custodians.

               The Trustee may, with the consent of the Master  Servicer and the
Depositor,  appoint  one or  more  Custodians  who  are  not  Affiliates  of the
Depositor,  the  Master  Servicer  or any Seller to hold all or a portion of the
Mortgage Files as agent for the Trustee, by entering into a Custodial Agreement.
Subject to Article  VIII,  the  Trustee  agrees to comply with the terms of each
Custodial  Agreement and to enforce the terms and provisions thereof against the
Custodian for the benefit of the  Certificateholders.  Each Custodian shall be a
depository  institution  subject to supervision  by federal or state  authority,
shall have a combined  capital and surplus of at least  $15,000,000 and shall be
qualified  to do business  in the  jurisdiction  in which it holds any  Mortgage
File. Each Custodial Agreement may be amended only as provided in Section 11.01.
The  Trustee  shall  notify the  Certificateholders  of the  appointment  of any
Custodian  (other than the Custodian  appointed as of the Closing Date) pursuant
to this Section 8.11.

Section 8.12   Appointment of Office or Agency.

               The Trustee will  maintain an office or agency in the City of New
York where  Certificates  may be  surrendered  for  registration  of transfer or
exchange.  The Trustee  initially  designates the Corporate Trust Office for the
purpose of keeping the Certificate Register. The Trustee will maintain an office
at the address stated in Section 11.05(c) hereof where notices and demands to or
upon the Trustee in respect of this Agreement may be served.

                                   ARTICLE IX

                                   TERMINATION

Section 9.01  Termination  Upon Purchase by the Master Servicer or the Depositor
     or Liquidation of All Mortgage Loans.

(a) Subject to Section 9.03, the respective  obligations and responsibilities of
the Depositor,  the Master Servicer and the Trustee created hereby in respect of
the  Certificates  (other than the  obligation  of the  Trustee to make  certain
payments  after  the  Final  Distribution  Date  to  Certificateholders  and the
obligation of the Master  Servicer to send certain  notices as  hereinafter  set
forth) shall  terminate upon the last action required to be taken by the Trustee
on the Final Distribution Date pursuant to this Article IX following the earlier
of:

(i)  the later of the final  payment or other  liquidation  (or any Advance with
     respect  thereto) of the last Mortgage  Loan  remaining in any REMIC formed
     hereunder or the disposition of all property  acquired upon  foreclosure or
     deed in lieu of foreclosure  of any Mortgage Loan in the applicable  REMIC,
     or

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(ii) the purchase by the Master  Servicer of all Mortgage Loans and all property
     acquired in respect of any Mortgage Loan remaining in the applicable  REMIC
     at a price equal to 100% of the unpaid  principal  balance of each Mortgage
     Loan (or, if less than such unpaid principal balance, the fair market value
     of the related  underlying  property of such  Mortgage Loan with respect to
     Mortgage  Loans as to which  title has been  acquired  if such fair  market
     value is less than such unpaid principal  balance) (net of any unreimbursed
     Advances attributable to principal) on the day of repurchase,  plus accrued
     interest thereon at the Net Mortgage Rate (or Modified Net Mortgage Rate in
     the case of any Modified  Mortgage Loan) plus the  applicable  Premium Rate
     to, but not including,  the first day of the month in which such repurchase
     price is  distributed,  plus  the sum of any  Group I  Prepayment  Interest
     Shortfalls  and Group II Prepayment  Interest  Shortfalls,  as  applicable,
     remaining  unpaid from prior  Distribution  Dates,  together  with interest
     thereon  at the  related  Pass-Through  Rate  for  such  Class  of  Offered
     Certificates to which such Group I Prepayment  Interest Shortfalls or Group
     II  Prepayment  Interest  Shortfalls,  as  applicable,  were  allocated (as
     adjusted  from  time  to  time,   with  respect  to  the  Adjustable   Rate
     Certificates) until such Group I Prepayment Interest Shortfalls or Group II
     Prepayment Interest Shortfalls,  have been paid in full; provided, however,
     that in no event  shall  the  trust  created  hereby  continue  beyond  the
     expiration  of 21  years  from  the  death  of  the  last  survivor  of the
     descendants of Joseph P. Kennedy,  the late ambassador of the United States
     to the Court of St. James,  living on the date hereof and provided  further
     that the purchase price set forth above shall be increased as is necessary,
     as determined by the Master Servicer,  to avoid  disqualification of any of
     the REMICs formed hereunder as a REMIC.

               The right of the  Master  Servicer  to  purchase  all the  assets
remaining  in the REMIC  relating  to the  Group I Loans or Group II  Loans,  as
applicable,  pursuant to clause (ii) above is conditioned upon the occurrence of
the Loan Group I Optional Termination Date or Loan Group II Optional Termination
Date,  as  applicable.  If such right is exercised by the Master  Servicer,  the
Master  Servicer shall be deemed to have been  reimbursed for the full amount of
any  unreimbursed  Advances  theretofore made by it with respect to the Mortgage
Loans.  In  addition,  the Master  Servicer  shall  provide to the  Trustee  the
certification  required by Section 3.15 and the Trustee and any Custodian shall,
promptly following payment of the purchase price, release to the Master Servicer
the Mortgage Files pertaining to the Mortgage Loans being purchased.

(b) The Master  Servicer  shall give the  Trustee  not less than 60 days'  prior
notice of the  Distribution  Date on which the Master Servicer  anticipates that
the final distribution will be made to  Certificateholders  (whether as a result
of the  exercise by the Master  Servicer of its right to purchase  the assets of
the  Trust  Fund  or  otherwise).  Notice  of any  termination,  specifying  the
anticipated Final  Distribution Date (which shall be a date that would otherwise
be a Distribution  Date) upon which the  Certificateholders  may surrender their
Certificates  to  the  Trustee  for  payment  of  the  final   distribution  and
cancellation,  shall  be  given  promptly  by  the  Master  Servicer  (if  it is
exercising  its right to  purchase  the  assets of the  Trust  Fund),  or by the
Trustee (in any other case) by letter to  Certificateholders  mailed not earlier
than the 15th day and not later  than the 25th day of the month  next  preceding
the month of such final distribution specifying:

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(i)     the anticipated Final  Distribution Date upon which final payment of the
        Certificates is anticipated to be made upon  presentation  and surrender
        of  Certificates  at  the  office  or  agency  of  the  Trustee  therein
        designated,

(ii)    the amount of any such final payment, if known, and

(iii)   that the Record Date otherwise  applicable to such  Distribution Date is
        not applicable, and that payment will be made only upon presentation and
        surrender  of the  Certificates  at the office or agency of the  Trustee
        therein specified.

If the Master  Servicer is  obligated  to give notice to  Certificateholders  as
aforesaid,  it shall give such notice to the  Certificate  Registrar at the time
such notice is given to Certificateholders. In the event such notice is given by
the  Master  Servicer,  the Master  Servicer  shall  deposit in the  Certificate
Account before the Final  Distribution  Date in immediately  available  funds an
amount equal to the purchase  price for the assets of the Trust Fund computed as
above provided.

               If the Trust  Fund is not  terminated  when  anticipated  for any
reason,  the  Master  Servicer  shall send  written  notice to the  Trustee.  In
addition,   the   Trustee   shall   promptly   mail   notice   thereof  to  each
Certificateholder.

(c)   Upon   presentation   and   surrender   of   the   Certificates   by   the
Certificateholders,  the Trustee shall distribute to the  Certificateholders (i)
the  amount  otherwise  distributable  on  such  Distribution  Date,  if  not in
connection  with the Master  Servicer's  election to repurchase,  or (ii) if the
Master Servicer elected to so repurchase,  an amount determined as follows:  (A)
with  respect to each  related  Class of Offered  Certificates  the  outstanding
Certificate Principal Balance thereof, plus Accrued Certificate Interest thereon
for the  related  Interest  Accrual  Period and any  previously  unpaid  Accrued
Certificate  Interest,  including any Group I Prepayment  Interest Shortfalls or
Group II Prepayment Interest Shortfalls, as applicable,  remaining unpaid on the
preceding  Distribution  Date,  together  with  interest  thereon at the related
Pass-Through  Rate  for  such  Certificates  to which  such  Group I  Prepayment
Interest Shortfalls or Group II Prepayment Interest  Shortfalls,  as applicable,
were  allocated (as adjusted from time to time,  with respect to the  Adjustable
Rate Certificates) until such Group I Prepayment Interest Shortfalls or Group II
Prepayment  Interest  Shortfalls have been paid in full, subject to the priority
set forth in Section 4.02(d), and (B) with respect to the Class SB Certificates,
any excess of the amounts  available for distribution  (including the repurchase
price specified in clause (ii) of subsection (a) of this Section) over the total
amount distributed under the immediately preceding clause (A) in accordance with
the priorities of Section 4.02 (c) and (d).

(d)  In  the  event  that  any  Certificateholders  shall  not  surrender  their
Certificates  for  final  payment  and  cancellation  on  or  before  the  Final
Distribution  Date,  the  Trustee  shall on such  date  cause  all  funds in the
Certificate Account not distributed in final distribution to  Certificateholders
to be withdrawn  therefrom and credited to the remaining  Certificateholders  by
depositing  such  funds in a separate  escrow  account  for the  benefit of such
Certificateholders,  and the  Master  Servicer  (if it  exercised  its  right to
purchase the assets of the Trust Fund), or the Trustee (in any other case) shall
give a second  written notice to the remaining  Certificateholders  to surrender
their  Certificates  for cancellation  and receive the final  distribution  with
respect  thereto.  If within six months after the second notice any  Certificate
shall not have  been  surrendered  for  cancellation,  the  Trustee  shall  take
appropriate  steps as directed by the Master  Servicer to contact the  remaining
Certificateholders  concerning  surrender of their  Certificates.  The costs and
expenses of maintaining the escrow account and of contacting  Certificateholders

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shall be paid out of the assets  which remain in the escrow  account.  If within
nine  months  after  the  second  notice  any  Certificates  shall not have been
surrendered for  cancellation,  the Trustee shall pay to the Master Servicer all
amounts  distributable  to the  holders  thereof and the Master  Servicer  shall
thereafter  hold such amounts until  distributed  to such  holders.  No interest
shall  accrue or be payable to any  Certificateholder  on any amount held in the
escrow account or by the Master Servicer as a result of such Certificateholder's
failure to surrender its  Certificate(s) for final payment thereof in accordance
with this Section 9.01 and the Certificateholders  shall look only to the Master
Servicer for such payment.

Section 9.02 Termination of REMIC III.

               REMIC  III  shall  be  terminated  on the  earlier  of the  Final
Distribution  Date and the date on which it is deemed to receive the last deemed
distributions  on the  REMIC IA  Regular  Interests  and the  REMIC  II  Regular
Interests and the last  distribution  due on the Class A-I, Class A-II, Class SB
and Class R-III Certificates is made.

Section 9.03   Additional Termination Requirements.

(a) Each REMIC formed  hereunder  shall be  terminated  in  accordance  with the
following  additional  requirements,  unless  (subject to Section  10.01(f)) the
Trustee  and the Master  Servicer  have  received  an Opinion of Counsel  (which
Opinion of Counsel  shall not be an expense of the  Trustee)  to the effect that
the  failure  of  any  of  the  REMICs  formed  hereunder  to  comply  with  the
requirements  of this Section 9.03 will not (i) result in the  imposition on any
such REMIC of taxes on "prohibited  transactions,"  as described in Section 860F
of the Code, or (ii) any REMIC formed hereunder to fail to qualify as a REMIC at
any time that any Certificate is outstanding:

(i)     The Master  Servicer  shall  establish a 90-day  liquidation  period for
        REMIC I,  REMIC IA,  REMIC II and  REMIC  III,  as the case may be,  and
        specify  the first day of such  period in a  statement  attached to that
        REMIC's  final Tax  Return  pursuant  to  Treasury  regulations  Section
        1.860F-1. The Master Servicer also shall satisfy all of the requirements
        of a  qualified  liquidation  for REMIC I, REMIC IA,  REMIC II and REMIC
        III,  as the  case  may  be,  under  Section  860F of the  Code  and the
        regulations thereunder;

(ii)    The Master Servicer shall notify the Trustee at the commencement of such
        90-day  liquidation period and, at or prior to the time of making of the
        final payment on the  Certificates,  the Trustee shall sell or otherwise
        dispose  of  all of the  remaining  assets  of  the  relevant  REMIC  in
        accordance with the terms hereof; and

(iii)   If the Master Servicer is exercising its right to purchase the assets of
        the  relevant  REMIC,  the  Master  Servicer  shall,  during  the 90-day
        liquidation  period  and at or prior  to the  Final  Distribution  Date,
        purchase  all of the assets of such REMIC for cash;  provided,  however,
        that in the event that a calendar quarter ends after the commencement of
        the 90-day  liquidation period but prior to the Final Distribution Date,

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        the Master  Servicer  shall not  purchase any of the assets of the Trust
        Fund prior to the close of that calendar quarter.

(b) Each Holder of a Certificate and the Trustee hereby irrevocably approves and
appoints the Master Servicer as its attorney-in-fact to adopt a plan of complete
liquidation  for REMIC I, REMIC IA, REMIC II and REMIC III at the expense of the
Trust Fund in accordance with the terms and conditions of this Agreement.

                                   ARTICLE X

                                REMIC PROVISIONS

Section 10.01 REMIC Administration.

(a) The REMIC  Administrator  shall make an election to treat each REMIC  formed
hereunder as a REMIC under the Code and, if necessary,  under  applicable  state
law. Such election will be made on Form 1066 or other appropriate federal tax or
information return (including Form 8811) or any appropriate state return for the
taxable  year  ending  on the  last  day of  the  calendar  year  in  which  the
Certificates  are issued.  For the purposes of the REMIC  election in respect of
REMIC I, the REMIC I  Regular  Interests  shall be  designated  as the  "regular
interests" and the Class R-I Certificates  shall be designated as the sole class
of "residual  interests"  in the REMIC I. For purposes of the REMIC  election in
respect of REMIC IA, the REMIC IA Regular  Interests  shall be designated as the
"regular  interests" and the Class R-IA Certificates  shall be designated as the
sole class of "residual  interests" in REMIC IA. The REMIC II Regular  Interests
shall be designated as the "regular  interests" and the Class R-II  Certificates
shall be designated  as the sole class of "residual  interests" in REMIC II. The
Class  A-I,  Class  A-II,  Class M-I,  Class  M-II,  Class SB-I and Class  SB-II
Certificates shall be designated as the "regular interests" in REMIC III and the
Class  R-III  Certificates  shall  be  designated  the sole  class of  "residual
interests"  in REMIC III.  The REMIC  Administrator  and the  Trustee  shall not
permit the  creation of any  "interests"  (within the meaning of Section 860G of
the Code) in the REMIC other than the Certificates.

(b) The Closing Date is hereby  designated  as the  "startup  day" of each REMIC
formed hereunder within the meaning of Section 860G(a)(9) of the Code.

(c) The REMIC  Administrator  shall  hold a Class R  Certificate  in each  REMIC
representing a 0.01%  Percentage  Interest of the Class R  Certificates  in each
REMIC formed  hereunder and shall be designated as the "tax matters person" with
respect to each such REMIC in the manner  provided  under  Treasury  regulations
section    1.860F-4(d)    and    temporary    Treasury    regulations    section
301.6231(a)(7)-1T. The REMIC Administrator, as tax matters person, shall (i) act
on behalf of each  REMIC  formed  hereunder  in  relation  to any tax  matter or
controversy  involving  the Trust Fund and (ii)  represent the Trust Fund in any
administrative or judicial proceeding relating to an examination or audit by any
governmental  taxing  authority  with  respect  thereto.   The  legal  expenses,

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including without  limitation  attorneys' or accountants' fees, and costs of any
such proceeding and any liability  resulting  therefrom shall be expenses of the
Trust  Fund and the  REMIC  Administrator  shall be  entitled  to  reimbursement
therefor out of amounts  attributable  to the  Mortgage  Loans on deposit in the
Custodial  Account as provided by Section  3.10 unless such legal  expenses  and
costs are incurred by reason of the REMIC  Administrator's  willful misfeasance,
bad faith or gross  negligence.  If the  REMIC  Administrator  is no longer  the
Master Servicer  hereunder,  at its option the REMIC  Administrator may continue
its duties as REMIC Administrator and shall be paid reasonable  compensation not
to exceed  $3,000 per year by any  successor  Master  Servicer  hereunder for so
acting as the REMIC Administrator.

(d) The REMIC Administrator shall prepare or cause to be prepared all of the Tax
Returns  that it  determines  are required  with  respect to each REMIC  created
hereunder and deliver such Tax Returns in a timely manner to the Trustee and the
Trustee shall sign and file such Tax Returns in a timely manner. The expenses of
preparing  such returns  shall be borne by the REMIC  Administrator  without any
right of reimbursement therefor. The REMIC Administrator agrees to indemnify and
hold harmless the Trustee with respect to any tax or liability  arising from the
Trustee's  signing of Tax Returns that contain errors or omissions.  The Trustee
and Master  Servicer shall promptly  provide the REMIC  Administrator  with such
information  as the REMIC  Administrator  may from time to time  request for the
purpose of enabling the REMIC Administrator to prepare Tax Returns.

(e) The REMIC  Administrator  shall  provide (i) to any  Transferor of a Class R
Certificate  such  information  as is necessary for the  application  of any tax
relating  to the  transfer of a Class R  Certificate  to any Person who is not a
Permitted  Transferee,  (ii) to the Trustee and the Trustee shall forward to the
Certificateholders  such  information  or reports as are required by the Code or
the REMIC  Provisions  including  reports  relating to interest,  original issue
discount and market  discount or premium (using the Prepayment  Assumption)  and
(iii) to the Internal  Revenue  Service the name,  title,  address and telephone
number of the person who will serve as the representative of each REMIC.

(f) The Master Servicer and the REMIC  Administrator shall take such actions and
shall cause each REMIC created  hereunder to take such actions as are reasonably
within the Master Servicer's or the REMIC Administrator's  control and the scope
of its  duties  more  specifically  set forth  herein as shall be  necessary  or
desirable to maintain the status  thereof as a REMIC under the REMIC  Provisions
(and the Trustee shall assist the Master  Servicer and the REMIC  Administrator,
to the  extent  reasonably  requested  by the  Master  Servicer  and  the  REMIC
Administrator  to do so). In performing  their duties as more  specifically  set
forth  herein,  the  Master  Servicer  and the  REMIC  Administrator  shall  not
knowingly  or  intentionally  take any action,  cause the Trust Fund to take any
action  or fail to take (or fail to cause to be  taken)  any  action  reasonably
within their  respective  control and the scope of duties more  specifically set
forth herein,  that, under the REMIC  Provisions,  if taken or not taken, as the
case may be,  could  (i)  endanger  the  status  of any REMIC as a REMIC or (ii)
result in the  imposition of a tax upon any REMIC  (including but not limited to
the tax on prohibited  transactions as defined in Section 860F(a)(2) of the Code
and the tax on  contributions  to a REMIC set forth in  Section  860G(d)  of the
Code)  (either  such  event,  in the  absence  of an  Opinion  of Counsel or the

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indemnification  referred to in this sentence,  an "Adverse REMIC Event") unless
the Master Servicer or the REMIC Administrator,  as applicable,  has received an
Opinion of Counsel (at the expense of the party  seeking to take such action or,
if such party fails to pay such  expense,  and the Master  Servicer or the REMIC
Administrator, as applicable,  determines that taking such action is in the best
interest  of the Trust  Fund and the  Certificateholders  at the  expense of the
Trust  Fund,  but in no event at the expense of the Master  Servicer,  the REMIC
Administrator  or the Trustee) to the effect that the  contemplated  action will
not,  with respect to each REMIC  created  hereunder,  endanger  such status or,
unless the Master  Servicer or the REMIC  Administrator  or both, as applicable,
determine in its or their sole  discretion  to indemnify  the Trust Fund against
the imposition of such a tax,  result in the imposition of such a tax.  Wherever
in this Agreement a  contemplated  action may not be taken because the timing of
such action might result in the  imposition  of a tax on the Trust Fund,  or may
only be taken  pursuant  to an  Opinion of Counsel  that such  action  would not
impose a tax on the Trust Fund,  such action may  nonetheless  be taken provided
that the  indemnity  given in the  preceding  sentence with respect to any taxes
that  might be  imposed  on the  Trust  Fund has been  given  and that all other
preconditions  to the taking of such  action  have been  satisfied.  The Trustee
shall not take or fail to take any action (whether or not authorized  hereunder)
as to which the Master Servicer or the REMIC Administrator,  as applicable,  has
advised it in writing  that it has  received an Opinion of Counsel to the effect
that an Adverse  REMIC  Event  could  occur  with  respect  to such  action.  In
addition, prior to taking any action with respect to any REMIC or its assets, or
causing any REMIC to take any action, which is not expressly permitted under the
terms of this  Agreement,  the Trustee will consult with the Master  Servicer or
the REMIC  Administrator,  as  applicable,  or its  designee,  in writing,  with
respect to whether such action could cause an Adverse  REMIC Event to occur with
respect to any REMIC and the Trustee shall not take any such action or cause any
REMIC to take any such  action  as to which  the  Master  Servicer  or the REMIC
Administrator,  as  applicable,  has advised it in writing that an Adverse REMIC
Event  could  occur.  The  Master  Servicer  or  the  REMIC  Administrator,   as
applicable,  may consult with counsel to make such written advice,  and the cost
of same shall be borne by the party  seeking  to take the  action not  expressly
permitted  by this  Agreement,  but in no event  at the  expense  of the  Master
Servicer  or the REMIC  Administrator.  At all times as may be  required  by the
Code, the Master Servicer or the REMIC Administrator, as applicable, will to the
extent  within its  control and the scope of its duties  more  specifically  set
forth  herein,  maintain  substantially  all of the  assets  of  each  REMIC  as
"qualified  mortgages"  as  defined  in  Section  860G(a)(3)  of  the  Code  and
"permitted investments" as defined in Section 860G(a)(5) of the Code.

(g) In the event  that any tax is imposed on  "prohibited  transactions"  of any
REMIC  created  hereunder as defined in Section  860F(a)(2) of the Code, on "net
income from foreclosure  property" of any REMIC as defined in Section 860G(c) of
the Code,  on any  contributions  to any REMIC after the  startup  day  therefor
pursuant to Section 860G(d) of the Code, or any other tax imposed by the Code or
any applicable  provisions of state or local tax laws, such tax shall be charged
(i) to the Master  Servicer,  if such tax arises out of or results from a breach
by the Master  Servicer of any of its  obligations  under this  Agreement or the
Master  Servicer has in its sole  discretion  determined  to indemnify the Trust
Fund against such tax, (ii) to the Trustee, if such tax arises out of or results
from a breach by the Trustee of any of its obligations  under this Article X, or
(iii) otherwise  against amounts on deposit in the Custodial Account as provided
by Section 3.10 and on the Distribution Date(s) following such reimbursement the

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aggregate  of  such  taxes  shall  be  allocated  in  reduction  of the  Accrued
Certificate  Interest  on each Class  entitled  thereto in the same manner as if
such taxes constituted a Prepayment Interest Shortfall.

(h) The Trustee and the Master Servicer shall,  for federal income tax purposes,
maintain  books and records with respect to each REMIC on a calendar year and on
an accrual basis or as otherwise may be required by the REMIC Provisions.

(i)  Following  the Startup  Date,  neither the Master  Servicer nor the Trustee
shall accept any contributions of assets to any REMIC unless (subject to Section
10.01(f)) the Master  Servicer and the Trustee shall have received an Opinion of
Counsel (at the expense of the party seeking to make such  contribution)  to the
effect that the  inclusion  of such assets in any REMIC will not cause any REMIC
formed hereunder to fail to qualify as a REMIC at any time that any Certificates
are  outstanding  or subject the REMIC to any tax under the REMIC  Provisions or
other applicable provisions of federal, state and local law or ordinances.

(j)  Neither  the Master  Servicer  nor the  Trustee  shall  (subject to Section
10.01(f))  enter into any  arrangement by which any REMIC formed  hereunder will
receive a fee or other  compensation  for  services  nor permit any REMIC formed
hereunder to receive any income from assets other than "qualified  mortgages" as
defined in Section 860G(a)(3) of the Code or "permitted  investments" as defined
in Section 860G(a)(5) of the Code.

(k)  Solely for the  purposes  of Section  1.860G-1(a)(4)(iii)  of the  Treasury
Regulations,  the  "latest  possible  maturity  date" by which  the  Certificate
Principal Balance of each Class of Certificates  representing a regular interest
in the REMIC would be reduced to zero is September 25, 2035.

(l) Within 30 days after the Closing Date, the REMIC Administrator shall prepare
and file with the Internal  Revenue Service Form 8811,  "Information  Return for
Real Estate Mortgage  Investment  Conduits (REMIC) and Issuers of Collateralized
Debt Obligations" for each REMIC.

(m)  Neither  the Trustee  nor the Master  Servicer  shall  sell,  dispose of or
substitute  for any of the Mortgage  Loans  (except in  connection  with (i) the
default,  imminent default or foreclosure of a Mortgage Loan,  including but not
limited to, the acquisition or sale of a Mortgaged  Property acquired by deed in
lieu of  foreclosure,  (ii) the bankruptcy of a REMIC,  (iii) the termination of
any REMIC  pursuant  to  Article  IX of this  Agreement  or (iv) a  purchase  of
Mortgage Loans pursuant to Article II or III of this  Agreement) nor acquire any
assets  for any REMIC or sell or  dispose of any  investments  in the  Custodial
Account or the Certificate Account for gain, nor accept any contributions to any
REMIC after the Closing  Date unless it has  received an Opinion of Counsel that
such  sale,  disposition,  substitution  or  acquisition  will  not  (a)  affect
adversely the status of any REMIC formed  hereunder as a REMIC or (b) unless the
Master  Servicer has  determined  in its sole  discretion to indemnify the Trust
Fund  against  such tax,  cause any REMIC to be subject to a tax on  "prohibited
transactions" or "contributions" pursuant to the REMIC Provisions.

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Section 10.02  Master Servicer, REMIC Administrator and Trustee Indemnification.

(a) The Trustee  agrees to indemnify the Trust Fund,  the  Depositor,  the REMIC
Administrator and the Master Servicer for any taxes and costs including, without
limitation,  any  reasonable  attorneys fees imposed on or incurred by the Trust
Fund,  the  Depositor  or the  Master  Servicer,  as a result of a breach of the
Trustee's  covenants  set forth in Article  VIII or this Article X. In the event
that  Residential  Funding is no longer the Master  Servicer,  the Trustee shall
indemnify  Residential  Funding  for any  taxes  and  costs  including,  without
limitation,  any reasonable attorneys fees imposed on or incurred by Residential
Funding as a result of a breach of the Trustee's  covenants set forth in Article
VIII or this Article X.

(b) The REMIC  Administrator  agrees to indemnify the Trust Fund, the Depositor,
the Master Servicer and the Trustee for any taxes and costs (including,  without
limitation,  any reasonable attorneys' fees) imposed on or incurred by the Trust
Fund, the Depositor, the Master Servicer or the Trustee, as a result of a breach
of the REMIC Administrator's  covenants set forth in this Article X with respect
to compliance  with the REMIC  Provisions,  including  without  limitation,  any
penalties  arising from the Trustee's  execution of Tax Returns  prepared by the
REMIC Administrator that contain errors or omissions;  provided,  however,  that
such  liability  will not be imposed to the extent such breach is a result of an
error or omission in  information  provided  to the REMIC  Administrator  by the
Master Servicer in which case Section 10.02(c) will apply.

(c) The Master Servicer  agrees to indemnify the Trust Fund, the Depositor,  the
REMIC Administrator and the Trustee for any taxes and costs (including,  without
limitation,  any reasonable attorneys' fees) imposed on or incurred by the Trust
Fund,  the  Depositor  or the  Trustee,  as a result of a breach  of the  Master
Servicer's  covenants set forth in this Article X or in Article III with respect
to compliance  with the REMIC  Provisions,  including  without  limitation,  any
penalties  arising from the Trustee's  execution of Tax Returns  prepared by the
Master Servicer that contain errors or omissions.

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

Section 11.01  Amendment.

(a) This  Agreement or any Custodial  Agreement may be amended from time to time
by the Depositor,  the Master  Servicer and the Trustee,  without the consent of
any of the Certificateholders:

(i)     to cure any ambiguity,

(ii)    to correct or supplement any provisions herein or therein,  which may be
        inconsistent  with any other provisions  herein or therein or to correct
        any error,

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(iii)to modify,  eliminate  or add to any of its  provisions  to such  extent as
     shall be necessary or desirable to maintain the  qualification of the Trust
     Fund as a REMIC at all times  that any  Certificate  is  outstanding  or to
     avoid or minimize the risk of the  imposition  of any tax on the Trust Fund
     pursuant to the Code that would be a claim against the Trust Fund, provided
     that the Trustee has  received an Opinion of Counsel to the effect that (A)
     such action is necessary or desirable to maintain such  qualification or to
     avoid or minimize the risk of the  imposition  of any such tax and (B) such
     action will not adversely  affect in any material  respect the interests of
     any Certificateholder,

(iv) to change the timing and/or  nature of deposits into the Custodial  Account
     or the  Certificate  Account or to change  the name in which the  Custodial
     Account is maintained,  provided that (A) the  Certificate  Account Deposit
     Date shall in no event be later than the  related  Distribution  Date,  (B)
     such change  shall not, as  evidenced  by an Opinion of Counsel,  adversely
     affect in any material respect the interests of any  Certificateholder  and
     (C) such change shall not result in a reduction  of the rating  assigned to
     any Class of Certificates below the lower of the then-current rating or the
     rating  assigned to such  Certificates as of the Closing Date, as evidenced
     by a letter from each Rating Agency to such effect,

(v)  to modify,  eliminate or add to the  provisions  of Section  5.02(f) or any
     other provision hereof restricting  transfer of the Class R Certificates by
     virtue of their being the "residual  interests" in various REMICs  provided
     that (A) such change shall not result in  reduction of the rating  assigned
     to any such  Class of  Certificates  below  the  lower of the  then-current
     rating or the rating assigned to such  Certificates as of the Closing Date,
     as  evidenced by a letter from each Rating  Agency to such effect,  and (B)
     such change  shall not  (subject to Section  10.01(f)),  as evidenced by an
     Opinion  of  Counsel  (at the  expense  of the party  seeking so to modify,
     eliminate  or add such  provisions),  cause any of the REMICs or any of the
     Certificateholders  (other than the  transferor) to be subject to a federal
     tax caused by a transfer to a Person that is not a Permitted Transferee, or

(vi)    to make any other  provisions  with  respect  to  matters  or  questions
        arising under this Agreement or such Custodial Agreement which shall not
        be  materially  inconsistent  with  the  provisions  of this  Agreement,
        provided  that such  action  shall not,  as  evidenced  by an Opinion of
        Counsel,  adversely  affect in any material respect the interests of any
        Certificateholder and is authorized or permitted under Section 11.09(d).

(b) This  Agreement or any Custodial  Agreement may also be amended from time to
time by the Depositor,  the Master  Servicer and the Trustee with the consent of
the Holders of Certificates evidencing in the aggregate not less than 66% of the
Percentage  Interests  of each Class of  Certificates  affected  thereby for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or such Custodial  Agreement or of modifying
in any manner the rights of the Holders of Certificates of such Class; provided,
however, that no such amendment shall:

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(i)  reduce in any manner the amount of, or delay the timing of,  payments which
     are required to be  distributed on any  Certificate  without the consent of
     the Holder of such Certificate,

(ii)    adversely  affect in any material respect the interest of the Holders of
        Certificates  of any Class in a manner other than as described in clause
        (i) hereof without the consent of Holders of  Certificates of such Class
        evidencing,  as to such Class, Percentage Interests aggregating not less
        than 66%, or

(iii)   reduce the aforesaid percentage of Certificates of any Class the Holders
        of which are required to consent to any such amendment, in any such case
        without  the consent of the  Holders of all  Certificates  of such Class
        then outstanding.

(c) Notwithstanding any contrary provision of this Agreement,  the Trustee shall
not  consent  to any  amendment  to this  Agreement  unless it shall  have first
received an Opinion of Counsel  (subject  to Section  10.01(f) at the expense of
the party  seeking  such  amendment)  to the effect that such  amendment  or the
exercise  of any power  granted to the Master  Servicer,  the  Depositor  or the
Trustee in accordance with such amendment will not result in the imposition of a
federal  tax on the Trust  Fund or cause any REMIC to fail to qualify as a REMIC
at any time that any Certificate is outstanding.

(d) Promptly after the execution of any such amendment the Trustee shall furnish
written   notification   of  the   substance   of   such   amendment   to   each
Certificateholder.   It   shall   not  be   necessary   for   the   consent   of
Certificateholders  under this Section 11.01 to approve the  particular  form of
any proposed amendment, but it shall be sufficient if such consent shall approve
the substance  thereof.  The manner of obtaining such consents and of evidencing
the  authorization  of the  execution  thereof  by  Certificateholders  shall be
subject to such reasonable regulations as the Trustee may prescribe.

(e) The Depositor shall have the option,  in its sole discretion,  to obtain and
deliver to the Trustee any corporate guaranty,  payment obligation,  irrevocable
letter of credit,  surety  bond,  insurance  policy or similar  instrument  or a
reserve fund, or any combination of the foregoing, for the purpose of protecting
the Holders of the Class R  Certificates  against any or all Realized  Losses or
other  shortfalls.  Any such instrument or fund shall be held by the Trustee for
the benefit of the Class R Certificateholders, but shall not be and shall not be
deemed to be under any  circumstances  included in the Trust Fund. To the extent
that any such  instrument or fund  constitutes a reserve fund for federal income
tax purposes,  (i) any reserve fund so established  shall be an outside  reserve
fund and not an asset of the Trust  Fund,  (ii) any such  reserve  fund shall be
owned by the Depositor,  and (iii) amounts  transferred by the Trust Fund to any
such reserve fund shall be treated as amounts  distributed  by the Trust Fund to
the Depositor or any successor,  all within the meaning of Treasury  regulations
Section 1.860G-2(h).  In connection with the provision of any such instrument or
fund, this Agreement and any provision hereof may be modified, added to, deleted
or  otherwise  amended in any  manner  that is  related  or  incidental  to such
instrument  or  fund  or  the  establishment  or  administration  thereof,  such
amendment  to be made by written  instrument  executed  or  consented  to by the
Depositor   and  such   related   insurer   but   without  the  consent  of  any
Certificateholder  and without the consent of the Master Servicer or the Trustee
being required unless any such amendment would impose any additional  obligation
on,   or   otherwise   adversely   affect   the   interests   of   the   Offered
Certificateholders,  the Class R Certificateholders,  the Master Servicer or the
Trustee, as applicable;  provided that the Depositor obtains (subject to Section
10.01(f))  an Opinion of Counsel  (which  need not be an opinion of  Independent
counsel)  to the effect that any such  amendment  will not cause (a) any federal

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tax to be imposed on the Trust Fund,  including without limitation,  any federal
tax imposed on "prohibited transactions" under Section 860F(a)(1) of the Code or
on "contributions  after the startup date" under Section  860G(d)(1) of the Code
and (b) any REMIC to fail to qualify as a REMIC at any time that any Certificate
is outstanding.  In the event that the Depositor elects to provide such coverage
in the  form  of a  limited  guaranty  provided  by  General  Motors  Acceptance
Corporation,  the  Depositor  may elect that the text of such  amendment to this
Agreement  shall be  substantially  in the form attached hereto as Exhibit I (in
which case  Residential  Funding's  Subordinate  Certificate  Loss Obligation as
described in such exhibit shall be established by Residential  Funding's consent
to such  amendment) and that the limited  guaranty shall be executed in the form
attached  hereto as Exhibit J, with such changes as the Depositor  shall deem to
be appropriate;  it being  understood that the Trustee has reviewed and approved
the content of such forms and that the Trustee's  consent or approval to the use
thereof is not required.

Section 11.02  Recordation of Agreement; Counterparts.

(a) To the extent  permitted by  applicable  law,  this  Agreement is subject to
recordation in all appropriate  public offices for real property  records in all
the  counties  or other  comparable  jurisdictions  in  which  any or all of the
properties  subject to the Mortgages are situated,  and in any other appropriate
public  recording  office or elsewhere,  such  recordation to be effected by the
Master Servicer and at its expense on direction by the Trustee  (pursuant to the
request  of  Holders  of  Certificates  entitled  to at least 25% of the  Voting
Rights),  but only upon  direction  accompanied  by an Opinion of Counsel to the
effect that such recordation  materially and beneficially  affects the interests
of the Certificateholders.

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

Section 11.03  Limitation on Rights of Certificateholders.

(a) The  death or  incapacity  of any  Certificateholder  shall not  operate  to
terminate this Agreement or the Trust Fund, nor entitle such Certificateholder's
legal  representatives  or heirs to claim an accounting or to take any action or
proceeding  in any court for a partition  or winding up of the Trust  Fund,  nor
otherwise  affect the rights,  obligations and liabilities of any of the parties
hereto.

(b) No  Certificateholder  shall  have any right to vote  (except  as  expressly
provided herein) or in any manner otherwise control the operation and management
of the Trust Fund, or the obligations of the parties hereto,  nor shall anything
herein set forth, or contained in the terms of the Certificates, be construed so
as to constitute the Certificateholders from time to time as partners or members

                                      126
<PAGE>

of an association; nor shall any Certificateholder be under any liability to any
third  person by reason of any action  taken by the  parties  to this  Agreement
pursuant to any provision hereof.

(c) No Certificateholder shall have any right by virtue of any provision of this
Agreement to institute  any suit,  action or proceeding in equity or at law upon
or under or with respect to this Agreement,  unless such Holder previously shall
have given to the  Trustee a written  notice of default  and of the  continuance
thereof,  as  hereinbefore,  and unless also the Holders of  Certificates of any
Class  evidencing in the  aggregate not less than 25% of the related  Percentage
Interests  of such Class,  shall have made  written  request upon the Trustee to
institute such action,  suit or proceeding in its own name as Trustee  hereunder
and shall have  offered  to the  Trustee  such  reasonable  indemnity  as it may
require against the costs,  expenses and  liabilities to be incurred  therein or
thereby, and the Trustee, for 60 days after its receipt of such notice,  request
and offer of  indemnity,  shall have  neglected or refused to institute any such
action, suit or proceeding it being understood and intended, and being expressly
covenanted by each Certificateholder with every other  Certificateholder and the
Trustee, that no one or more Holders of Certificates of any Class shall have any
right in any manner  whatever by virtue of any  provision  of this  Agreement to
affect,  disturb or  prejudice  the  rights of the  Holders of any other of such
Certificates  of such Class or any other  Class,  or to obtain or seek to obtain
priority over or  preference  to any other such Holder,  or to enforce any right
under this  Agreement,  except in the manner herein  provided and for the common
benefit of  Certificateholders of such Class or all Classes, as the case may be.
For the protection and enforcement of the provisions of this Section 11.03, each
and every  Certificateholder and the Trustee shall be entitled to such relief as
can be given either at law or in equity.

Section 11.04  Governing Law.

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

Section 11.05  Notices.

               All demands and notices  hereunder  shall be in writing and shall
be  deemed  to have  been duly  given if  personally  delivered  at or mailed by
registered mail,  postage prepaid (except for notices to the Trustee which shall
be deemed to have been duly given only when received), to (a) in the case of the
Depositor,  8400 Normandale Lake Boulevard,  Suite 250,  Minneapolis,  Minnesota
55437,  Attention:  President,  RASC,  or such other address as may hereafter be
furnished to the Master  Servicer  and the Trustee in writing by the  Depositor,
(b) in the  case of the  Master  Servicer,  2255  N.  Ontario  Street,  Burbank,
California   91504-3120,   Attention:   Managing  Director,   Residential  Asset
Securities  Corporation,  Series  2001-KS3,  or  such  other  address  as may be
hereafter  furnished to the Depositor and the Trustee by the Master  Servicer in
writing, (c) in the case of the Trustee,  1761 East St. Andrew Place, Santa Ana,
California  92705-4934,  or such other  address as may hereafter be furnished to
the Depositor and the Master Servicer in writing by the Trustee, (d) in the case

                                      127
<PAGE>

of Moody's,  99 Church Street,  4th Floor, New York, New York 10007,  Attention:
Residential  Mortgage  Pass-Through  Monitoring,  or such  other  address as may
hereafter be furnished to the Depositor,  the Trustee and the Master Servicer in
writing by Moody's,  (e) in the case of Standard & Poor's, 55 Water Street,  New
York, New York 10041, Attention:  Mortgage Surveillance or such other address as
may be hereafter  furnished  to the  Depositor,  Trustee and Master  Servicer by
Standard & Poor's,  and (f) in the case of Fitch,  One State Street  Plaza,  New
York, New York 10004, Attention: Residential Mortgage Backed Group or such other
address as may be  hereafter  furnished  to the  Depositor,  the Trustee and the
Master  Servicer by Fitch.  Any notice  required or  permitted to be mailed to a
Certificateholder  shall be given by first class mail,  postage prepaid,  at the
address  of such  holder as shown in the  Certificate  Register.  Any  notice so
mailed  within  the time  prescribed  in this  Agreement  shall be  conclusively
presumed to have been duly given, whether or not the Certificateholder  receives
such notice.

Section 11.06  Notices to Rating Agency.

               The Depositor, the Master Servicer or the Trustee, as applicable,
shall  notify  each  Rating  Agency and each  Subservicer  at such time as it is
otherwise  required  pursuant to this Agreement to give notice of the occurrence
of, any of the events  described in clause (a),  (b), (c), (d), (g), (h), (i) or
(j) below or  provide  a copy to each  Rating  Agency at such time as  otherwise
required to be delivered  pursuant to this  Agreement  of any of the  statements
described in clauses (e) and (f) below:

(a)     a material change or amendment to this Agreement,

(b)     the occurrence of an Event of Default,

(c) the termination or appointment of a successor  Master Servicer or Trustee or
a change in the majority ownership of the Trustee,

(d) the filing of any claim under the Master  Servicer's  blanket  fidelity bond
and the errors and omissions  insurance  policy  required by Section 3.12 or the
cancellation or modification of coverage under any such instrument,

(e) the  statement  required  to be  delivered  to the  Holders of each Class of
Certificates pursuant to Section 4.03,

(f) the statements required to be delivered pursuant to Sections 3.18 and 3.19,

(g) a  change  in the  location  of the  Custodial  Account  or the  Certificate
Account,

(h) the  occurrence  of any monthly  cash flow  shortfall  to the Holders of any
Class of Certificates  resulting from the failure by the Master Servicer to make
an Advance pursuant to Section 4.04 or the occurrence of a Trigger Event,

(i)     the occurrence of the Final Distribution Date, and

                                      128
<PAGE>

(j)     the repurchase of or substitution for any Mortgage Loan,

provided,  however,  that with respect to notice of the occurrence of the events
described in clauses (d), (g) or (h) above,  the Master  Servicer  shall provide
prompt  written  notice to each Rating  Agency and the  Subservicer  of any such
event known to the Master Servicer.

Section 11.07  Severability of Provisions.

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

Section 11.08  Supplemental Provisions for Resecuritization.

(a) This  Agreement may be  supplemented  by means of the addition of a separate
Article hereto (a "Supplemental  Article") for the purpose of resecuritizing any
of the Certificates issued hereunder,  under the following  circumstances.  With
respect to any Class or Classes of Certificates issued hereunder, or any portion
of any such Class,  as to which the Depositor or any of its  Affiliates  (or any
designee thereof) is the registered Holder (the  "Resecuritized  Certificates"),
the  Depositor  may deposit such  Resecuritized  Certificates  into a new REMIC,
grantor trust, FASIT or custodial arrangement (a "Restructuring  Vehicle") to be
held by the Trustee pursuant to a Supplemental  Article. The instrument adopting
such  Supplemental  Article  shall be  executed  by the  Depositor,  the  Master
Servicer and the  Trustee;  provided,  that neither the Master  Servicer nor the
Trustee shall withhold their consent thereto if their respective interests would
not be materially  adversely  affected thereby.  To the extent that the terms of
the  Supplemental  Article  do not in any  way  affect  any  provisions  of this
Agreement as to any of the Certificates initially issued hereunder, the adoption
of the  Supplemental  Article  shall  not  constitute  an  "amendment"  of  this
Agreement.

(b) Each Supplemental  Article shall set forth all necessary provisions relating
to  the  holding  of  the  Resecuritized   Certificates  by  the  Trustee,   the
establishment of the  Restructuring  Vehicle,  the issuing of various classes of
new certificates by the  Restructuring  Vehicle and the distributions to be made
thereon,  and  any  other  provisions  necessary  to the  purposes  thereof.  In
connection with each  Supplemental  Article,  the Depositor shall deliver to the
Trustee an Opinion of Counsel to the effect that (i) the  Restructuring  Vehicle
will  qualify as a REMIC,  grantor  trust,  FASIT or other entity not subject to
taxation  for  federal  income  tax  purposes  and  (ii)  the  adoption  of  the
Supplemental  Article  will not  endanger  the status of any REMIC as a REMIC or
(subject to Section  10.01(f))  result in the imposition of a tax upon the Trust
Fund (including but not limited to the tax on prohibited  transaction as defined
in Section 860F(a)(2) of the Code and the tax on contributions to a REMIC as set
forth in Section 860(G)(d) of the Code.

                                      129
<PAGE>

               IN WITNESS  WHEREOF,  the Depositor,  the Master Servicer and the
Trustee have caused their names to be signed hereto by their respective officers
thereunto  duly  authorized and their  respective  seals,  duly attested,  to be
hereunto affixed, all as of the date and year first above written.

                                       RESIDENTIAL ASSET SECURITIES CORPORATION
                                       By:
                                                     Name:  Julie Steinhagen
                                                     Title: Vice President

Attest:
            ------------------------------
           Name:   Randal Van Zee
           Title:  Vice President

                                             RESIDENTIAL FUNDING CORPORATION
                                             By:  ___________________________
                                                  Name:     Randal Van Zee
                                                  Title:    Director

Attest:
            ------------------------------
            Name:   Julie Steinhagen
            Title   Director

                                           BANKERS TRUST  COMPANY,  as Trustee
                                             By: ___________________________
                                                  Name:
                                                  Title:

Attest:
            ------------------------------
            Name:
            Title

                                      130
<PAGE>

STATE OF MINNESOTA                          )
                                            ) ss.:
COUNTY OF HENNEPIN                          )

               On the 26th day of September,  2001 before me, a notary public in
and for said State,  personally  appeared Julie Steinhagen,  known to me to be a
Vice  President  of  Residential  Asset  Securities  Corporation,   one  of  the
corporations that executed the within instrument, and also known to me to be the
person who executed it on behalf of said  corporation,  and  acknowledged  to me
that such corporation executed the within instrument.

               IN WITNESS  WHEREOF,  I have  hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.

                                                ------------------------------
                                                                Notary Public

[Notarial Seal]

                                      131
<PAGE>

STATE OF MINNESOTA                        )
                                          ss.:
COUNTY OF HENNEPIN                        )

               On the 26th day of September,  2001 before me, a notary public in
and for said  State,  personally  appeared  Randal Van Zee,  known to me to be a
Director  of  Residential  Funding  Corporation,  one of the  corporations  that
executed  the  within  instrument,  and also  known to me to be the  person  who
executed  it on behalf of said  corporation,  and  acknowledged  to me that such
corporation executed the within instrument.

               IN WITNESS  WHEREOF,  I have  hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.

                                                 ------------------------------
                                                              Notary Public

[Notarial Seal]

                                      132
<PAGE>

STATE OF NEW YORK                         )
                                          ) ss.:
COUNTY OF NEW YORK                        )

               On the 26th day of September,  2001 before me, a notary public in
and  for  said  State,  personally  appeared  __________,  known  to  me to be a
______________ of Bankers Trust Company,  the New York banking  corporation that
executed  the  within  instrument,  and also  known to me to be the  person  who
executed it on behalf of said corporation,  and acknowledged to me that such New
York banking corporation executed the within instrument.

               IN WITNESS  WHEREOF,  I have  hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.

                                                ------------------------------
                                                              Notary Public

[Notarial Seal]

                                      133
<PAGE>

<TABLE>
<CAPTION>

                             INDEX OF DEFINED TERMS

<S>                                                                                         <C>
Accrued Certificate Interest.................................................................3
Adjustable Group II Loan.....................................................................4
Adjusted Mortgage Rate.......................................................................4
Adjustment Date..............................................................................4
Advance......................................................................................4
Agreement....................................................................................5
Allocated Loss Amount........................................................................5
Amount Held for Future Distribution..........................................................5
Applicable Spread............................................................................5
Appraised Value..............................................................................6
Assignment...................................................................................6
Assignment Agreement.........................................................................6
Available Distribution Amount................................................................6
Bankruptcy Code..............................................................................6
Bankruptcy Loss..............................................................................7
Basic Principal Amount.......................................................................7
Book-Entry Certificate.......................................................................7
Business Day.................................................................................7
Buydown Funds................................................................................7
Buydown Mortgage Loan........................................................................7
Calendar Quarter.............................................................................7
Cash Liquidation.............................................................................7
Certificate..................................................................................8
Certificate Account..........................................................................8
Certificate Account Deposit Date.............................................................8
Certificate Owner............................................................................8
Certificate Principal Balance................................................................8
Certificate Register and Certificate Registrar...............................................9
Certificateholder or Holder..................................................................8
Class........................................................................................9
Class A Certificate..........................................................................9
Class A Principal Distribution Amount.......................................................10
Class A-I Certificate........................................................................9
Class A-I-6 Lockout Distribution Amount......................................................9
Class A-I-6 Lockout Percentage...............................................................9
Class A-I-6 Lockout Pro Rata Distribution Amount.............................................9
Class A-II Certificate......................................................................10
Class M Certificates........................................................................11
Class M-1 Principal Distribution Amount.....................................................10
Class M-2 Certificates......................................................................10
Class M-2 Principal Distribution Amount.....................................................10
Class M-3 Certificates......................................................................11
Class M-3 Principal Distribution Amount.....................................................11
Class M-I Certificates..................................................................10, 11

                                        xi
<PAGE>

Class M-II Certificates.....................................................................11
Class R Certificate.........................................................................11
Class R-I Certificate.......................................................................11
Class R-IA Certificate......................................................................11
Class R-II Certificate......................................................................12
Class R-III Certificate.....................................................................12
Class SB Certificate........................................................................12
Class SB-I Certificate......................................................................12
Class SB-II Certificate.....................................................................12
Closing Date................................................................................12
Code........................................................................................12
Combined Loan-to-Value Ratio................................................................12
Compensating Interest.......................................................................13
Converted Mortgage Loan.....................................................................13
Convertible Mortgage Loan...................................................................13
Corporate Trust Office......................................................................13
Curtailment.................................................................................13
Custodial Account...........................................................................13
Custodial Agreement.........................................................................13
Custodian...................................................................................13
Cut-off Date................................................................................14
Cut-off Date Principal Balance..............................................................14
Debt Service Reduction......................................................................14
Deficient Valuation.........................................................................14
Definitive Certificate......................................................................14
Deleted Mortgage Loan.......................................................................14
Delinquent..................................................................................14
Depository..................................................................................14
Depository Participant......................................................................15
Destroyed Mortgage Note.....................................................................15
Determination Date..........................................................................15
Disqualified Organization...................................................................15
Distribution Date...........................................................................15
Due Date....................................................................................15
Due Period..................................................................................15
Eligible Account............................................................................16
Event of Default............................................................................16
Excess Fraud Loss...........................................................................16
Excess Losses...............................................................................16
Excess Special Hazard Loss..................................................................16
Excess Subordinated Amount..................................................................16
Expense Fee.................................................................................16
Extraordinary Events........................................................................17
Extraordinary Losses........................................................................17
FASIT.......................................................................................17

                                        vii
<PAGE>

FDIC........................................................................................17
FHLMC.......................................................................................17
Final Distribution Date.....................................................................18
Fitch.......................................................................................18
Fixed Rate Certificates.....................................................................18
FNMA........................................................................................18
Foreclosure Profits.........................................................................18
Fraud Loss Amount...........................................................................18
Fraud Losses................................................................................19
Gross Margin................................................................................19
Group I Available Excess Cash Flow..........................................................19
Group I Loans...............................................................................19
Group I Prepayment Interest Shortfall.......................................................19
Group I REO Properties......................................................................19
Group II Available Excess Cash Flow.........................................................19
Group II Loans..............................................................................20
Group II Prepayment Interest Shortfall......................................................20
Group II REO Properties.....................................................................20
High Cost Loan..............................................................................20
Independent.................................................................................20
Index.......................................................................................20
Initial Certificate Principal Balance.......................................................20
Initial Loan Group II Basis Risk Reserve Fund Deposit.......................................21
Insurance Proceeds..........................................................................21
Interest Accrual Period.....................................................................21
Interest Distribution Amount................................................................21
Interim Certification.......................................................................21
Junior Mortgage Loan........................................................................21
Late Collections............................................................................21
LIBOR.......................................................................................21
LIBOR Business Day..........................................................................22
LIBOR Rate Adjustment Date..................................................................22
Liquidation Proceeds........................................................................22
Loan Group..................................................................................22
Loan Group I................................................................................22
Loan Group I Certificates...................................................................22
Loan Group I Excess Cash Flow...............................................................22
Loan Group I Optional Termination Date......................................................22
Loan Group I Stated Principal Balance.......................................................22
Loan Group II...............................................................................23
Loan Group II Basis Risk Reserve Fund.......................................................23
Loan Group II Basis Risk Shortfall..........................................................23
Loan Group II Certificates..................................................................23
Loan Group II Excess Cash Flow..............................................................23
Loan Group II Optional Termination Date.....................................................23

                                        xiii

<PAGE>

Loan Group II Stated Principal Balance......................................................23
Loan-to-Value Ratio.........................................................................22
Maturity Date...............................................................................23
Maximum Group I Rate........................................................................23
Maximum Mortgage Rate.......................................................................24
Maximum Net Mortgage Rate...................................................................24
MERS........................................................................................24
MERS(R)System...............................................................................24
MIN.........................................................................................24
Minimum Mortgage Rate.......................................................................24
Modified Mortgage Loan......................................................................24
Modified Net Mortgage Rate..................................................................24
MOM Loan....................................................................................25
Monthly Payment.............................................................................25
Moody's.....................................................................................25
Mortgage....................................................................................25
Mortgage File...............................................................................25
Mortgage Insurer............................................................................25
Mortgage Loan Schedule......................................................................25
Mortgage Loans..............................................................................27
Mortgage Note...............................................................................27
Mortgage Rate...............................................................................27
Mortgaged Property..........................................................................27
Mortgagor...................................................................................27
Net Mortgage Rate...........................................................................27
Non-Primary Residence Loans.................................................................28
Nonrecoverable Advance......................................................................28
Nonsubserviced Mortgage Loan................................................................28
Non-United States Person....................................................................28
Note Margin.................................................................................28
Notice......................................................................................28
Notional Amount.............................................................................28
Offered Certificates........................................................................29
Officers' Certificate.......................................................................29
Opinion of Counsel..........................................................................29
Optional Termination Date...................................................................29
Outstanding Mortgage Loan...................................................................29
Ownership Interest..........................................................................29
Pass-Through Rate...........................................................................29
Paying Agent................................................................................30
Percentage Interest.........................................................................30
Periodic Cap................................................................................30
Permitted Investments.......................................................................30
Permitted Transferee........................................................................31
Person......................................................................................31

                                        xiv

<PAGE>

Policy......................................................................................31
Premium.....................................................................................32
Premium Rate................................................................................32
Prepayment Assumption.......................................................................32
Prepayment Interest Shortfall...............................................................32
Prepayment Period...........................................................................32
Primary Insurance Policy....................................................................32
Principal Distribution Amount...............................................................32
Principal Prepayment........................................................................33
Principal Prepayment in Full................................................................33
Principal Remittance Amount.................................................................33
Program Guide...............................................................................33
Purchase Price..............................................................................34
Qualified Substitute Mortgage Loan..........................................................34
Rating Agency...............................................................................34
Realized Loss...............................................................................34
Record Date.................................................................................35
Relief Act..................................................................................35
REMIC.......................................................................................35
REMIC Administrator.........................................................................35
REMIC I.....................................................................................36
REMIC I Remittance Rate.....................................................................36
REMIC IA....................................................................................36
REMIC IA Interest...........................................................................36
REMIC IA Regular Interests..................................................................36
REMIC IA Remittance Rate....................................................................37
REMIC II....................................................................................37
REMIC II Remittance Rate....................................................................37
REMIC III...................................................................................37
REMIC III Certificate.......................................................................37
REMIC III Regular Certificate...............................................................37
REMIC III Regular Interest..................................................................38
REMIC Provisions............................................................................38
REO Acquisition.............................................................................38
REO Disposition.............................................................................38
REO Imputed Interest........................................................................38
REO Proceeds................................................................................38
REO Property................................................................................38
Request for Release.........................................................................38
Required Insurance Policy...................................................................39
Responsible Officer.........................................................................39
Seller......................................................................................39
Seller's Agreement..........................................................................39
Senior Enhancement Percentage...............................................................40
Servicing Accounts..........................................................................39

                                        xv

<PAGE>

Servicing Advances..........................................................................39
Servicing Fee...............................................................................39
Servicing Fee Rate..........................................................................40
Servicing Modification......................................................................40
Servicing Officer...........................................................................40
Sixty-Plus Delinquency Percentage...........................................................40
Special Hazard Amount.......................................................................40
Special Hazard Loss.....................................................................17, 41
Specified Enhancement Percentage............................................................41
Standard & Poor's...........................................................................41
Startup Date................................................................................42
Stated Principal Balance....................................................................42
Stepdown Date...............................................................................42
Subordinated Amount.........................................................................42
Subordination Deficiency Amount.............................................................42
Subordination Floor.........................................................................43
Subordination Increase Amount...............................................................42
Subordination Percentage....................................................................43
Subordination Reduction Amount..............................................................43
Subserviced Mortgage Loan...................................................................43
Subservicer.................................................................................43
Subservicer Advance.........................................................................43
Subservicing Account........................................................................44
Subservicing Agreement......................................................................44
Subservicing Fee............................................................................44
Targeted Subordinated Amount................................................................44
Tax Returns.................................................................................44
Transfer....................................................................................44
Transferee..................................................................................44
Transferor..................................................................................44
Trigger Event...............................................................................44
Trust Fund..................................................................................45
Unadjusted Accrued Certificate Interest.....................................................45
Uniform Single Attestation Program for Mortgage Bankers.....................................45
Uninsured Cause.............................................................................45
United States Person........................................................................46
Voting Rights...............................................................................46

                                        xvi

</TABLE>

<PAGE>

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00030-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00030-of-00352.parquet"}]]