Document:

Exhibit 10.5(e)

 

AMENDMENT NO. 4

 

TO

 

MASTER REPURCHASE
AGREEMENT

 

THIS AMENDMENT NO. 4, made as of March 1,
2006 (“Amendment No. 4”), by and among BEAR STEARNS MORTGAGE CAPITAL
CORPORATION (the “Buyer”) and AAMES CAPITAL CORPORATION (“ACC”), AAMES INVESTMENT
CORPORATION (“AIC”) and AAMES FUNDING CORPORATION (“AFC”, and together with ACC
and AIC, the “Sellers”).

 

R E C I T A L S

 

WHEREAS, Buyer and the Sellers have previously entered
into a Master Repurchase Agreement dated as of August 5, 2004, as amended by
Amendment No. 1 dated as of March 18, 2005, Amendment No. 2
dated as of June 20, 2005 and Amendment No. 3 dated as October 31,
2005 (collectively, the “Agreement”); and

 

WHEREAS, Buyer and the Sellers desire to modify the
terms of the Agreement;

 

NOW, THEREFORE, in consideration of the mutual
promises and covenants hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:

 

Section 1. Definitions. Capitalized terms
used herein and not otherwise defined shall have the meanings assigned in the
Agreement.

 

Section 2. Financial Covenants. Effective
as of December 31, 2005, Section 10(d)(xv), (xvi) and (xvii) of the
Agreement are hereby deleted in their entirety and replaced by the following:

 

“(xv)                      the Leverage Ratio of AIC shall not exceed 20.0 to 1.0
at any time.

 

(xvi)                         the Adjusted Leverage Ratio of AIC shall not exceed
7.0 to 1.0 at any time.

 

(xvii)                      the aggregate amount of AIC’s cash, Cash Equivalents
and available borrowing capacity on unencumbered assets that could be drawn
against (taking into account required haircuts) under committed warehouse or
working capital facilities, on a consolidated basis and on any given day, shall
not be less than $38,000,000.”

 

Section 3. Waiver. Upon execution of this
Amendment No. 4, the Buyer and the Sellers agree that any non-compliance
with or the violation of Section 10(d)(xv),(xvi) or (xvi) on or after December 31,
2005 and up to the date of this Amendment No. 4 are hereby waived.

 

 

Section 4. Expenses. Each party hereto
shall pay its own expenses in connection with this Amendment No. 3.

 

Section 5. Controlling Law. This Amendment
No. 3 shall be governed and construed in accordance with the laws of the
State of New York applicable to agreements made and entirely performed therein.

 

Section 6. Interpretation. The provisions
of the Agreement shall be read so as to give effect to the provisions of this
Amendment No. 4.

 

Section 7. Counterparts. This Amendment No. 4
may be executed 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 8. Ratification and Confirmation. As
amended by this Amendment No. 4, the Agreement is hereby in all respects
ratified and confirmed, and the Agreement as amended by this Amendment No. 4
shall be read, taken and construed as one and the same instrument.

 

 

[Remainder of Page Blank
– Signatures Follow]

 

2

 

IN WITNESS WHEREOF, Buyer and each of the Sellers have
caused their names to be signed hereto by their respective officers thereunto
duly authorized, all as of the date first above written.

 

	
   

  	
  BEAR STEARNS MORTGAGE CAPITAL

  	 

	
   

  	
  CORPORATION

  	 

	
   

  	
   

  	 

	
   

  	
  By:

  	
  /s/ David S. Marren

  	
   

  	 

	
   

  	
  Title: Senior Vice
  President

  	 

	
   

  	
  Date: 3-2-06

  	 

	
   

  	
   

  	 

	
   

  	
  AAMES CAPITAL
  CORPORATION

  	 

	
   

  	
   

  	 

	
   

  	
  By:

  	
  /s/ Jon D. Van Deuren

  	
   

  
	
   

  	
  Title: EVP/CFO

  	 

	
   

  	
  Date: 2 March 2006

  	 

	
   

  	
   

  	 

	
   

  	
  AAMES INVESTMENT
  CORPORATION

  	 

	
   

  	
   

  	 

	
   

  	
  By:

  	
  /s/ Jon D. Van Deuren

  	
   

  	 

	
   

  	
  Title: EVP/CFO

  	 

	
   

  	
  Date: 2 March 2006

  	 

	
   

  	
   

  	 

	
   

  	
  AAMES FUNDING
  CORPORATION

  	 

	
   

  	
   

  	 

	
   

  	
  By:

  	
  /s/ Jon D. Van Deuren

  	
   

  	 

	
   

  	
  Title: EVP/CFO

  	 

	
   

  	
  Date: 2 March 2006

  	 

									

 

3Exhibit 10.8(a)

 

Execution
Version

 

 

MASTER
REPURCHASE AGREEMENT

 

Dated as of December 2,
2005

 

 

by and among

 

 

AAMES
CAPITAL CORPORATION, 

 

AAMES
FUNDING CORPORATION,

 

and

 

AAMES
INVESTMENT CORPORATION,

as Sellers

 

 

and

 

 

MORGAN
STANLEY BANK,

as Buyer

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  1.

  	
  Definitions and
  Accounting Matters.

  	
  1

  
	
   

  	
  1.01

  	
  Certain Defined Terms

  	
  1

  
	
   

  	
  1.02

  	
  Accounting Terms and Determinations

  	
  16

  
	
   

  	
  1.03

  	
  Other Definitional Provisions

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  2.

  	
  Transactions;
  Repurchases and Margin Maintenance.

  	
  17

  
	
   

  	
  2.01

  	
  Transactions.

  	
  17

  
	
   

  	
  2.02

  	
  Transaction Request Procedure.

  	
  17

  
	
   

  	
  2.03

  	
  Limitation on Types of Transactions;
  Illegality

  	
  18

  
	
   

  	
  2.04

  	
  Repurchase of Purchased Loans; Payment of
  Repurchase Price, Price Differential.

  	
  19

  
	
   

  	
  2.05

  	
  Margin Maintenance.

  	
  19

  
	
   

  	
  2.06

  	
  Voluntary Prepayments

  	
  20

  
	
   

  	
  2.07

  	
  Extension of Termination Date

  	
  20

  
	
   

  	
  2.08

  	
  Takeout Commitments.

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  3.

  	
  Payments; Computations;
  Etc.

  	
  21

  
	
   

  	
  3.01

  	
  Payments.

  	
  21

  
	
   

  	
  3.02

  	
  Computations

  	
  21

  
	
   

  	
  3.03

  	
  Requirements of Law.

  	
  21

  
	
   

  	
  3.04

  	
  Fees

  	
  23

  
	
   

  	
  3.05

  	
  Tax Treatment

  	
  23

  
	
   

  	
  3.06

  	
  Income
  Payments

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  4.

  	
  Purchased Items;
  Security Interest.

  	
  23

  
	
   

  	
  4.01

  	
  Purchased Items; Security Interest.

  	
  23

  
	
   

  	
  4.02

  	
  Further Documentation

  	
  25

  
	
   

  	
  4.03

  	
  Changes in Locations, Name, etc

  	
  25

  
	
   

  	
  4.04

  	
  Buyer’s Appointment as Attorney-in-Fact.

  	
  25

  
	
   

  	
  4.05

  	
  Performance by Buyer of Sellers’
  Obligations

  	
  27

  
	
   

  	
  4.06

  	
  Proceeds

  	
  27

  
	
   

  	
  4.07

  	
  Remedies

  	
  27

  
	
   

  	
  4.08

  	
  Limitation on Duties Regarding Preservation
  of Purchased Items and Collateral

  	
  28

  
	
   

  	
  4.09

  	
  Powers Coupled with an Interest

  	
  28

  
	
   

  	
  4.10

  	
  Reconveyance of Purchased Items; Release of
  Security Interest

  	
  28

  
	
   

  	
  4.11

  	
  Interest Rate Protection Agreements

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  5.

  	
  Conditions Precedent.

  	
  29

  
	
   

  	
  5.01

  	
  Initial Transaction

  	
  29

  
	
   

  	
  5.02

  	
  Initial and Subsequent Transactions

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  6.

  	
  Representations and
  Warranties.

  	
  32

  
	
   

  	
  6.01

  	
  Legal Name

  	
  32

  
	
   

  	
  6.02

  	
  Existence

  	
  32

  
	
   

  	
  6.03

  	
  Financial Condition

  	
  32

  
	
   

  	
  6.04

  	
  Litigation

  	
  33

  
	
   

  	
  6.05

  	
  No Breach

  	
  33

  
	
   

  	
  6.06

  	
  Action

  	
  33

  

 

i

 

	
   

  	
  6.07

  	
  Approvals

  	
  33

  
	
   

  	
  6.08

  	
  Margin Regulations

  	
  34

  
	
   

  	
  6.09

  	
  Taxes

  	
  34

  
	
   

  	
  6.10

  	
  Investment Company Act

  	
  34

  
	
   

  	
  6.11

  	
  Purchased Items; Security Interests.

  	
  34

  
	
   

  	
  6.12

  	
  Chief Executive Office/Jurisdiction of
  Organization

  	
  35

  
	
   

  	
  6.13

  	
  Location of Books and Records

  	
  35

  
	
   

  	
  6.14

  	
  True and Complete Disclosure

  	
  35

  
	
   

  	
  6.15

  	
  Tangible Net Worth

  	
  35

  
	
   

  	
  6.16

  	
  ERISA

  	
  35

  
	
   

  	
  6.17

  	
  Capitalization

  	
  36

  
	
   

  	
  6.18

  	
  Hedges

  	
  36

  
	
   

  	
  6.19

  	
  Regulatory Status

  	
  36

  
	
   

  	
  6.20

  	
  Real Estate Investment Trust

  	
  36

  
	
   

  	
  6.21

  	
  Compliance with Anti-Money Laundering Laws

  	
  36

  
	
   

  	
  6.22

  	
  Solvency

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  7.

  	
  Covenants of the
  Sellers.

  	
  37

  
	
   

  	
  7.01

  	
  Financial Statements

  	
  37

  
	
   

  	
  7.02

  	
  Litigation

  	
  39

  
	
   

  	
  7.03

  	
  Existence, etc

  	
  39

  
	
   

  	
  7.04

  	
  Prohibition of Fundamental Changes

  	
  40

  
	
   

  	
  7.05

  	
  Margin Deficiency

  	
  40

  
	
   

  	
  7.06

  	
  Notices

  	
  40

  
	
   

  	
  7.07

  	
  Hedging

  	
  41

  
	
   

  	
  7.08

  	
  Reports

  	
  41

  
	
   

  	
  7.09

  	
  Underwriting Guidelines

  	
  41

  
	
   

  	
  7.10

  	
  Transactions with Affiliates

  	
  41

  
	
   

  	
  7.11

  	
  Limitation on Liens

  	
  42

  
	
   

  	
  7.12

  	
  Limitation on Guarantees

  	
  42

  
	
   

  	
  7.13

  	
  Limitation on Distributions

  	
  42

  
	
   

  	
  7.14

  	
  Financial Covenants.

  	
  42

  
	
   

  	
  7.15

  	
  [Reserved]

  	
  43

  
	
   

  	
  7.16

  	
  No Adverse Selection

  	
  43

  
	
   

  	
  7.17

  	
  Remittance of Prepayments

  	
  43

  
	
   

  	
  7.18

  	
  Servicer; Servicer Report

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  8.

  	
  Events of Default.

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  9.

  	
  Remedies Upon Default.

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  10.

  	
  No Duty of Buyer.

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
  Section

  	
  11.

  	
  Miscellaneous.

  	
  46

  
	
   

  	
  11.01

  	
  Waiver

  	
  46

  
	
   

  	
  11.02

  	
  Notices

  	
  47

  
	
   

  	
  11.03

  	
  Indemnification and Expenses.

  	
  47

  
	
   

  	
  11.04

  	
  Amendments

  	
  48

  
	
   

  	
  11.05

  	
  Assignments and Participations.

  	
  48

  
	
   

  	
  11.06

  	
  Successors and Assigns

  	
  49

  
	
   

  	
  11.07

  	
  Survival

  	
  49

  

 

ii

 

	
   

  	
  11.08

  	
  Captions

  	
  49

  
	
   

  	
  11.09

  	
  Counterparts

  	
  50

  
	
   

  	
  11.10

  	
  Repurchase Agreement Constitutes Security
  Agreement; Governing Law

  	
  50

  
	
   

  	
  11.11

  	
  Submission To Jurisdiction; Waivers

  	
  50

  
	
   

  	
  11.12

  	
  WAIVER OF JURY TRIAL

  	
  50

  
	
   

  	
  11.13

  	
  Acknowledgments

  	
  51

  
	
   

  	
  11.14

  	
  Hypothecation or Pledge of Purchased Items

  	
  51

  
	
   

  	
  11.15

  	
  Servicing.

  	
  51

  
	
   

  	
  11.16

  	
  Periodic Due Diligence Review

  	
  52

  
	
   

  	
  11.17

  	
  Set-Off

  	
  53

  
	
   

  	
  11.18

  	
  Intent.

  	
  53

  
	
   

  	
  11.19

  	
  Disclosure
  Relating to Certain Federal Protections

  	
  54

  
	
   

  	
  11.20

  	
  Joint and Several Liability

  	
  54

  
	
   

  	
  11.21

  	
  Treatment of Certain Information

  	
  54

  
	
   

  	
  11.22

  	
  Substitution

  	
  55

  

 

iii

 

	
  SCHEDULES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Schedule 1

  	
  Representations and Warranties re: Mortgage
  Loans

  	
   

  
	
   

  	
  Schedule 2

  	
  Filing Jurisdictions and Offices;
  Identification Numbers

  	
   

  
	
   

  	
  Schedule 3

  	
  Capitalization

  	
   

  
	
   

  	
  Schedule 4

  	
  Servicing Fields

  	
   

  
	
   

  	
  Schedule 5

  	
  Trade Names

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  EXHIBITS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Exhibit A

  	
  Form of Custodial Agreement

  	
   

  
	
   

  	
  Exhibit B

  	
  Form of Takeout Proceeds
  Identification Letter

  	
   

  
	
   

  	
  Exhibit C

  	
  Form of Opinion of Counsel to Sellers

  	
   

  
	
   

  	
  Exhibit D

  	
  Form of Transaction Request

  	
   

  
	
   

  	
  Exhibit E-1

  	
  Form of Seller’s Release Letter

  	
   

  
	
   

  	
  Exhibit E-2

  	
  Form of Warehouse Lender’s Release
  Letter

  	
   

  
	
   

  	
  Exhibit F

  	
  Underwriting Guidelines

  	
   

  
	
   

  	
  Exhibit G

  	
  Form of Servicer Notice

  	
   

  
	
   

  	
  Exhibit H

  	
  Form of Assignment and Acceptance

  	
   

  
	
   

  	
  Exhibit I

  	
  Form of Notice of Prepayment

  	
   

  

 

iv

 

MASTER REPURCHASE AGREEMENT

 

MASTER REPURCHASE AGREEMENT, dated as of December 2, 2005 (as
amended, restated, supplemented or otherwise modified and in effect from time
to time, this “Repurchase Agreement”), by and among AAMES CAPITAL
CORPORATION, a California corporation (“Aames Capital”), AAMES FUNDING
CORPORATION, a California corporation (“Aames Funding”), AAMES
INVESTMENT CORPORATION, a Maryland corporation (“Aames Investment”,
together with Aames Capital and Aames Funding, collectively, the “Sellers”,
each a “Seller”) and MORGAN STANLEY BANK (the “Buyer”).

 

RECITALS

 

WHEREAS, the Sellers, as borrowers, and the Buyer, as lender, are
parties to that certain Master Loan and Security Agreement, dated as of October 21,
2004 (as amended, supplemented or otherwise modified prior to the date hereof,
the “Existing Loan Agreement”).

 

WHEREAS, in light of recent changes in the Bankruptcy Code (defined
below), the parties have agreed to substitute this Repurchase Agreement for the
Existing Loan Agreement and to change the nature of their relationship from “borrowers”
and “lender” to “sellers” and “buyer” as provided herein.

 

WHEREAS, in furtherance of the foregoing, the Sellers have each
requested that the Buyer from time to time enter into transactions (each, a “Transaction”),
pursuant to which a Seller shall sell to the Buyer, and the Buyer shall
purchase from such Seller, on the Purchase Date (defined below) for such
Transaction, certain Eligible Mortgage Loans (defined below), with a
simultaneous agreement by the Buyer to sell to such Seller, and by such Seller
to repurchase from the Buyer, Purchased Loans (defined below) on the related
Repurchase Date (defined below) against payment by such Seller of an amount
equal to the related Repurchase Price (defined below).

 

WHEREAS, each Seller is engaged in a business that is complimentary to
the business of the other Sellers. Each Seller will directly benefit from each
Transaction entered into by another Seller, and the proceeds of each
Transaction will inure to the benefit of each Seller.

 

NOW, THEREFORE, in consideration of the premises and mutual obligations
set forth herein, each of the Sellers and the Buyer hereby agree that the
Existing Loan Agreement is hereby amended, superceded and restated in its
entirety as set forth in the heading and recitals hereto and as follows:

 

Section 1. Definitions and Accounting Matters.

 

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

 

“Aames Capital” shall have the meaning provided in the heading
hereto.

 

 

“Aames Funding” shall have the meaning provided in the heading
hereto.

 

“Aames Investment” shall have the meaning provided in the
heading hereto.

 

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

 

“Adjusted Indebtedness” shall mean an amount equal to Total
Indebtedness less any outstanding non-recourse real estate investment trust portfolio
debt.

 

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

 

“Anti-Money Laundering Laws” shall have the meaning provided in Section 6.21
hereof.

 

“Applicable Pricing Spread” shall mean the sum of the weighted
averages of the applicable rates per annum for each type of Eligible Mortgage
Loan for each day that Transactions are outstanding in respect of such type of
Eligible Mortgage Loans, determined by multiplying (a) for each type of
Eligible Mortgage Loan set forth in the table below, a fraction equal to the
Recognized Value of all Eligible Mortgage Loans of such type divided by the
Recognized Value of all Eligible Mortgage Loans subject to Transactions then
outstanding, times (b) for each type of
Eligible Mortgage Loan set forth in the table below, the percentage set forth
in the table below opposite such type of Eligible Mortgage Loan:

 

	
  Type of Eligible Mortgage Loan

  	
   

  	
  Applicable Pricing Spread

  	
   

  
	
  First Lien
  Loan that is a Performing Loan

  	
   

  	
  0.85

  	
  %

  
	
  Second Lien
  Loan that is a Performing Loan

  	
   

  	
  0.85

  	
  %

  
	
  First Lien
  Loan or Second Lien Loan that is a Class A Defaulted Loan

  	
   

  	
  1.20

  	
  %

  
	
  First Lien
  Loan or Second Lien Loan that is a Class B Defaulted Loan

  	
   

  	
  1.20

  	
  %

  
	
  First Lien
  Loan or Second Lien Loan that is a Class C Defaulted Loan

  	
   

  	
  1.50

  	
  %

  

 

“Applicable Purchase Percentage” shall mean, with respect to
each Eligible Mortgage Loan, the applicable purchase percentage set forth in
the table below opposite the applicable type of Eligible Mortgage Loan:

 

2

 

	
  Type of Eligible Mortgage Loan

  	
   

  	
  Applicable Purchase

  Percentage

  	
   

  
	
  First Lien
  Loan that is a Performing Loan

  	
   

  	
  97

  	
  %

  
	
  Second Lien
  Loan that is a Performing Loan

  	
   

  	
  97

  	
  %

  
	
  First Lien
  Loan or Second Lien Loan that is a Class A Defaulted Loan

  	
   

  	
  80

  	
  %

  
	
  First Lien
  Loan or Second Lien Loan that is a Class B Defaulted Loan

  	
   

  	
  75

  	
  %

  
	
  First Lien
  Loan or Second Lien Loan that is a Class C Defaulted Loan, prior to
  receipt by the Buyer of a BPO for such Class C Defaulted Loan

  	
   

  	
  50

  	
  %

  
	
  First Lien
  Loan or Second Lien Loan that is a Class C Defaulted Loan, after receipt
  by the Buyer of a BPO for such Class C Defaulted Loan

  	
   

  	
  65

  	
  %

  
	
  Kick-Out
  Mortgage Loans

  	
   

  	
  90

  	
  %

  

 

“Assignment and Acceptance” shall have the meaning set forth in Section 11.05(a) hereof.

 

“Assignment of Mortgage” means, with respect to any mortgage, an
assignment of the mortgage, notice of transfer or equivalent instrument in
recordable form, sufficient under the laws of the jurisdiction wherein the
related mortgaged property is located to reflect the assignment and pledge of
the mortgage.

 

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

 

“BPO” shall mean a broker’s price opinion relating to the
Mortgaged Property securing an Eligible Mortgage Loan, in form and
substance satisfactory to the Buyer in its sole discretion from a broker chosen
by the Buyer.

 

“Business Day” shall mean any day other than (i) a Saturday
or Sunday or (ii) a day on which the New York Stock Exchange, the Federal
Reserve Bank of New York or the Custodian is authorized or obligated by law or
executive order to be closed.

 

“Buyer” shall have the meaning provided in the introductory
paragraph hereof.

 

“Calculation Period” shall mean, with respect to any
Transaction, (a) initially, the period commencing on the Purchase Date to
but excluding the first Payment Date; and (b) thereafter, each period
commencing on a Payment Date to but excluding the next Payment Date. Notwithstanding
the foregoing, no Calculation Period may end after the Termination Date.

 

“Capital Stock” shall mean any and all shares, interests,
participations or other equivalents (however designated) of capital stock of a
corporation, any and all similar ownership interests in a Person (other than a
corporation) and any and all warrants or options to purchase any of the
foregoing.

 

“Capital Lease Obligations” shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to

 

3

 

use) Property to the extent such obligations
are required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP, and, for purposes of this Repurchase
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.

 

“Cash Equivalents” shall mean (a) securities with
maturities of ninety (90) days or less from the date of acquisition issued or
fully guaranteed or insured by the United States Government or any agency
thereof, (b) certificates of deposit and eurodollar time deposits with
maturities of ninety (90) days or less from the date of acquisition and
overnight bank deposits of any commercial bank having capital, surplus and
retained earnings in excess of $750,000,000, (c) repurchase obligations of
any commercial bank satisfying the requirements of clause (b) of this
definition, having a term of not more than seven days with respect to
securities issued or fully guaranteed or insured by the United States
Government, (d) commercial paper of a domestic issuer rated at least A-1
or the equivalent thereof by S&P or P-1 or the equivalent thereof by Moody’s
and in either case maturing within ninety (90) days after the day of
acquisition, (e) securities with maturities of ninety (90) days or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political subdivision or
taxing authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may be)
are rated at least A by S&P or A by Moody’s, (f) securities with
maturities of ninety (90) days or less from the date of acquisition backed by
standby letters of credit issued by any commercial bank satisfying the
requirements of clause (b) of this definition, or (g) shares of money
market, mutual or similar funds which invest exclusively in assets satisfying
the requirements of clauses (a) through (f) of this definition or (h) available
capacity under committed revolving facilities, other than the Buyer’s revolving
facility.

 

“Class” shall mean, as to any Defaulted Loan, its status as a Class A
Defaulted, Loan, Class B Defaulted Loan or a Class C Defaulted Loan.

 

“Class A Defaulted Loan” shall mean an Eligible Mortgage
Loan for which the related Mortgagor is thirty (30) to fifty-nine (59) days
delinquent in scheduled payments of principal and interest as at the end of the
preceding calendar month.

 

“Class B Defaulted Loan” shall mean an Eligible Mortgage
Loan for which the related Mortgagor is sixty (60) to eighty-nine (89) days delinquent
in scheduled payments of principal and interest as at the end of the preceding
calendar month.

 

“Class C Defaulted Loan” shall mean an Eligible Mortgage
Loan for which the related Mortgagor is ninety (90) days or more delinquent in
scheduled payments of principal and interest or which is subject to foreclosure
proceedings as at the end of the preceding calendar month.

 

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

 

“Collateral” shall have the meaning provided in Section 4.01(d) hereof.

 

4

 

“Custodial Agreement” shall mean the Custodial Agreement, dated
as of December 2, 2005, among the Sellers, the Custodian and the Buyer,
attached as Exhibit A hereto, as the same may be amended,
restated, supplemented or otherwise modified and in effect from time to time.

 

“Custodian” shall mean Deutsche Bank National Trust Company,
formerly known as Bankers Trust Company, as custodian under the Custodial
Agreement, and its successors and permitted assigns thereunder.

 

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

 

“Defaulted Loan” shall mean a Class A Defaulted Loan, a Class B
Defaulted Loan or a Class C Defaulted Loan.

 

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

 

“Due Diligence Review” shall mean the performance by the Buyer
of any or all of the reviews permitted under Section 11.16 hereof with
respect to any or all of the Mortgage Loans, as desired by the Buyer from time
to time.

 

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

 

“Eligible Mortgage Loan” shall mean a Mortgage Loan secured by a
first mortgage lien or a second mortgage lien on a one-to-four family
residential property, as to which the representations and warranties in Section 6.11
and Part I of Schedule 1 hereof are correct; provided
that, in no event shall any Eligible Mortgage Loan be a security for purposes
of any securities or blue-sky laws.

 

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

 

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

 

“Eurocurrency Liabilities” shall have the meaning specified in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time

 

“Eurodollar Base Rate” shall mean, with respect to each day any
Transaction is outstanding, the rate per annum equal to the rate appearing at page 5
of the Telerate Screen as one-month LIBOR on such date (and if such date is not
a Business Day, the rate quoted as one-month LIBOR on the Business Day
immediately preceding such date), and if such rate shall not be so quoted, the
rate per annum at which the Agent is offered Dollar deposits at or about 10:00 a.m.,

 

5

 

New York City time, on such date by prime
banks in the interbank eurodollar market where the eurodollar and foreign
currency exchange operations in respect of the Transactions are then being
conducted for delivery on such day for a period of thirty (30) days and in an
amount comparable to the aggregate Purchase Price of all Transactions
outstanding on such day.

 

“Eurodollar Rate” shall mean with respect to each day during
each Calculation Period pertaining to a Eurodollar Transaction, a rate per
annum determined for such day in accordance with the following formula (rounded
upward to the nearest 1/100th of 1%):

 

Eurodollar
Base Rate

1.00 – Eurodollar Rate Reserve
Percentage

 

“Eurodollar Rate Reserve Percentage” shall mean, for any
Calculation Period pertaining to a Eurodollar Transaction, the reserve
percentage applicable two (2) Business Days before the first day of such
Calculation Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor thereto) for
determining the maximum reserve requirement (including, without limitation, any
emergency, supplemental or other marginal reserve requirement) for a member
bank of the Federal Reserve System in New York, New York with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities (or
with respect to any other category of liabilities that includes deposits by
reference to which the interest rate on Eurodollar Transactions is determined)
having a term comparable to such Calculation Period.

 

“Eurodollar Transaction” 
shall mean a Transaction with respect to which the related Pricing Rate
is determined by reference to the Eurodollar Rate.

 

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

 

“Excess Proceeds” shall have the meaning provided in Section 2.08
hereof.

 

“Executive Order” shall have the meaning provided in Section 6.21
hereof.

 

“Existing Loan Agreement” shall have the meaning provided in the
first Recitals paragraph hereof.

 

“Federal Funds Rate” shall mean, for any day, the weighted
average of the rates on overnight federal funds transactions with members of
the Federal Reserve System arranged by federal funds brokers, as published on
the next succeeding Business Day by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day which is a Business Day, the
average of the quotations for the day of such transactions received by the
Buyer from three federal funds brokers of recognized standing selected by it.

 

“Fee Letter” shall mean the letter dated the date hereof among
the Sellers, the Buyer and Morgan Stanley Mortgage Capital Inc.

 

“First Lien Loan” shall mean an Eligible Mortgage Loan for which
the related Mortgage constitutes a first priority lien on the related Mortgaged
Property.

 

6

 

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

 

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

 

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

 

“Income” shall mean, with respect to any Purchased Loan at any
time, any principal and/or interest thereon and all dividends, sale proceeds
(including, without limitation, any proceeds from the securitization of such
Purchased Loan or other disposition thereof) and other collections and
distributions thereon (including, without limitation, any proceeds received in
respect of mortgage insurance) in respect of periods on or after the initial
Purchase Date with respect to such Purchased Loan.

 

“Indebtedness” shall mean, for any Person without
duplication:  (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of Property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such Property from such Person); (b) obligations of such Person
to pay the deferred purchase or acquisition price of Property or services,
other than trade accounts payable (other than for borrowed money) arising, and
accrued expenses incurred, in the ordinary course of business so long as such
trade accounts payable are payable within ninety (90) days from the date the
respective goods are delivered or the respective services are rendered; (c) Indebtedness
of others secured by a Lien on the Property of such Person, whether or not the
respective Indebtedness so secured has been assumed by such Person; (d) obligations
(contingent or otherwise) of such Person in respect of letters of credit or
similar instruments issued or accepted by banks and other financial
institutions for account of such Person; (e) Capital Lease Obligations of
such Person; (f) obligations of such Person under repurchase agreements,
sale/buy-back agreements or like arrangements; (g) Indebtedness of others
Guaranteed by such Person; (h) all obligations of such Person incurred in
connection with the acquisition or carrying of fixed assets by such Person; and
(i) Indebtedness of general partnerships of which such Person is a general
partner.

 

7

 

“Interest-Only Mortgage Loan” shall mean a Mortgage Loan which,
for the period of time specified in the related Mortgage Note, requires only
the payment of interest.

 

“Interest Rate Protection Agreement” shall mean, with respect to
any or all of the Purchased Loans, any short sale of US Treasury Securities, or
futures contract, or mortgage related security, or Eurodollar futures contract,
or options related contract, or interest rate swap, cap or collar agreement or
similar arrangement providing for protection against fluctuations in interest
rates or the exchange of nominal interest obligations, either generally or
under specific contingencies, entered into by any Seller and an Affiliate of
the Buyer, and acceptable to the Buyer.

 

“Kick-Out Mortgage Loans” shall mean any Purchased Loan
(including any proposed Purchased Loan) which has been rejected from purchase
by a buyer of mortgage loans for any reason.

 

“Leverage Ratio” shall mean, at any time, the ratio of (i) the
aggregate principal amount of all Indebtedness of Parent and its respective
Subsidiaries at such time which on a consolidated basis, in accordance with
GAAP, would be required to be reflected on a consolidated balance sheet of
Parent and its respective Subsidiaries as a liability to (ii) the sum of (1) the
Tangible Net Worth of Parent and its respective Subsidiaries plus (2) with respect to Parent and its Subsidiaries
only, accrued but unpaid dividends on preferred stock at such time.

 

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

 

“Margin Base” shall mean the aggregate Recognized Value of all
Purchased Loans subject to Transactions from time to time outstanding
hereunder; provided, that the following limitations shall apply at all
times:

 

(i)                                     the
aggregate Recognized Value of all Second Lien Loans that are Performing Loans
shall not exceed $50,000,000;

 

(ii)                                  the
aggregate Recognized Value of all First Lien Loans or Second Lien Loans that
are Class A Defaulted Loans shall not exceed $10,000,000;

 

(iii)                               the
aggregate Recognized Value of all First Lien Loans or Second Lien Loans that
are Class B Defaulted Loans shall not exceed $10,000,000;

 

(iv)                              the
aggregate Recognized Value of all First Lien Loans or Second Lien Loans that
are Class C Defaulted Loans shall not exceed $5,000,000;

 

(v)                                 the
aggregate Recognized Value of all Non-Owner Occupied Mortgage Loans shall not
exceed $25,000,000;

 

(vi)                              the
aggregate Recognized Value of all Interest-Only Mortgage Loans shall not exceed
$125,000,000;

 

8

 

(vii)                           the
aggregate Recognized Value of all Stated Documentation Mortgage Loans shall not
exceed $225,000,000;

 

(viii)                        the
aggregate Recognized Value of all Purchased Loans with respect to which the
related Mortgagor has a FICO less than 550 shall not exceed $50,000,000; and

 

(ix)                                the
Recognized Value shall be deemed to be zero with respect to each Purchased
Loan:

 

(1)                                  in
respect of which there is a breach of a representation and warranty set forth
on Schedule 1 (assuming each representation and warranty is made as
of any date the Margin Base is determined);

 

(2)                                  except
with respect to Kick-Out Mortgage Loans, which remains subject to a Transaction
outstanding hereunder later than 150 days after the initial Purchase Date
therefor;

 

(3)                                  which
is a Kick-Out Mortgage Loan that remains subject to a Transaction outstanding
hereunder later than ninety (90) days after the initial Purchase Date therefor
(without regard to whether such Purchased Loan was identified as a Kick-Out
Mortgage Loan on or after such initial Purchase Date);

 

(4)                                  which
has been released from the possession of the Custodian under the Custodial
Agreement to a Seller for a period in excess of fourteen (14) days;

 

(5)                                  which
is a Kick-Out Mortgage Loan that has been rejected for purchase by any buyer of
mortgage loans more than once or by more than one buyer of mortgage loans;

 

(6)                                  which
exceed the limitations on Recognized Value set forth in (i) through (vi) above;
or

 

(7)                                  which
is a Class C Defaulted Loan for which a BPO is unable to be obtained
following reasonable efforts to obtain the same, determined in the sole
discretion of the Buyer.

 

“Margin Deficiency” shall have the meaning provided in Section 2.05
hereof.

 

“Market Value” shall mean, (a) with respect to any Eligible
Mortgage Loan other than a Class C Defaulted Loan, as of any date in
respect of such Eligible Mortgage Loan, the price at which such Eligible
Mortgage Loan could readily be sold, as determined in good faith by the Buyer
in its sole discretion, which price may be determined to be zero, and (b) with
respect to any Eligible Mortgage Loan that is a Class C Defaulted Loan,
the market value thereof determined as follows (the Buyer’s determination of Market
Value shall, with respect to both clause (a) and (b), in all cases be
conclusive upon the parties absent manifest error on the part of the
Buyer). Promptly following the inclusion of an Eligible Mortgage Loan in the
Margin Base

 

9

 

as a Class C Defaulted Loan, the Buyer
shall seek to obtain a BPO for the related Mortgaged Property at the expense of
the Sellers. The Buyer shall determine the market value of such Class C
Defaulted Loan based upon the net proceeds that the Buyer, in its sole
discretion, determines are reasonably likely to be obtained upon a sale of such
Mortgaged Property in light of the results of the most recently obtained
related BPO and the Buyer’s determination of all ancillary and related costs to
be paid prior to or in connection with the maintenance and disposition of such
Mortgaged Property.

 

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

 

“Maximum Amount” shall mean $500,000,000; provided, that
at any time the aggregate outstanding Purchase Price of all Transactions
entered into by Aames Investment and Aames Capital shall not exceed
$499,000,000 and $1,000,000 will be for the exclusive use of Aames Funding.

 

“Moody’s” shall mean Moody’s Investors Service, Inc.

 

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

 

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

 

“Mortgage Loan” shall mean a mortgage loan which the Custodian
has been instructed to hold for the Buyer pursuant to the Custodial Agreement,
and which Mortgage Loan includes, without limitation, a (i) Mortgage Note
and related Mortgage and (ii) all right, title and interest of the
applicable Seller in and to the Mortgaged Property covered by such Mortgage.

 

“Mortgage Loan Data File” shall mean a computer-readable file
containing information with respect to each Mortgage Loan, to be delivered by
the Seller to the Buyer pursuant to Section 2.02(a) hereof, which
electronic file fields are identified on Annex I to the Custodial Agreement.

 

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

 

“Mortgage Loan Schedule” shall have the meaning assigned to such
term in the Custodial Agreement.

 

“Mortgage Loan Schedule and Exception Report” shall have
the meaning assigned to such term in the Custodial Agreement.

 

10

 

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

 

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

 

“Mortgagor” shall mean the obligor on a Mortgage Note.

 

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

 

“MS Indebtedness” shall mean any indebtedness of the Sellers
hereunder and under any other arrangement between any Seller on the one hand
and the Buyer or an Affiliate of the Buyer on the other hand.

 

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

 

“Net Income” shall mean, for any period, the net income of Aames
Investment for such period as determined in accordance with GAAP.

 

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

 

“Non-Owner Occupied Mortgage Loan” shall mean a Mortgage Loan
with respect to which the Mortgagor does not occupy the related Mortgaged
property, based on the representation made by the Mortgagor at the time of the
related Mortgage Loan origination.

 

“OFAC Regulations” shall have the meaning provided in Section 6.21
hereof.

 

“Parent” shall mean Aames Investment Corporation.

 

“Payment Date” shall have the meaning provided in Section 2.04(b) hereof.

 

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

 

“Performing Loan” shall mean an Eligible Mortgage Loan for which
the related Mortgagor is current or fewer than thirty (30) days delinquent in
scheduled payments of principal and interest as at the end of the preceding
calendar month.

 

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

 

11

 

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

 

“Post-Default Rate” shall mean, with respect to any amount of
Repurchase Price or any other amount owing by any Seller under this Repurchase
Agreement or any other Repurchase Document that is not paid in full when due
(whether at stated maturity, by acceleration, by mandatory prepayment or
otherwise, but not including by optional prepayment), a rate per annum during
the period from and including the due date to but excluding the date on which
such amount is paid in full equal to four percent (4%) per annum plus
the Prime Rate and in no event shall such rate exceed the maximum rate
permitted by law.

 

“Predatory Lending Practices” shall mean any and all
underwriting and lending policies, procedures and practices defined or
enumerated in any local or municipal ordinance or regulation or any state or
federal regulation or statute prohibiting, limiting or otherwise relating to
the protection of consumers from such policies, procedures and practices. Such
policies, practices and procedures may include, without limitation,
charging excessive loan, broker, and closing fees, charging excessive rates of
loan interest, making loans without regard to a consumer’s ability to re-pay
the loan, refinancing loans with no material benefit to the consumer, charging
fees for services not actually performed, discriminating against consumers on
the basis of race, gender, or age, failing to make proper disclosures to the
consumer of the consumer’s rights under federal and state law, and any other
predatory lending policy, practice or procedure as defined by ordinance,
regulation or statute.

 

“Prescribed Laws” shall mean, collectively, (a) the Uniting
and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism Act of 2001 (Public Law 107-56) (The USA PATRIOT Act), (b) Executive
Order No. 13224 on Terrorist Financing, effective September 24, 2001,
and relating to Blocking Property and Prohibiting Transactions With Persons Who
Commit, Threaten to Commit, or Support Terrorism, (c) the International
Emergency Economic Power Act, 50 U.S.C. §1701 et. seq. and (d) all other
Requirements of Law relating to money laundering or terrorism.

 

“Price Differential” means, with respect to any Transaction
hereunder as of any date, the aggregate amount obtained by daily application of
the Pricing Rate for such Transaction to the Purchase Price for the Purchased
Loans subject to such Transaction during the period commencing on (and including)
the Purchase Date for such Transaction and ending on (but excluding) the
applicable Repurchase Date (reduced by any amount of such Price Differential
previously paid by any Seller to the Buyer, with respect to such Transaction).

 

“Pricing Rate” shall mean a rate per annum equal to the sum of (a) the
Eurodollar Rate plus (b) the Applicable Pricing Spread; provided,
that Pricing Rate shall be the applicable Post-Default Rate for any Transaction
and on any other amount payable by the applicable Seller hereunder that shall
not be paid in full when due (whether at stated maturity, by acceleration or by
mandatory repurchase or otherwise) for the period from and including the due
date thereof to but excluding the date the same is paid in full; provided
further, that in no event shall such rate exceed the maximum rate
permitted by law.

 

12

 

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

 

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

 

“Purchase Advice” shall have the meaning provided in Section 2.08
hereof.

 

“Purchase Advice Deficiency” shall have the meaning provided in Section 2.08
hereof.

 

“Purchase Date” shall mean the date on which a Transaction is
entered into hereunder.

 

“Purchase Price” shall mean, with respect to each Purchased
Loan, (i) on each Purchase Date therefor, an amount equal to the
Recognized Value of such Purchased Loan on such Purchase Date and (ii) thereafter,
such amount decreased by the amount of any payments made by any Seller
hereunder that are applied in reduction of such amount.

 

“Purchased Items” shall have the meaning provided in Section 4.01(c) hereof.

 

“Purchased Loans” shall mean the Eligible Mortgage Loans sold by
any Seller to the Buyer in Transactions hereunder (together with any additional
Eligible Mortgage Loans transferred pursuant to Section 2.05 hereof).

 

“Recognized Value” shall mean, with respect to each Eligible
Mortgage Loan, the lesser of (a) (i) the Applicable Purchase
Percentage of the Market Value of such Eligible Mortgage Loan or (ii) in
the case of any Class C Defaulted Loan prior to the receipt by the Buyer
of a BPO relating thereto, the Applicable Purchase Percentage of the
outstanding principal balance of such Class C Defaulted Loan, and (b) 100%
of the outstanding principal balance of such Eligible Mortgage Loan.

 

“Reg AB” shall have the meaning provided in Section 7.18
hereof.

 

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

 

“REIT Distribution Requirement” shall mean distributions
reasonably necessary for each REIT Seller to maintain its REIT Status or not be
subject to corporate level tax based on income or to excise tax under Section 4981
of the Code.

 

“REIT Seller” shall mean any Seller which has REIT Status.

 

“REIT Status” shall mean with respect to any Person, such Person’s
status as a real estate investment trust, as defined in Section 856(a) of
the Code, that satisfies the conditions and limitations set forth in Section 856(b) and
856(c) of the Code.

 

13

 

“Remittance Amount” shall have the meaning provided in Section 2.08
hereof.

 

“Reportable Event” shall mean a reportable event as defined in
Title IV of ERISA, except actions of general applicability by the Secretary of
Labor under Section 110 of ERISA.

 

“Repurchase Agreement” shall have the meaning provided in the
introductory paragraph hereof.

 

“Repurchase Date” shall mean, with respect to any Transaction
and each Purchased Loan, the earlier of (a) the Termination Date and (b) the
date on which such Purchased Loan shall be repurchased by a Seller hereunder,
which shall not be later than the date that is 150 calendar days (or, with
respect to any Kick-Out Mortgage Loan, 90 calendar days) after the initial
Purchase Date therefor.

 

“Repurchase Documents” shall mean, collectively, this Repurchase
Agreement, the Custodial Agreement and the Fee Letter.

 

“Repurchase Obligations” shall have the meaning provided in Section 4.01(b) hereof.

 

“Repurchase Price” shall mean, with respect to each Purchased
Loan, the price at which such Purchased Loan is to be transferred from the
Buyer or its designee (including the Custodian) to a Seller upon termination of
the related Transaction, which price will be determined in each case as the sum
of the outstanding Purchase Price related to such Purchased Loan and the amount
of unpaid Price Differential that has accrued with respect to such Transaction.

 

“Requirement of Law” shall mean as to any Person, the
certificate of incorporation and by-laws or other organizational or governing
documents of such Person, and any law (including, without limitation,
Prescribed Laws), treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person
or any of its property is subject.

 

“Responsible Officer” shall mean, as to any Person, the chief
executive officer, the chief financial officer, Senior Vice President or
Treasurer of such Person.

 

“S&P” shall mean Standard & Poor’s Ratings
Services, a division of The McGraw-Hill Companies, Inc.

 

“Second Lien Loan” shall mean a Mortgage Loan for which the
related Mortgage constitutes a second priority lien on the related Mortgaged
Property and which has a CLTV less than or equal to 100%.

 

“Seller” and “Sellers” shall have the meaning provided in
the introductory paragraph hereof.

 

14

 

“Servicer” shall mean Aames Capital Corporation or another
Person acceptable to the Buyer.

 

“Servicer Notice” shall have the meaning provided in Section 11.15(c) hereof.

 

“Servicer Report” shall mean, as to any Servicer, a list (in
computer readable form) of the Purchased Loans serviced by such Servicer,
providing as to each such Purchased Loan the applicable information specified
on Schedule 4 to this Repurchase Agreement.

 

“Servicing Agreement” shall have the meaning provided in Section 11.15(c) hereof.

 

“Servicing Records” shall have the meaning provided in Section 11.15(b) hereof.

 

“Settlement Date” shall mean, with respect to any Purchased Loan
subject to a Takeout Commitment, the Business Day on which the Takeout Price
for such Purchased Loan is received by the Buyer or the Sellers pursuant to the
applicable Takeout Commitment.

 

“Stated Documentation Mortgage Loan” shall mean an Eligible
Mortgage Loan originated in accordance with the criteria specified in the
Underwriting Guidelines for “stated documentation” loans.

 

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

 

“Takeout Commitment” shall mean a trade confirmation from a
Takeout Investor to the applicable Seller confirming the details of a forward
trade between the Takeout Investor (as buyer) and such Seller (as seller)
constituting a valid, binding and enforceable mandatory delivery commitment by
such Takeout Investor to purchase on the Settlement Date and at a given Takeout
Price the Purchased Loans described therein.

 

“Takeout Investor” shall mean a Person which has made a Takeout
Commitment.

 

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

 

“Takeout Proceeds” shall mean as to each Settlement Date, the
actual amount of proceeds delivered to the Buyer by the applicable Takeout
Investor for the purchase by such Takeout Investor of Purchased Loans on such
Settlement Date.

 

15

 

“Takeout Proceeds Identification Letter” shall mean a Takeout
Proceeds Identification Letter in the form of Exhibit B
hereto.

 

“Tangible Net Worth” shall mean, with respect to any Person, as
of any date of determination, the amounts which would be included under equity
on a consolidated balance sheet of such Person and its Subsidiaries at such
date in accordance with GAAP, less the consolidated net book value of all
assets of such person and its Subsidiaries (to the extent reflected as an asset
in the balance sheet of such Person or any Subsidiary at such date) which will
be treated as intangibles under GAAP; provided, that residual securities
issued by such person or its Subsidiaries shall not be treated as intangibles
for purposes of this definition.

 

“Termination Date” shall mean December 1, 2006, or such earlier
date on which this Repurchase Agreement shall terminate in accordance with the
provisions hereof or by operation of law.

 

“Total Indebtedness” shall mean, for any period, the aggregate
Indebtedness of Aames Investment, as applicable, during such period.

 

“Transaction” shall have the meaning provided in the Recitals
hereof.

 

“Transaction Request” shall mean a Transaction Request
substantially in the form of Exhibit D attached hereto.

 

“Trust Receipt” shall have the meaning provided in the Custodial
Agreement.

 

“Underwriting Guidelines” shall mean the relevant Seller’s
underwriting guidelines attached as Exhibit F hereto, as modified
from time to time in accordance with Section 7.09.

 

“Uniform Commercial Code” shall mean the Uniform Commercial
Code as in effect from time to time in the State of New York; provided
that if by reason of mandatory provisions of law, the perfection or the effect
of perfection or non-perfection of the security interest or the renewal or
enforcement thereof in any Purchased Items or Collateral is governed by the Uniform Commercial
Code as in effect in a jurisdiction other than New York, “Uniform Commercial
Code” shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such perfection
or effect of perfection or non-perfection.

 

1.02                           Accounting
Terms and Determinations. Except as otherwise expressly provided herein,
all accounting terms used herein shall be interpreted, and all financial
statements and certificates and reports as to financial matters required to be
delivered to the Buyer hereunder shall be prepared, in accordance with GAAP.

 

1.03                           Other
Definitional Provisions. Unless otherwise required by the context, all
references herein, or in any other Repurchase Document, to “the Seller” shall
refer to the applicable Seller of a Purchased Asset in connection with a
Transaction hereunder.

 

16

 

Section 2. Transactions; Repurchases and Margin
Maintenance.

 

2.01                           Transactions.

 

(a)  Subject to the fulfillment of the
conditions precedent set forth in Sections 5.01 and 5.02 hereof, and provided
that no Default or Event of Default shall have occurred and be continuing
hereunder, the Buyer agrees to enter into, on the terms and subject to the
conditions of this Repurchase Agreement, Transactions to purchase Eligible
Mortgage Loans from the applicable Seller on a Purchase Date in an aggregate
Purchase Price (which Purchase Price shall be paid in Dollars) not to exceed
the lesser of (x) the Maximum Amount then in effect and (y) the Margin Base at
such time (after giving effect to the Recognized Value of any Eligible Mortgage
Loans to be purchased by the Buyer on such Purchase Date).

 

(b)  Subject to the terms and conditions of
this Repurchase Agreement, during such period the Sellers may (i) request
Transactions, (ii) repay the outstanding Repurchase Price, in full or in
part, without penalty, and (iii) request additional Transactions
hereunder; provided, that, notwithstanding the foregoing, the Buyer
shall have no obligation to enter into any Transaction to the extent that the
aggregate Repurchase Price then outstanding would be in excess of the Maximum
Amount and, in the event the obligation of the Buyer to enter into Transactions
is terminated as permitted hereunder, the Buyer shall have no further
obligation to enter into any additional Transactions hereunder.

 

(c)  In no event shall any Transaction be
entered into when any Default or Event of Default has occurred and is continuing.

 

2.02                           Transaction
Request Procedure.

 

(a)  Any Seller may request a Transaction
hereunder, on any Business Day during the period from and including the
Effective Date to and including the Termination Date, by delivering to the
Buyer, with a copy to the Custodian, a Transaction Request, which Transaction
Request must be received by the Buyer prior to 4:00 p.m., New York City
time, one (l) Business Day prior to the requested Purchase Date. Such request
for borrowing shall (i) attach a schedule identifying the Eligible
Mortgage Loans that the Seller proposes to sell to the Buyer and to be included
in the Margin Base in connection with such Transaction, (ii) specify the
requested Purchase Date, (iii) be accompanied by a Mortgage Loan Data File
containing information with respect to the Eligible Mortgage Loans that the
Seller proposes to sell to the Buyer and to be included in the Margin Base in
connection with such Transaction and (iv) attach an officer’s certificate
signed by a Responsible Officer of each Seller as required by Section 5.02(b) hereof.

 

(b)  The Seller shall release to the Custodian
no later than 4:00 p.m., New York City time, two (2) Business Days
prior to the requested Purchase Date, the Mortgage File pertaining to each
Eligible Mortgage Loan to be sold to the Buyer and included in the Margin Base
on such requested Purchase Date, in accordance with the terms and conditions of
the Custodial Agreement.

 

(c)  Pursuant to the Custodial Agreement, the
Custodian shall deliver to the Buyer and the Seller, no later than 12:00 noon,
New York City time, on each Purchase Date, the Trust

 

17

 

Receipt (as defined in the Custodial Agreement) and a
Mortgage Loan Schedule and Exception Report in respect of all Eligible
Mortgage Loans sold to the Buyer on such Purchase Date.

 

(d)  Upon any Seller’s request for a
Transaction pursuant to Section 2.02(a), and upon satisfaction of all
conditions precedent set forth in Section 5.01 and 5.02 with respect
thereto, subject to Section 2.02(f) below, the Buyer shall enter into
a Transaction with the Seller on the requested Purchase Date.

 

(e)  Subject to Section 5 hereof, the
amount of Purchase Price to be paid by the Buyer in connection with any
Transaction will be made available to the Seller by the Buyer transferring such
amount in funds immediately available to the Seller, via wire transfer, to the
following account of the Sellers: Bank of the West, for the A/C of Aames
Capital Corporation, Account#: 751005844, ABA# 1211-0078-2, Attn: Aames Capital
Corporation, or to such other account as the Sellers may direct in writing
to the Buyer.

 

(f)  In the case of any Transaction entered
into with respect to any Class C Defaulted Loan for which a BPO has not
been delivered to the Buyer on or prior to the related Purchase Date or with
respect to any Purchased Loan that at any time becomes a Class C Defaulted
Loan, the Buyer shall transmit an invoice to the Sellers on a monthly basis in
the amount of $100 for each such Class C Defaulted Loan to be applied to
the cost of obtaining a BPO for each such Class C Defaulted Loan (any
excess remaining after payment of the cost of such BPO to be remitted to the
Sellers, and any shortfall towards payment of the BPO to be paid by the Sellers
to the Buyer promptly following demand therefor). Any amounts so invoiced by
the Buyer to the Sellers shall be payable promptly (and in any event no later
than ten (10) Business Days following receipt thereof).

 

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

 

(a)  the Buyer determines in good faith, which
determination shall be conclusive, that quotations of interest rates for the
relevant deposits referred to in the definition of “Eurodollar Rate” in Section 1.01
hereof are not being provided in the relevant amounts or for the relevant
maturities for purposes of determining the Price Differential for Transactions
as provided herein; or

 

(b)  the Buyer determines, which determination
shall be conclusive, that the relevant rate referred to in the definition of “Eurodollar
Rate” in Section 1.01 hereof upon the basis of which the Price
Differential for Transactions is to be determined is not likely adequately to
cover the cost to the Buyer of entering into or maintaining Transactions; or

 

(c)  it becomes unlawful for the Buyer to honor
its obligation to enter into or maintain Transactions hereunder using a
Eurodollar Rate;

 

then the Buyer shall give the Sellers prompt notice thereof and, so
long as such condition remains in effect, the Buyer shall be under no
obligation to enter into any additional Transactions, and the Sellers shall,
either prepay the aggregate Repurchase Price of all Transactions then
outstanding or pay Price Differential on such Transactions at a rate per annum
equal to the Federal Funds Rate plus 0.50% plus the Applicable
Pricing Spread.

 

18

 

2.04                           Repurchase
of Purchased Loans; Payment of Repurchase Price, Price Differential.

 

(a)  The Sellers hereby promise, jointly and
severally, to repay in full on the Termination Date the then aggregate
Repurchase Price then outstanding in respect of each Transaction.

 

(b)  The Sellers hereby promise, jointly and
severally, to pay Price Differential to the Buyer for the period from and
including the Purchase Date of each Transaction to but excluding the date on
which the related Repurchase Price shall be paid in full, at a rate per annum
equal to the Pricing Rate. Notwithstanding the foregoing, the Sellers hereby
promise, jointly and severally, to pay to the Buyer interest at the applicable
Post-Default Rate on any amount of Repurchase Price, and on any other amount
payable by the Sellers hereunder, that shall not be paid in full when due
(whether at stated maturity, by acceleration or by mandatory prepayment or
otherwise) for the period from and including the due date thereof to but
excluding the date the same is paid in full. Accrued Price Differential on each
Transaction shall be payable monthly on the fifth (5th) Business Day
of each month and, for the last month of this Repurchase Agreement, on the
fifth (5th) Business Day of such last month and on the Termination
Date (each such date, a “Payment Date”); provided, that (i) the
Buyer may, in its sole discretion, require any accrued and unpaid Price
Differential to be paid simultaneously with any prepayment of the Repurchase
Price by any Seller on account of any Transaction outstanding hereunder and (ii) any
accrued and unpaid Price Differential that is not required by the Buyer to be
paid simultaneously with any prepayment of Repurchase Price shall be paid in
full on the next Payment Date. Price Differential payable at the Post-Default
Rate shall accrue daily and shall be payable upon such accrual.

 

(c)  It is understood and agreed that, unless
and until a Default or Event of Default shall have occurred and be continuing,
the Sellers shall be entitled to the proceeds of the Purchased Loans subject to
Transactions outstanding hereunder. At any time while a Default has occurred
and is continuing, upon notice from the Buyer, the Sellers shall promptly
deliver to the Buyer all proceeds of Purchased Loans subject to Transactions
outstanding hereunder.

 

2.05                           Margin
Maintenance.

 

(a)  If at any time the aggregate Repurchase
Price of all Transactions then outstanding exceeds the Margin Base (a “Margin
Deficiency”), as determined by the Buyer and notified to the Sellers on any
Business Day, the Sellers shall no later than one (1) Business Day after
receipt of such notice, either make a payment to the Buyer in respect of the
aggregate outstanding Repurchase Price or transfer to the Buyer additional
Eligible Mortgage Loans that are in all respects acceptable to the Buyer in its
sole discretion (which additional Eligible Mortgage Loans shall be deemed to be
Purchased Loans under the Repurchase Documents) such that after giving effect
to such payment or transfer no Margin Deficiency shall then exist.

 

(b)  The Sellers shall prepay the Transactions in the
amounts of prepayments remitted to the Buyer in accordance with Section 7.17
hereof.

 

19

 

(c)  If at any time MS & Co.’s
corporate bond rating has been lowered or downgraded to a rating below A- by
S&P or A3 by Moody’s and the Sellers shall repay all amounts owing to the
Buyer under this Repurchase Agreement and the other Repurchase Documents within
ninety (90) days following such downgrade.

 

(d)  If at any time the aggregate Repurchase
Price of all Transactions then outstanding under this Repurchase Agreement
exceeds the Maximum Amount, the Sellers shall at such time make a payment to
the Buyer in respect of the aggregate outstanding Repurchase Price such that,
after giving effect to such payment, the aggregate Repurchase Price of all
Transactions then outstanding under this Repurchase Agreement does not exceed
the Maximum Amount.

 

2.06                           Voluntary
Prepayments. The Sellers may at any time and from time to time make a
prepayment, in whole or in part, without premium or penalty, in respect of any
outstanding Repurchase Price upon irrevocable notice delivered to the Buyer (in
the form of Exhibit I) prior to 1:00 p.m., New York City
time, on the requested date thereof, in the case of the first 500 Purchased
Loans requested to be released by the Buyer on such date, or upon irrevocable
notice delivered to the Buyer (in the form of Exhibit I),
prior to 1:00 p.m., New York City time, at least one (1) Business Day
prior thereto, in the case of any Purchased Loans in excess of 500 requested to
be released by the Buyer, specifying the date and amount of prepayment and
attaching a schedule of the Purchased Loans to be released by the Buyer in
connection with such prepayment. If any such notice is given, the amount
specified in such notice shall be due and payable on the date specified
therein, together with any accrued interest to such date on the amount prepaid.

 

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

 

2.08                           Takeout
Commitments.

 

The Sellers shall instruct each Takeout Investor to remit all Takeout
Proceeds directly to the Buyer at the account designated in Section 3.01
hereof no later than 3:00 p.m., New York City time, on a Business Day. No
later than 3:00 p.m., New York City time, on the applicable Settlement
Date, the Seller shall deliver a purchase advice (“Purchase Advice”) to
the Buyer via facsimile or electronic mail and shall indicate on such Purchase
Advice the mortgage loan identification number which identified each applicable
Purchased Loan on the related Purchase Date hereunder. The Takeout Proceeds
shall be applied by the Buyer against the aggregate Repurchase Price for the
applicable Purchased Loans and, on the related Settlement Date, the Buyer shall
release and remit to the Seller the amount of Takeout Proceeds in excess of
such aggregate Repurchase Price (the “Remittance Amount”); provided,
that on the Settlement Date (i) there is no Default or Event of Default
under this Repurchase Agreement or any other

 

20

 

Repurchase Document, (ii) there is no
Margin Deficiency and (iii) the release to such Seller of the Remittance
Amount will not cause a Margin Deficiency. If a Margin Deficiency exists or
would be created by the release of the Remittance Amount or if a Default or
Event of Default has occurred or is continuing, the Buyer shall be entitled to
retain the Remittance Amount and the Sellers shall thereupon have no further
right, title, or interest in, to or under the Remittance Amount. In the event
that any Purchase Advice indicates that some of the proceeds forwarded to the
Buyer do not belong to the Buyer hereunder (such amount, the “Excess
Proceeds”), then (i) the Seller shall provide the Buyer with a Takeout
Proceeds Identification Letter, and (ii) upon confirmation by the Buyer
that the information set forth in the Purchase Advice matches the information
that the Buyer has in its possession with respect to the related Purchased
Loans, the Buyer shall promptly remit such Excess Proceeds by wire transfer in
accordance with the Seller’s instructions. If funds are received by the Buyer
before 3:00 p.m., New York City time on a Business Day, but either (A) no
Purchase Advice is received by the Buyer or (B) such funds are not
properly identified on the related Purchase Advice (a “Purchase Advice
Deficiency”), then such funds shall be retained by the Buyer in a
non-interest bearing account until such Purchase Advice Deficiency is remedied,
and no Purchased Loan subject to such Purchase Advice shall be released until
such Purchase Advice Deficiency is remedied. In no event shall any Purchase
Advice be back-dated to the date of its issuance. The Buyer shall not be liable
to the Seller or any other Person to the extent that the Buyer follows the
instructions given to it by the Seller in a Takeout Proceeds Identification
Letter.

 

Section 3. Payments; Computations; Etc.

 

3.01                           Payments.

 

(a)  Except to the extent otherwise provided
herein, all payments of Repurchase Price, including Price Differential, and all
other amounts to be paid by the Sellers under this Repurchase Agreement shall
be made in Dollars, in immediately available funds, without deduction, set-off
or counterclaim, to the Buyer at the following account maintained by the Buyer:
Account No. 30463591, for the account of the Buyer, Citibank, N.A., ABA No. 021000089,
Attn: Whole Loan Operations, not later than 5:00 p.m., New York City time,
on the date on which such payment shall become due (and each such payment made
after such time on such due date shall be deemed to have been made on the next
succeeding Business Day). Each Seller acknowledges that it has no rights of
withdrawal from the foregoing account.

 

(b)  Except to the extent otherwise expressly
provided herein, if the due date of any payment under this Repurchase Agreement
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day, and Price Differential on
outstanding Purchase Price and interest on other unpaid amounts shall accrue
with respect to such Purchase Price or other unpaid amounts for the period of
such extension.

 

3.02                           Computations.
Price Differential on the Transactions and interest on any other unpaid amounts
shall be computed on the basis of a 360-day year for the actual days elapsed
(including the first day but excluding the last day) occurring in the period
for which payable.

 

21

 

3.03                           Requirements
of Law.

 

(a)  If the introduction or adoption of or any
change (other than any change by way of the imposition of an increase in
reserve requirements included in the Eurodollar Rate Reserve Percentage) in any
Requirement of Law (other than with respect to any amendment made to the Buyer’s
certificate of incorporation and by-laws or other organizational or governing
documents) or any change in the interpretation or application thereof or
compliance by the Buyer with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:

 

(i)                                     shall
subject the Buyer to any tax of any kind whatsoever with respect to this
Repurchase Agreement or any Transaction entered into by it (excluding net
income or franchise taxes) or change the basis of taxation of payments to the
Buyer in respect thereof;

 

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

 

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

 

and the result of any of the foregoing is to increase the cost to the
Buyer, by an amount which the Buyer deems to be material, of entering into,
participating in, continuing or maintaining any Transaction or to reduce any
amount due or owing hereunder in respect thereof, then, in any such case, the
Sellers, jointly and severally, shall promptly pay the Buyer such additional
amount or amounts as will compensate the Buyer for such increased cost or
reduced amount receivable.

 

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

 

(c)  If the Buyer becomes entitled to claim any
additional amounts pursuant to this Section 3.03, it shall promptly notify
the Sellers of the event by reason of which it has become so entitled. A
certificate as to any additional amounts payable pursuant to this Section submitted
by the Buyer to the Sellers shall be conclusive in the absence of manifest
error.

 

22

 

3.04                           Fees.
The Sellers agree to pay to the Buyer the fees set forth in the Fee Letter.

 

3.05                           Tax
Treatment. Each of the Sellers and the Buyer intend that for United States
federal income tax purposes, each Transaction will be considered a secured
financing.

 

3.06                           Income Payments. All Income, if any, that
is paid in respect of any Purchased Loan during the term of a Transaction
hereunder shall be the property of the Buyer. Notwithstanding the foregoing, (i) provided
that no Event of Default shall have occurred and be continuing, the Buyer
agrees that the Seller shall be permitted to receive all Income paid or distributed
on or in respect of the Purchased Loans to the full extent it would be so
entitled if the Purchased Loans had not been sold to the Buyer and (ii) in
the event that any Event of Default shall have occurred and be continuing, the
Seller shall remit to the Buyer all Income received with respect to each
Purchased Loan on the related Payment Date or on such other date or dates as
the Buyer notifies the Seller in writing.

 

Section 4. Purchased Items; Security Interest.

 

4.01                           Purchased
Items; Security Interest.

 

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

 

(b)  Each of the Sellers and the Buyer intend
that, for other than United States federal income tax purposes, the
Transactions hereunder be sales to the Buyer of the Purchased Items and not
loans from the Buyer to the applicable Seller secured by the Purchased Items. However,
in order to preserve the Buyer’s rights under this Repurchase Agreement in the
event that a court or other forum re-characterizes the Transactions hereunder
as loans and as security for the performance by each Seller of all of such
Seller’s obligations to the Buyer hereunder and the Transactions entered into
hereunder, or in the event that a transfer of a Purchased Item is otherwise
ineffective to effect an outright transfer of such Purchased Item to the Buyer,
each Seller hereby assigns, pledges and grants a security interest in all of
its right, title and interest in, to and under the Purchased Items to the Buyer
to secure the payment of the Repurchase Price and Price Differential on all
Transactions and all other amounts owing to the Buyer hereunder, including,
without limitation, amounts owing to the Buyer pursuant to Section 11.03,
and under the other Repurchase Documents (collectively, the “Repurchase
Obligations”).

 

(c)  All of each Seller’s right, title and
interest in, to and under each of the following items of property, whether now
owned or hereafter acquired, now existing or hereafter created and wherever
located, is hereinafter referred to as the “Purchased Items”:

 

(i)                                     all
Purchased Loans;

 

23

 

(ii)                                  all
Mortgage Loan Documents, including without limitation all promissory notes and
any other collateral pledged to secure, or otherwise relating to, the Purchased
Loans, together with all files, documents, instruments, surveys, certificates,
correspondence, appraisals, computer programs (subject to any restrictions on
transfer under any related licensing agreement), computer storage media,
accounting records and other books and records relating thereto;

 

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

 

(iv)                              all
other insurance policies and insurance proceeds relating to any Purchased Loan
or the related Mortgaged Property;

 

(v)                                 all
rights of any Seller to service any Purchased Loan;

 

(vi)                              all
collateral, however defined, under any other agreement between any Seller or
any of its Affiliates on the one hand and the Buyer or any Affiliates of the
Buyer on the other hand;

 

(vii)                           all
“general intangibles”, “accounts,” “instruments”, “investment property,”
deposit accounts” and “chattel paper” as defined in the Uniform Commercial
Code relating to or constituting any and all of the foregoing; and

 

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

 

(d)  Without limiting Section 4.01(b) hereto,
to secure payment of the Repurchase Obligations, each Seller hereby grants to
the Buyer a security interest in all of such Seller’s right, title and interest
in, to and under each of the following items of property, whether now owned or
hereafter acquired, now existing or hereafter created and wherever located
(collectively, the “Collateral”):

 

(i)                                     all
Interest Rate Protection Agreements, if any, relating to or constituting any or
all of the Purchased Items;

 

(ii)                                  all
Servicing Agreements, Servicing Records and servicing accounts relating to the
Purchased Loans;

 

(iii)                               all
Takeout Commitments now existing or hereafter arising with respect to any of
the Purchased Loans, all rights to deliver Purchased Loans to the applicable
Takeout Investors or to permanent investors and other purchasers pursuant
thereto and all proceeds resulting from the disposition of such Purchased Loans
pursuant thereto, including such Seller’s right and entitlement to receive the
entire Takeout Price specified in each Takeout Commitment; and

 

24

 

(iv)                              any
and all replacements, substitutions, distributions on, income relating to or
proceeds of any and all of the foregoing.

 

(e)  Each Seller agrees to mark its computer
records and files to evidence the security interests granted to the Buyer
hereunder.

 

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

 

4.03                           Changes
in Locations, Name, etc. No Seller shall (i) change the location of
its chief executive office/chief place of business from that specified in Section 6.12
hereof or (ii) change its name, identity or corporate structure (or the
equivalent) or (iii) change the location where it maintains its records
with respect to the Purchased Items or the Collateral or (iv) reincorporate
or reorganize under the laws of another jurisdiction unless it shall have given
the Buyer at least thirty (30) calendar days prior written notice thereof and
shall have delivered to the Buyer all Uniform Commercial Code financing
statements and amendments thereto as the Buyer shall request and taken all
other actions deemed necessary by the Buyer to continue its perfected status in
the Purchased Items and the Collateral with the same or better priority. Each
Seller’s federal tax identification number and organizational identification
number is as set forth on Schedule 2. Each Seller shall promptly notify
the Buyer of any change in such organizational identification number.

 

4.04                           Buyer’s
Appointment as Attorney-in-Fact.

 

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

 

(i)                                     in
the name of each Seller or its own name, or otherwise, to take possession of
and endorse and collect any checks, drafts, notes, acceptances or other
instruments for the payment of moneys due under any mortgage insurance or
payable on

 

25

 

or with respect to any Purchased Items or Collateral and to file any
claim or to take any other action or proceeding in any court of law or equity
or otherwise deemed appropriate by the Buyer for the purpose of collecting any
and all such moneys due under any such mortgage insurance or with respect to
any Purchased Items or Collateral whenever payable;

 

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

 

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

 

(iv)                              to
effectuate the transfer of servicing to the designee of the Buyer.

 

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

 

(b)  Each Seller also authorizes the Buyer, at
any time and from time to time, to execute, in connection with any sale
provided for in Section 4.07 hereof, any endorsements, assignments or
other instruments of conveyance or transfer with respect to the Purchased Items
or Collateral and to file any initial financing statements, amendments thereto
and continuation statements with or without the signature of any Seller as
authorized by applicable law, as applicable to all or any part of the
Purchased Items or Collateral.

 

(c)  The powers conferred on the Buyer pursuant
to this Section 4.04 are solely to protect the Buyer’s interests in the
Purchased Items and the Collateral and shall not impose any duty upon the Buyer
to exercise any such powers. The Buyer shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers, and
neither the Buyer

 

26

 

nor any of its officers, directors, or employees shall
be responsible to the Sellers for any act or failure to act hereunder, except
for its own gross negligence or willful misconduct.

 

4.05                           Performance
by Buyer of Sellers’ Obligations. If any Seller fails to perform or
comply with any of its agreements contained in the Repurchase Documents and the
Buyer itself performs or complies, or otherwise causes performance or
compliance, with such agreement, the expenses of the Buyer incurred in
connection with such performance or compliance, together with interest thereon
at a rate per annum equal to the Post-Default Rate, shall be payable by the
Sellers to the Buyer on demand and shall constitute Repurchase Obligations.

 

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

 

4.07                           Remedies.
If any Default shall occur and be continuing, the Buyer may, at its option,
enter into one or more Interest Rate Protection Agreements covering all or a
portion of the Purchased Loans subject to Transactions outstanding hereunder, and
the Sellers shall be responsible for all damages, judgments, costs and expenses
of any kind which may be imposed on, incurred by or asserted against the
Buyer relating to or arising out of such Interest Rate Protection Agreements,
including without limitation any losses resulting from such Interest Rate
Protection Agreements. If any Event of Default shall occur and be continuing,
the Buyer may exercise, in addition to all other rights and remedies
granted to it in this Repurchase Agreement and in any other instrument or
agreement securing, evidencing or relating to the Repurchase Obligations, all
rights and remedies of a secured party under the Uniform Commercial Code. Without
limiting the generality of the foregoing, the Buyer without demand of performance
or other demand, presentment, protest, advertisement or notice of any kind
(except any notice required by law referred to below) to or upon the Sellers or
any other Person (each and all of which demands, presentments, protests,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Purchased Items
and the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Purchased Items and the Collateral or any part thereof (or
contract to do any of the foregoing), in one or more parcels or as an entirety
at public or private sale or sales, at any exchange, broker’s board or office
of the Buyer

 

27

 

or elsewhere upon such
terms and conditions as it may deem advisable and at such prices as it may deem
best, for cash or on credit or for future delivery without assumption of any
credit risk. The Buyer shall have the right upon any such public sale or sales,
and, to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Purchased Items or the Collateral so
sold, free of any right or equity of redemption in any Seller, which right or
equity is hereby waived or released. The Sellers further agree, at the Buyer’s
request, to assemble the Purchased Items and the Collateral and make them
available to the Buyer at places which the Buyer shall reasonably select,
whether at the Sellers’ premises or elsewhere. The Buyer shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred therein or incidental to the care or safekeeping of any of the
Purchased Items or Collateral or in any way relating to the Purchased Items or
Collateral or the rights of the Buyer hereunder, including without limitation
reasonable attorneys’ fees and disbursements, to the payment in whole or in part of
the Repurchase Obligations, in such order as the Buyer may elect, and only
after such application and after the payment by the Buyer of any other amount
required or permitted by any provision of law, including without limitation Section 9-615(a)(3) of
the Uniform Commercial Code, need the Buyer account for the surplus, if
any, to the Sellers. To the extent permitted by applicable law, each Seller
waives all claims, damages and demands it may acquire against the Buyer
arising out of the exercise by the Buyer of any of its rights hereunder, other
than those claims, damages and demands arising from the gross negligence or
willful misconduct of the Buyer. If any notice of a proposed sale or other
disposition of the Purchased Items or Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least ten (10) calendar
days before such sale or other disposition. The Sellers shall remain liable for
any deficiency (plus accrued interest thereon as contemplated pursuant to Section 2.04(b) hereof)
if the proceeds of any sale or other disposition of the Purchased Items or the
Collateral are insufficient to pay the Repurchase Obligations and the fees and
disbursements of any attorneys employed by the Buyer to collect such
deficiency.

 

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

 

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

 

4.10                           Reconveyance
of Purchased Items; Release of Security Interest. Upon termination of this
Repurchase Agreement and payment to the Buyer of all Repurchase Obligations and
the performance of all obligations under the Transactions and the Repurchase
Documents the Buyer shall reconvey all Purchased Items to the Sellers and
release its security interest in any remaining Purchased Items and Collateral.

 

28

 

4.11                           Interest
Rate Protection Agreements. In the event that any Person (other than the
Buyer) shall have a Lien on any Interest Rate Protection Agreement that any
Seller has entered into with respect to both Purchased Loans subject to
Transactions outstanding hereunder and other loans which have not been
purchased by the Buyer pursuant to Transactions hereunder, the Buyer agrees
that in the event that the Buyer shall receive any proceeds, recoveries or
other amounts in respect of such Interest Rate Protection Agreement following
the exercise of remedies hereunder after an Event of Default, the Buyer shall
remit to any such Person, as to which the Buyer has received notice of such
Person’s Lien on such Interest Rate Protection Agreement, any excess proceeds of
such Interest Rate Protection Agreement following repayment of all obligations
owing to the Buyer hereunder.

 

Section 5. Conditions Precedent.

 

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

 

(a)  Repurchase Documents.

 

(i)                                     Repurchase
Agreement. This Repurchase Agreement, executed and delivered by a duly
authorized officer of each of the parties hereto;

 

(ii)                                  Custodial
Agreement. The Custodial Agreement, executed and delivered by a duly
authorized officer of each of the parties thereto;

 

(iii)                               Fee
Letter. The Fee Letter, executed and delivered by a duly authorized officer
of each of the parties thereto;

 

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

 

(c)  Legal Opinion. A legal opinion of
the in-house counsel, with respect to corporate matters, and outside counsel to
the Sellers, with respect to enforceability and certain other matters,
substantially in the form(s) attached hereto as Exhibit C;

 

(d)  Filings, Registrations, Recordings,
Lien Searches.

 

(i)                                     Any
documents (including, without limitation, financing statements) required to be
filed, registered or recorded in order to create, in favor of the Buyer, a
perfected, first-priority security interest in the Purchased Items and the
Collateral, subject to no Liens other than those created hereunder, shall have
been properly prepared and executed for filing (including the applicable
county(ies) if the Buyer determines such

 

29

 

filings are necessary in its sole discretion), registration or
recording in each office in each jurisdiction in which such filings,
registrations and recordations are required to perfect such first-priority
security interest; provided, that assignments of the Mortgages securing
or related to the Purchased Loans shall not be required to be recorded prior to
the occurrence of an Event of Default;

 

(ii)                                  UCC
lien searches in such jurisdictions as shall be applicable to the Sellers, the
Purchased Items and the Collateral, the results of which shall be satisfactory
to the Buyer.

 

(e)  Fees. The fees as contemplated by Section 3.04;

 

(f)  Financial Statements. The financial
statements referenced in Section 6.03;

 

(g)  Underwriting Guidelines. A
certified copy of the Underwriting Guidelines related to each Seller, which
shall be in form and substance satisfactory to the Buyer;

 

(h)  Consents, Licenses, Approvals, etc.
Copies certified by each Seller of all consents, licenses and approvals, if
any, required in connection with the execution, delivery and performance by
such Seller of, and the validity and enforceability of, the Repurchase
Documents, which consents, licenses and approvals shall be in full force and
effect; and

 

(i)  Other Documents. Such other
documents as the Buyer may reasonably request.

 

5.02                           Initial
and Subsequent Transactions. The entering into by the Buyer of each
Transaction (including the initial Transaction) on any Business Day is subject
to the satisfaction of the following further conditions precedent, both
immediately prior to the entering into of such Transaction and also after
giving effect thereto and to the intended use thereof:

 

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

 

(b)  Representations and Warranties. Both
immediately prior to the making of such Loan and also after giving effect
thereto and to the intended use thereof, the representations and warranties
made by the Sellers in Section 6 and Schedule 1 hereof
(regardless of whether subject to a Transaction at such time), and elsewhere in
each of the Repurchase Documents, shall be true, correct and complete on and as
of the date of the making of such Loan in all material respects (in the case of
the representations and warranties in Section 6.11 and Schedule 1,
solely with respect to Purchased Loans included in the Margin Base) with the
same force and effect as if made on and as of such date (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date); and the Buyer shall have received an
officer’s certificate signed by a Responsible Officer of each Seller certifying
as to the truth, accuracy and completeness of the above, which certificate
shall specifically include a statement that such Seller is in compliance with
all governmental licenses and authorizations, statutory and regulatory
requirements, and is qualified to do business and in good standing in all
required jurisdictions.

 

30

 

The Buyer shall have
received an officer’s certificate signed by a Responsible Officer of each
Seller certifying as to the truth, accuracy and completeness of the above,
which certificate shall specifically include a statement that such Seller is in
compliance with all governmental licenses and authorizations and is qualified
to do business and in good standing in all required jurisdictions.

 

(c)  Margin Base. No Margin Deficiency
shall exist;

 

(d)  Due Diligence. Subject to the Buyer’s
right to perform one or more Due Diligence Reviews pursuant to Section 11.16
hereof, the Buyer shall have completed its due diligence review of the Mortgage
Loan Documents for each proposed Purchased Loan and such other documents,
records, agreements, instruments, mortgaged properties or information relating
to such proposed Purchased Loans as the Buyer in its sole discretion deems
appropriate to review and such review shall be satisfactory to the Buyer in its
sole discretion;

 

(e)  Servicing Agreement(s). The Buyer
shall have received all Servicing Agreements related to the Purchased Loans,
each certified as a true, correct and complete copy of the original, together
with a fully executed Servicer Notice, and, if the Servicer is a Seller or an
Affiliate of a Seller, the letter of the applicable Servicer consenting to
termination of such Servicing Agreement upon the occurrence of an Event of
Default;

 

(f)  Trust Receipt and Mortgage Loan Schedule and
Exception Report. The Buyer shall have received the Trust Receipt,
substantially in the form of Annex 2 to the Custodial Agreement,
from the Custodian, duly completed, with a Mortgage Loan Schedule and
Exception Report attached thereto including only such exceptions as are
acceptable to the Buyer in its sole discretion in respect of Eligible Mortgage
Loans to be purchased by the Buyer hereunder on such Business Day;

 

(g)  Release Letter. The Buyer shall
have received from each Seller a Warehouse Lender’s Release Letter
substantially in the form of Exhibit E-2 hereto (or such other
form acceptable to the Buyer) or a Seller’s Release Letter substantially
in the form of Exhibit E-1 hereto (or such other form acceptable
to the Buyer), as applicable, covering each Eligible Mortgage Loan to be
purchased by the Buyer hereunder on such Business Day;

 

(h)  Fees and Expenses. The Buyer shall
have received all fees and expenses of counsel to the Buyer as contemplated by Section 11.03(b),
which amount, at the Buyer’s option, may be netted from the amount of
Purchase Price to be paid by the Buyer in connection with any Transaction
entered into under this Repurchase Agreement;

 

(i)  No Market Events. None of the
following shall have occurred and/or be continuing:

 

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

 

31

 

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

 

(iii)                               there
shall have occurred a material adverse change in the financial condition of the
Buyer which affects (or can reasonably be expected to affect) materially and
adversely the ability of the Buyer to fund its obligations under this
Repurchase Agreement;

 

(j)  No
Morgan Stanley Downgrade. MS & Co.’s corporate bond rating as
calculated by S&P or Moody’s has not been lowered or downgraded to a rating
below A- as indicated by S&P or below A3 as indicated by Moody’s; and

 

(k)  Maintenance
of Tangible Net Worth. The Tangible Net Worth of Aames Investment on a
consolidated basis on any given day, shall not be less than $250,000,000.

 

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

 

Section 6. Representations and Warranties.

 

Each Seller represents and warrants to the Buyer that throughout the
term of this Repurchase Agreement:

 

6.01                           Legal
Name. On the Effective Date, the exact legal name of each Seller is and
during the four (4) months immediately preceding the Effective Date, such
name has been, respectively, Aames Capital Corporation, Aames Funding
Corporation and Aames Investment Corporation and no Seller has used any
previous names, assumed names or trade names except as set forth on Schedule 5
attached hereto.

 

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

 

6.03                           Financial
Condition. Aames Investment has heretofore furnished to the Buyer a copy of
its consolidated balance sheet and the consolidated balance sheets of its
consolidated Subsidiaries for the fiscal year of Aames Investment ended December 31,
2004 and the related consolidated statements of income and retained earnings
and of cash flows for Aames Capital and its consolidated Subsidiaries for such
fiscal year, with the opinion thereon of Ernst & Young, LLP.

 

32

 

All such financial
statements are complete and correct and fairly present, in all material
respects, the consolidated financial condition of Aames Capital and its
Subsidiaries and the consolidated results of their operations as at such dates
and for such fiscal periods, all in accordance with GAAP applied on a
consistent basis. Since December 31, 2004 there has been no material
adverse change in the consolidated business, operations or financial condition
of Aames Capital and its consolidated Subsidiaries taken as a whole from that
set forth in said financial statements.

 

6.04                           Litigation.
There are no actions, suits, arbitrations, investigations (including, without
limitation, any of the foregoing which are pending or threatened) or other
legal or arbitrable proceedings affecting any Seller or any of its Subsidiaries
or affecting any of the Property of any of them before any Governmental
Authority that (i) questions or challenges the validity or enforceability
of any of the Repurchase Documents or any action to be taken in connection with
the transactions contemplated hereby, or (ii) except as otherwise
disclosed in Aames Investment’s filings with the Securities and Exchange
Commission, (a) makes a claim or claims in an aggregate amount greater
than $5,000,000, (b) which, individually or in the aggregate, if adversely
determined, could reasonably be likely to have a Material Adverse Effect, or (c) requires
filing with the Securities and Exchange Commission in accordance with the 1934
Act or any rules thereunder.

 

6.05                           No
Breach. Neither (a) the execution and delivery of the Repurchase
Documents nor (b) the consummation of the transactions therein
contemplated in compliance with the terms and provisions thereof will conflict
with or result in a breach of the charter or by-laws of any Seller, or any
applicable law (including, without limitation, the Prescribed Laws), rule or
regulation, or any order, writ, injunction or decree of any Governmental
Authority, or any Servicing Agreement or other material agreement or instrument
to which any Seller or any of its Subsidiaries is a party or by which any of
them or any of their Property is bound or to which any of them is subject, or
constitute a default under any such material agreement or instrument or result
in the creation or imposition of any Lien (except for the Liens created
pursuant to this Repurchase Agreement) upon any Property of any Seller or any
of its Subsidiaries pursuant to the terms of any such agreement or instrument.

 

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

 

6.07                           Approvals.
No authorizations, approvals or consents of, and no filings or registrations
with, any Governmental Authority or any securities exchange are necessary for
the execution, delivery or performance by each Seller of the Repurchase
Documents or for the legality, validity or enforceability thereof, except for
filings and recordings in respect of the Liens created pursuant to this
Repurchase Agreement.

 

33

 

6.08                           Margin
Regulations. Neither the entering into of any Transaction hereunder, nor
the use of the proceeds thereof, will violate or be inconsistent with the
provisions of Regulations T, U or X.

 

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

 

6.10                           Investment
Company Act. No Seller nor any of their Subsidiaries is an “investment
company”, or a company “controlled” by an “investment company,” within the
meaning of the Investment Company Act of 1940, as amended.

 

6.11                           Purchased
Items; Security Interests.

 

(a)  No Seller has assigned, pledged, or
otherwise conveyed or encumbered any Purchased Item or Collateral to any other
Person, and immediately prior to the purchase of any Eligible Mortgage Loan by
the Buyer hereunder, and the purchase and pledge of all related Purchased Items
and Collateral, the applicable Seller was the sole owner of such Eligible
Mortgage Loan, and all related Purchased Items and Collateral, and had good and
marketable title thereto, free and clear of all Liens, in each case except for
Liens to be released simultaneously with the sale to, and the granting of the
Liens in favor of, the Buyer hereunder. No Purchased Item purchased by, or
other Collateral pledged to, the Buyer hereunder was acquired (by purchase or
otherwise) by any Seller from an Affiliate of any Seller other than another
Seller.

 

(b)  The provisions of this Repurchase
Agreement are intended to transfer the Purchased Items to the Buyer pursuant to
a sale, but in the event that any Transaction is deemed to constitute a loan
rather than a sale, this Repurchase Agreement and the other Repurchase
Documents are effective to create in favor of the Buyer, a valid security
interest in all right, title and interest of the Sellers in, to and under the
Purchased Items.

 

(c)  Upon (i) receipt by the Custodian of
each Mortgage Note, endorsed in blank by a duly authorized officer of the
relevant Seller and (ii) the issuance by the Custodian of a Trust Receipt
therefor, the Buyer shall have a fully perfected first priority security
interest therein, in the Mortgage Loan evidenced thereby and in the Seller’s
interest in the related Mortgaged Property.

 

(d)  Upon the filing of financing statements on
Form UCC-1 naming each Seller as “debtor” and the Buyer, as “secured party”
and describing the Purchased Items as the “collateral” in the jurisdictions and
recording offices listed on Schedule 2 attached hereto, the
security interests granted hereunder in the Purchased Items will constitute a
fully perfected first priority security interests under the Uniform Commercial
Code in all right, title and interest of

 

34

 

the Sellers in, to and under such Purchased Items
which can be perfected by filing under the Uniform Commercial Code, in the
event that any Transaction is construed to constitute a financing rather than a
sale.

 

(e)  This Repurchase Agreement and the other
Repurchase Documents are effective to create in favor of the Buyer, a valid
security interest in all right, title and interest of each Seller in, to and
under the Collateral, and upon the filing of financing statements on Form UCC-1
naming each Seller as “debtor” and the Buyer, as “secured party” and describing
the Collateral as the “collateral” in the jurisdictions and recording offices
listed on Schedule 2 attached hereto, the security interests
granted hereunder in the Collateral will constitute a fully perfected first
priority security interests under the Uniform Commercial Code in all
right, title and interest of each Seller in, to and under such Collateral which
can be perfected by filing under the Uniform Commercial Code.

 

6.12                           Chief
Executive Office/Jurisdiction of Organization. On the Effective Date, and
at all times during the four (4) months preceding the Effective Date, each
Seller’s chief executive office is located at 350 South Grand Avenue, 43rd
Floor, Los Angeles, California 90071. On the Effective Date, each Seller’s
jurisdiction of organization is California.

 

6.13                           Location
of Books and Records. The location where each Seller keeps its books and
records, including all computer files and records relating to the Purchased
Items and the Collateral is its chief executive office.

 

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

 

6.15                           Tangible
Net Worth. On the Effective Date, Aames Investment’s Tangible Net Worth is
not less than $250,000,000.

 

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

 

35

 

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

 

6.17                           Capitalization.
Schedule 3 hereto contains a true, complete and correct list of all
issued and outstanding shares of capital stock of all Subsidiaries of Aames
Investment Corporation and the record owner thereof.

 

6.18                           Hedges.
As of the Effective Date, the Sellers have not assigned, pledged, granted a
security interest in or lien on or otherwise encumbered any of its rights,
title or interest in and to any Interest Rate Protection Agreement, other than
in favor of the Buyer.

 

6.19                           Regulatory
Status. No Seller is a “bank holding company” or a direct or indirect
subsidiary of a “bank holding company” as defined in the Bank Holding Company
Act of 1956, as amended, and Regulation Y thereunder of the Board of Governors
of the Federal Reserve System and no Seller will become a “bank holding company”
or a direct or indirect subsidiary of a “bank holding company” unless it shall
have provided the Buyer written notice thirty (30) days prior to such change.

 

6.20                           Real
Estate Investment Trust. No REIT Seller has engaged in any material “prohibited
transactions” as defined in Section 857(b)(6)(B)(iii) and (C) of
the Code. Each REIT Seller for its current “tax year” (as defined in the Code)
is and for all prior tax years subsequent to its election to be a real estate
investment trust has been entitled to a dividends paid deduction under the
requirements of Section 857 of the Code with respect to any dividends paid
by it with respect to each such year for which it claims a deduction in its Form 1120-REIT
filed with the United States Internal Revenue Service for such year.

 

6.21                           Compliance
with Anti-Money Laundering Laws. Each Seller has complied with all applicable
and Anti-Money Laundering Laws and regulations, including without limitation
the USA Patriot Act of 2001 (collectively, the “Anti-Money Laundering Laws”);
each Seller has established an anti-money laundering compliance program as
required by the Anti-Money Laundering Laws, has conducted the requisite due
diligence in connection with the origination of each Mortgage Loan for purposes
of the Anti-Money Laundering Laws, including with respect to the legitimacy of
the applicable Mortgagor and the origin of the assets used by the said
Mortgagor to purchase the property in question, and maintains, and will
maintain, sufficient information to identify the applicable Mortgagor for
purposes of the Anti-Money Laundering Laws. No Mortgage Loan is subject to nullification
pursuant to Executive Order 13224 (the “Executive Order”) or the
regulations promulgated by the Office of Foreign Assets Control of the United
States Department of the Treasury (the “OFAC Regulations”) or in
violation of the Executive Order or the OFAC Regulations, and no Mortgagor is
subject to the provisions of such Executive Order or the OFAC Regulations nor
listed as a “blocked person” for purposes of the OFAC Regulations.

 

6.22                           Solvency.
After giving effect to the entering into of each Transaction, (i) the
amount of the “present fair saleable value” of the assets of each Seller and of
such Seller and its Subsidiaries, taken as a whole, will, as of such date,
exceed the amount of all “liabilities of such Seller and of such Seller and its
Subsidiaries, taken as a whole, contingent or otherwise”, as of such date, as
such quoted terms are determined in accordance with applicable federal and

 

36

 

state laws governing
determinations of the insolvency of debtors, (ii) the present fair
saleable value of the assets of each Seller and of such Seller and its
Subsidiaries, taken as a whole, will, as of such date, be greater than the
amount that will be required to pay the liabilities of such Seller and of such
Seller and its Subsidiaries, taken as a whole, on their respective debts as
such debts become absolute and matured, (iii) no Seller, nor any Seller
and its Subsidiaries, taken as a whole, will have, as of such date, an
unreasonably small amount of capital with which to conduct their respective
businesses, and (iv) each Seller and such Seller and its Subsidiaries,
taken as a whole, will be able to pay their respective debts as they mature. For
purposes of this Section 6.22, “debt” means “liability on a claim”, “claim”
means any (x) right to payment, whether or not such a right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured, and (y) right to
an equitable remedy for breach of performance if such breach gives rise to a
right to payment, whether or not such right to an equitable remedy is reduced
to judgment, fixed, contingent, matured or unmatured, disputed, undisputed,
secured or unsecured.

 

Section 7. Covenants of the Sellers.

 

Each Seller covenants and agrees with the Buyer that, so long as any
Transaction is outstanding and until payment in full of all Repurchase
Obligations:

 

7.01                           Financial
Statements. Aames Investment shall deliver to the Buyer:

 

(a)  commencing with respect to the fiscal
quarter ending on March 31, 2006, as soon as available and in any event
within forty-five (45) days after the end of each of the first three quarterly
fiscal periods of each fiscal year, the unaudited consolidated balance sheets
of the Aames Investment and its consolidated Subsidiaries, as at the end of
such quarter and the related unaudited consolidated statements of income and
retained earnings and of cash flows for the Aames Investment and its
consolidated Subsidiaries, for such quarter and the portion of the fiscal year
through the end of such quarter, setting forth in each case in comparative form the
figures for the previous year, accompanied by a certificate of a Responsible
Officer of Aames Investment, which certificate shall state that said
consolidated financial statements fairly present the consolidated financial
condition and results of operations of Aames Investment and its consolidated
Subsidiaries, in accordance with GAAP, consistently applied, as at the end of,
and for, such quarter (subject to normal year-end audit adjustments);

 

(b)  commencing with respect to the fiscal year
ending on December 31, 2005, as soon as available and in any event within
ninety (90) days after the end of each fiscal year of Aames Investment, the
consolidated balance sheets of Aames Investment and its consolidated
Subsidiaries, as at the end of such fiscal year and the related consolidated
statements of income and retained earnings and of cash flows for Aames
Investment and its consolidated Subsidiaries, for such year, setting forth in
each case in comparative form the figures for the previous year,
accompanied by an opinion thereon of independent certified public accountants
of recognized national standing, which opinion shall not be qualified as to
scope of audit or going concern and shall state that said consolidated
financial statements fairly present the consolidated financial condition and
results of operations of Aames Investment and its consolidated Subsidiaries, as
applicable, as at the end of, and for, such fiscal year in accordance with
GAAP, and a certificate

 

37

 

of such accountants stating that, in making the
examination necessary for their opinion, they obtained no knowledge, except as
specifically stated, of any Default or Event of Default;

 

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

 

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

 

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

 

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

 

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

 

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

 

38

 

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

 

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

 

The Sellers and the Parent will furnish to the Buyer, at the time it
furnishes each set of financial statements pursuant to paragraphs (a) and (b) above,
a certificate of a Responsible Officer of each Seller or the Parent, as
applicable, (i) stating that, to the best of such Responsible Officer’s
knowledge, such Seller or the Parent, as applicable, during such fiscal period
or year has observed or performed all of its covenants and other agreements,
and satisfied every condition, contained in this Repurchase Agreement and the
other Repurchase Documents to be observed, performed or satisfied by it, and
that such Responsible Officer has obtained no knowledge of any Default or Event
of Default except as specified in such certificate (and, if any Default or
Event of Default has occurred and is continuing, describing the same in
reasonable detail and describing the action such Seller or the Parent, as
applicable, has taken or proposes to take with respect thereto) and (ii) showing
in detail the calculations supporting such Responsible Officer’s certification
of such Seller’s or the Parent’s, as applicable, compliance with the
requirements of Sections 7.14 and 7.15.

 

7.02                           Litigation.
 Each Seller will promptly, and in any
event within ten (10) calendar days after service of process on any of the
following, give to the Buyer notice of all litigation, actions, suits,
arbitrations, investigations (including, without limitation, any of the
foregoing which are pending or threatened) or other legal or arbitrable
proceedings affecting any Sellers or any of its Subsidiaries or affecting any
of the Property of any of them before any Governmental Authority that (i) questions
or challenges the validity or enforceability of any of the Repurchase Documents
or any action to be taken in connection with the transactions contemplated
hereby, (ii) makes a claim or claims in an aggregate amount greater than
$3,000,000, (iii) which, individually or in the aggregate, if adversely
determined, could be reasonably likely to have a Material Adverse Effect, or (iii) requires
filing with the Securities and Exchange Commission in accordance with the 1934
Act and any rules thereunder.

 

7.03                           Existence,
etc.  Each Seller will:

 

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

 

(b)  comply with the requirements of all
applicable laws, rules, regulations and orders of Governmental Authorities
(including, without limitation, all Prescribed Laws, all environmental laws,
all laws with respect to unfair and deceptive lending practices and Predatory

 

39

 

Lending Practices) if failure to comply with such
requirements would be reasonably likely (either individually or in the
aggregate) to have a Material Adverse Effect;

 

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

 

(d)  not move its chief executive office from
the address referred to in Section 6.12 or change its jurisdiction of
organization from the jurisdiction referred to in Section 6.12 unless it
shall have provided the Buyer thirty (30) calendar days’ prior written notice
of such change;

 

(e)  pay and discharge all taxes, assessments
and governmental charges or levies imposed on it or on its income or profits or
on any of its Property prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the payment of which is
being contested in good faith and by proper proceedings and against which
adequate reserves are being maintained; and

 

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

 

7.04                           Prohibition
of Fundamental Changes.  No Seller
shall enter into any transaction of merger or consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation, winding up or
dissolution) or sell all or substantially all of its assets; provided, that a
Seller may merge or consolidate with (a) any wholly owned subsidiary
of such Seller, or (b) any other Person if such Seller is the surviving
corporation; and provided further, that if after giving effect thereto, no
Default would exist hereunder.

 

7.05                           Margin
Deficiency.  If at any time there
exists a Margin Deficiency the Sellers shall cure same in accordance with Section 2.05
hereof.

 

7.06                           Notices.
The Sellers shall give notice to the Buyer:

 

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

 

(b)  with respect to any Mortgage Loan
purchased by the Buyer hereunder, a weekly report delivered on each date on
which prepayments are to be remitted to the Buyer pursuant to Section 7.17
hereof, with respect to the preceding week, detailing any principal prepayments
in full of any such Mortgage Loans received during such preceding week;

 

(c)  promptly upon receipt of notice or
knowledge that the underlying Mortgaged Property related to any Purchased Loan
has been damaged by waste, fire, earthquake or earth movement, windstorm,
flood, tornado or other casualty, or otherwise damaged so as to affect
adversely the Market Value of such Purchased Loan;

 

40

 

(d)  promptly upon receipt of notice or
knowledge of (i) any default (other than a payment default) related to any
Purchased Item or Collateral, (ii) any Lien or security interest (other
than security interests created hereby or by the other Repurchase Documents)
on, or claim asserted against, any Purchased Item or Collateral or (iii) any
event or change in circumstances which could reasonably be expected to have a
Material Adverse Effect;

 

(e)  via Electronic Transmission with respect
to any Purchased Loan subject to a Transaction outstanding hereunder, within
two (2) calendar days upon receipt of notice that such Purchased Loan has
been rejected for purchase by a buyer of mortgage loans (the “Prospective
Buyer”) for any reason, which notice shall include (i) the reason for
rejection by such buyer and (ii) the LTV based upon an appraisal obtained
by the Prospective Buyer (in the event that such LTV is greater than 95%);

 

(f)  promptly upon any material and adverse
change in the market value of all of the Sellers’ assets taken as a whole;

 

(g)  promptly upon notice or knowledge of the
occurrence of any event (other than a Reportable Event) described in Section 8(n)
hereof without regard to its materiality; and

 

(h)  promptly upon notice or knowledge of the
occurrence of any material Reportable Event.

 

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

 

7.07                           Hedging.
Each Seller shall deliver to the Buyer monthly a written summary of the
notional amount of all outstanding Interest Rate Protection Agreements.

 

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

 

7.09                           Underwriting
Guidelines. Each Seller shall provide to the Buyer a copy of any material
changes to the Underwriting Guidelines prior to the effectiveness of any such
change. The Buyer shall use commercially reasonable efforts to notify the
Sellers within seven (7) Business Days following the Buyer’s receipt of
such changes if such changes are acceptable. If such changes are not acceptable
to the Buyer, in its sole discretion, any proposed Purchased Loan which is
originated in accordance with the Underwriting Guidelines as so changed shall
not constitute an Eligible Mortgage Loan. Each Seller shall originate Eligible
Mortgage Loans in a manner which is consistent with sound underwriting and
appraisal practices, and in compliance with applicable federal and state
consumer protection laws including, without limitation, all laws with respect
to unfair or deceptive practices and all laws relating to Predatory Lending
Practices.

 

7.10                           Transactions
with Affiliates. No Seller will enter into any transaction, including
without limitation any purchase, sale, lease or exchange of property or the
rendering of

 

41

 

any service, with any
Affiliate unless such transaction is (a) otherwise permitted under this
Repurchase Agreement, (b) in the ordinary course of such Seller’s business
and (c) upon fair and reasonable terms no less favorable to such Seller
than it would obtain in a comparable arm’s length transaction with a Person
which is not an Affiliate, or make a payment that is not otherwise permitted by
this Section 7.10 to any Affiliate. In no event shall any Seller sell to
the Buyer hereunder any Eligible Mortgage Loan acquired by such Seller from an
Affiliate of such Seller other than a party to this Repurchase Agreement.

 

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

 

7.12                           Limitation
on Guarantees. No Seller shall create, incur, assume or suffer to exist any
additional Guarantee at any time when, after giving effect to such Guarantee,
such Seller shall have defaulted in any of its obligations under Sections 7.14
or 7.15 hereof.

 

7.13                           Limitation
on Distributions. After the occurrence and during the continuation of any
Default, no Seller shall make any payment on account of, or set apart assets
for, a sinking or other analogous fund for the purchase, redemption,
defeasance, retirement or other acquisition of any equity or partnership
interest of such Seller, whether now or hereafter outstanding, or make any
other distribution in respect of any of the foregoing or to any shareholder or
equity owner of such Seller, either directly or indirectly, whether in cash or
property or in obligations of such Seller or any of such Seller’s consolidated
Subsidiaries, except distributions in cash or other property to the extent
required to satisfy the REIT Distribution Requirement.

 

7.14                           Financial
Covenants.

 

(a)  Maintenance of Tangible Net Worth. Aames
Investment shall not permit its Tangible Net Worth at any time to be less than
the sum of $250,000,000 plus fifty percent (50%) of any additional
equity raised in a public offering by Aames Investment from and after the
Effective Date.

 

(b)  Maintenance of Ratio of Total
Indebtedness to Tangible Net Worth. Aames Investment shall not permit the
ratio of its Total Indebtedness to Tangible Net Worth at any time, from and
after the Effective Date, to be greater than 15.0 to 1.0.

 

(c)  Maintenance of Ratio of Adjusted
Indebtedness to Tangible Net Worth. Aames Investment shall not permit the
ratio of its Adjusted Indebtedness to Tangible Net Worth at any time, from and
after the Effective Date, to be greater than 5.0 to 1.0.

 

(d)  Maintenance of Profitability. Aames
Investment shall not permit its Net Income before tax, generated over any two
consecutive fiscal quarters, measured on the last day of each fiscal quarter,
to be less than $1.00, commencing with respect to the two consecutive fiscal
quarters ending on December 31, 2005.

 

42

 

(e)  Maintenance of Liquidity. Aames
Investment shall, as of the end of any calendar quarter, have unencumbered Cash
Equivalents, cash and available borrowing capacity on unencumbered assets that
could be drawn against (taking into account required haircuts) under committed
warehouse or working capital facilities, on a consolidated basis in an amount
greater than or equal to $65,000,000.

 

7.15                           [Reserved]

 

7.16                           No
Adverse Selection. No Seller has selected any Purchased Items or Collateral
in a manner so as to adversely affect the Buyer’s interests.

 

7.17                           Remittance
of Prepayments. The Sellers shall remit, with sufficient detail to enable
the Buyer to appropriately identify the Purchased Loan to which any amount
remitted applies, to the Buyer on each Thursday (or the next Business Day if
such Thursday is not a Business Day) all principal prepayments in full (but not
in part) that the Sellers have received during the previous week that are not
paid directly to the Buyer. All principal amounts so remitted shall be applied
to the prepayment of the Repurchase Price then outstanding in respect of the
related Transaction.

 

7.18                           Servicer;
Servicer Report. The Sellers shall provide, or shall cause each Servicer to
provide, to the Buyer on or before the tenth (10th) Business Day of
each month a Servicer Report with respect to all Purchased Loans related to
Transactions outstanding hereunder and, in connection with the effectiveness of
Regulation AB promulgated by the Securities and Exchange Commission (as such
regulation may be amended or modified from time to time, “Reg AB”),
each Seller shall provide, or shall cause each Servicer to cooperate with the
Buyer in providing, such statements and reports as are required by and in
conformance with Reg AB.

 

Section 8. Events of Default.

 

Each of the following events shall constitute an event of default (an “Event
of Default”) hereunder:

 

(a)  any Seller shall default in the payment of
any Repurchase Price or Price Differential on any Transaction when due (whether
at stated maturity, upon acceleration or at mandatory or optional prepayment or
repurchase); or

 

(b)  any Seller shall fail to cure any Margin
Deficiency in accordance with Section 2.05 of this Repurchase Agreement;
or

 

(c)  any Seller shall default in the payment of
any other amount payable by it hereunder or under any other Repurchase Document
after notification by the Buyer of such default, and such default shall have
continued unremedied for five (5) Business Days; or

 

(d)  any representation, warranty or
certification made or deemed made herein or in any other Repurchase Document by
any Seller or any certificate furnished to the Buyer pursuant to the provisions
hereof or thereof shall prove to have been false or misleading in any material
respect as of the time made or furnished (other than the representations and
warranties

 

43

 

set forth in Schedule 1, which shall be
considered solely for the purpose of determining the Recognized Value of the
Purchased Loans; unless (i) such Seller shall have made any such
representations and warranties with knowledge that they were materially false
or misleading at the time made or (ii) any such representations and
warranties have been determined by the Buyer in its sole discretion to be materially
false or misleading on a regular basis); or

 

(e)  any Seller shall fail to comply with the
requirements of Section 7.03(a), Section 7.04, Section 7.06(a) or
Sections 7.09 through 7.18 hereof and such default shall continue unremedied
for a period of one (1) Business Day; or any Seller shall otherwise fail
to comply with the requirements of Section 7.03 hereof and such default
shall continue unremedied for a period of five (5) Business Days; or any
Seller or the Parent shall fail to observe or perform any other covenant
or agreement contained in this Repurchase Agreement or any other Repurchase
Document and such failure to observe or perform shall continue unremedied
for a period of seven (7) Business Days; or

 

(f)  a final judgment or judgments for the
payment of money in excess of $1,000,000 in the aggregate shall be rendered
against any Seller or any of its Affiliates by one or more courts,
administrative tribunals or other bodies having jurisdiction and the same shall
not be satisfied, discharged (or provision shall not be made for such
discharge) or bonded, or a stay of execution thereof shall not be procured,
within thirty (30) calendar days from the date of entry thereof, and no Seller
or any such Affiliate shall, within said period of thirty (30) calendar days,
or such longer period during which execution of the same shall have been stayed
or bonded, appeal therefrom and cause the execution thereof to be stayed during
such appeal; or

 

(g)  any Seller shall admit in writing its
inability to pay its debts as such debts become due; or

 

(h)  any Seller or any of its Affiliates shall (i) apply
for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, examiner or liquidator or the like of itself or
of all or a substantial part of its property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary
case under the Bankruptcy Code, (iv) file a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency, reorganization,
liquidation, dissolution, arrangement or winding-up, or composition or
readjustment of debts, (v) fail to controvert in a timely and appropriate
manner, or acquiesce in writing to, any petition filed against it in an
involuntary case under the Bankruptcy Code or (vi) take any corporate or
other action for the purpose of effecting any of the foregoing; or

 

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

 

44

 

thirty (30) or more calendar days; or an order for
relief against any Seller or any such Affiliate shall be entered in an
involuntary case under the Bankruptcy Code; or

 

(j)  the
Custodial Agreement (without provisions for a replacement custodial agreement
acceptable to the Buyer) or any Repurchase Document shall for whatever reason
be terminated or cease to be in full force and effect, or the enforceability
thereof shall be contested by any Seller; or

 

(k)  any
Seller shall grant, or suffer to exist, any Lien on any Purchased Item or
Collateral except the Liens contemplated hereby; or the Liens contemplated
hereby shall cease to be first priority perfected Liens on the Purchased Items
and the Collateral in favor of the Buyer or shall be Liens in favor of any
Person other than the Buyer; or

 

(l)  any
Seller or any of such Seller’s Affiliates shall be in default under any note,
indenture, loan agreement, guaranty, swap agreement or any other contract to
which it is a party, including, without limitation, any MS Indebtedness, which
has an aggregate face or principal amount of $1,000,000 or more, which default (i) involves
the failure to pay a matured obligation, or (ii) permits the acceleration
of the maturity of obligations by any other party to or beneficiary of such
note, indenture, loan agreement, guaranty, swap agreement or other contract; or

 

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

 

(n)  the
discovery by the Buyer of a condition or event which existed at or prior to the
execution hereof and which the Buyer, in its sole discretion, determines
materially and adversely affects: (i) the condition (financial or
otherwise) of any Seller, its Subsidiaries or Affiliates; or (ii) the
ability of any Seller to fulfill its respective obligations under this
Repurchase Agreement; or

 

(o)  (i) 
Tangible Net Worth on a consolidated basis on any given day shall be less than
an amount equal to the sum of $250,000,000 plus fifty percent (50%) of
any additional equity raised in a public offering by Aames Investment from and
after the Effective Date;

 

(ii)                                  the
Leverage Ratio shall at any time be greater than 15.0 to 1.0;

 

(iii)                               the ratio of Adjusted
Indebtedness to Tangible Net Worth shall at any time be greater than 5.0 to
1.0;

 

(iv)                              Net
Income before tax, generated over any two consecutive fiscal quarters, measured
on the last day of each fiscal quarter, shall be less than $1.00, commencing
with respect to the two consecutive fiscal quarters ending on December 31,
2005; or

 

(v)                                 Aames
Investment shall, as of the end of any calendar month, have unencumbered Cash
Equivalents, cash and available borrowing capacity on unencumbered assets that
could be drawn against (taking into account required haircuts)

 

45

 

under committed warehouse or working capital facilities, on a
consolidated basis in an amount less than $65,000,000; or

 

(p)  MS &
Co.’s corporate bond rating has been lowered or downgraded to a rating below A-
by S&P or A3 by Moody’s and any Seller shall have failed to repay all
amounts owing to the Buyer under this Repurchase Agreement and the other
Repurchase Documents within ninety (90) calendar days following such downgrade.

 

Section 9. Remedies Upon Default.

 

(a)  An Event of Default shall be deemed to be
continuing unless expressly waived by the Buyer in writing. Upon the occurrence
of one or more Events of Default hereunder, the Buyer’s obligation to enter
into additional Transactions hereunder shall automatically terminate without
further action by any Person. Upon the occurrence of one or more Events of Default
other than those referred to in Section 8(g) or 8(h), the Buyer may immediately
declare the aggregate Repurchase Price of all outstanding Transactions to be
immediately due and payable, together with all Price Differential thereon and
fees and expenses accruing under this Repurchase Agreement. Upon the occurrence
and during the continuance of an Event of Default referred to in Section 8(g) or
8(h), such amounts shall immediately and automatically become due and payable
without any further action by any Person. Upon such declaration or such
automatic acceleration, the balance then outstanding shall become immediately
due and payable, without presentment, demand, protest or other formalities of
any kind, all of which are hereby expressly waived by each Seller.

 

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

 

Section 10. No Duty of Buyer.

 

The powers conferred on the Buyer hereunder are solely to protect the
Buyer’s interests in the Purchased Items and the Collateral and shall not
impose any duty upon it to exercise any such powers. The Buyer shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Sellers for any act or failure
to act hereunder, except for its or their own gross negligence or willful
misconduct.

 

Section 11. Miscellaneous.

 

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

 

46

 

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

 

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

 

11.03                     Indemnification
and Expenses.

 

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

 

47

 

Agreement, any other Repurchase Document or any
transaction contemplated hereby or thereby, including without limitation the
reasonable fees and disbursements of its counsel. Each Seller hereby
acknowledges that the obligations of such Seller under the Repurchase Documents
are recourse obligations of such Seller.

 

(b)  The Sellers agree, jointly and severally,
to pay as and when billed by the Buyer all of the out-of-pocket costs and
expenses incurred by the Buyer in connection with the development, preparation
and execution of, and any amendment, supplement or modification to, this
Repurchase Agreement, any other Repurchase Document or any other documents
prepared in connection herewith or therewith. The Sellers agree, jointly and
severally, to pay as and when billed by the Buyer all of the out-of-pocket
costs and expenses incurred in connection with the consummation and
administration of the transactions contemplated hereby and thereby including
without limitation (i) all the reasonable fees, disbursements and expenses
of counsel to the Buyer (ii) all the due diligence, inspection, testing
and review costs and expenses incurred by the Buyer with respect to the
Purchased Items and the Collateral under this Repurchase Agreement, including,
but not limited to, those costs and expenses incurred by the Buyer pursuant to
Sections 11.03(a), 11.15 and 11.16 hereof and (iii) all reasonable costs
and expenses incurred by the Buyer in connection with the underwriting or
re-underwriting of any Purchased Loan (including any proposed Purchased Loan)
from time to time.

 

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

 

11.05                     Assignments
and Participations.

 

(a)  No Seller may assign or delegate any
of its rights or obligations under this Repurchase Agreement without the
express written consent of the Buyer and any assignment or delegation that is
attempted in contravention of this provision shall be null and void, ab initio. The Buyer may assign and delegate to one or
more Affiliates of the Buyer all or a portion of its rights and obligations
under this Repurchase Agreement; provided, however, that the
parties to each such assignment shall execute and deliver an Assignment and
Acceptance substantially in the form of Exhibit H, with appropriate
completions (an “Assignment and Acceptance”).

 

(b)  Upon such execution and delivery, from and
after the effective date specified in such Assignment and Acceptance, (i) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned and delegated to it pursuant to such
Assignment and Acceptance, have the rights and obligations of the Buyer
hereunder, and (ii) the Buyer assignor thereunder shall, to the extent
that any rights and obligations hereunder have been assigned and delegated by
it, and accepted and assumed by the assignee, pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations under
this Repurchase Agreement.

 

(c)  The Buyer may sell participations to
one or more Persons in or to all or a portion of its rights and obligations
under this Repurchase Agreement; provided, however, that (i) the
Buyer’s obligations under this Repurchase Agreement shall remain unchanged, (ii) the

 

48

 

Buyer shall remain solely responsible to the other
parties hereto for the performance of such obligations, and (iii) the
Seller shall continue to deal solely and directly with the Buyer in connection
with the Buyer’s rights and obligations under and in respect of this Repurchase
Agreement and the other Repurchase Documents. Notwithstanding the terms of Section 3.03,
each participant of the Buyer shall be entitled to the additional compensation
and other rights and protections afforded the Buyer under Section 3.03 to
the same extent as the Buyer would have been entitled to receive them with
respect to the participation sold to such participant.

 

(d)  The Buyer may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section 11.05, disclose to the assignee or participant or proposed
assignee or participant, as the case may be, any information relating to
any Seller or any of their Subsidiaries or to any aspect of the Loans that has
been furnished to the Buyer by or on behalf of any Seller or any of their
Subsidiaries.

 

(e)  The Buyer may at any time create a
security interest in all or any portion of its rights under this Repurchase
Agreement (including, without limitation, the Repurchase Obligations owing to
it) in favor of any Federal Reserve Bank in accordance with Regulation A of the
Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank. No such assignment shall release the
assigning Buyer from its obligations hereunder.

 

(f)  Notwithstanding the foregoing, upon the
occurrence and during the continuance of an Event of Default, the Buyer may assign
all or any portion of its rights and obligations hereunder to any Person,
provided that upon the effective date of such assignment such Person shall
become a party hereto and a Buyer hereunder and shall be (i) entitled to
all the rights, benefits and privileges accorded the Buyer under the Repurchase
Documents, and (ii) subject to all the duties and obligations of the Buyer
under the Repurchase Documents.

 

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

 

11.07                     Survival.
 The obligations of each Seller under
Sections 3.03 and 11.03 hereof shall survive the payment of the Repurchase
Obligations relating to all Transactions and the termination of this Repurchase
Agreement. In addition, each representation and warranty made or deemed to be
made by a request for a Transaction, herein or pursuant hereto shall survive
the making of such representation and warranty, and the Buyer shall not be
deemed to have waived, by reason of entering into any Transaction, any Default
that may arise because any such representation or warranty shall have
proved to be false or misleading, notwithstanding that the Buyer may have
had notice or knowledge or reason to believe that such representation or
warranty was false or misleading at the time such Transaction was entered into.

 

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

 

49

 

11.09                     Counterparts.
 This Repurchase Agreement may be
executed by each of the parties hereto on any number of separate counterparts,
each of which shall be an original and all of which taken together shall
constitute one and the same instrument, and any of the parties hereto may execute
this Repurchase Agreement by signing any such counterpart. Delivery of an
executed counterpart of a signature page of this Repurchase Agreement
in Portable Document Format (PDF) or by facsimile transmission shall be
effective as delivery of a manually executed original counterpart of this
Repurchase Agreement.

 

11.10                     Repurchase
Agreement Constitutes Security Agreement; Governing Law.  This Repurchase Agreement shall be governed,
and construed and interpreted in accordance with, the laws of the State of New
York, and shall constitute a security agreement within the meaning of the Uniform Commercial
Code.

 

11.11                     Submission
To Jurisdiction; Waivers.  Each
Seller hereby irrevocably and unconditionally:

 

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

 

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

 

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

 

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

 

11.12                     WAIVER OF JURY TRIAL. EACH SELLER
AND THE BUYER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS REPURCHASE AGREEMENT,

 

50

 

ANY OTHER REPURCHASE
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

 

11.13                     Acknowledgments.
Each Seller hereby acknowledges that:

 

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

 

(b)  the Buyer has no fiduciary relationship to
any Seller, and the relationship between each Seller and the Buyer is solely
that of seller and buyer; and

 

(c)  no joint venture exists between the Buyer
and any Seller.

 

11.14                     Hypothecation
or Pledge of Purchased Items. The Buyer shall have free and unrestricted
use of all Purchased Items and Collateral and nothing in this Repurchase
Agreement shall preclude the Buyer from engaging in repurchase transactions
with any Purchased Items or Collateral or otherwise pledging, repledging,
transferring, hypothecating, or rehypothecating any Purchased Items or
Collateral, on terms, and subject to conditions, within the Buyer’s absolute
discretion. Nothing contained in this Repurchase Agreement shall obligate the
Buyer to segregate any Purchased Items or Collateral delivered to the Buyer by
the Sellers.

 

11.15                     Servicing.

 

(a)  Each Seller covenants to maintain or cause
to be maintained the servicing of the Purchased Loans in conformity with
Accepted Servicing Practices and in a manner at least equal in quality to the
servicing such Servicer provides for mortgage loans which it owns. In the event
that the preceding language is interpreted as constituting one or more
servicing contracts, each such servicing contract shall terminate automatically
upon the earliest of (i) an Event of Default, (ii) the date on which
all the Repurchase Obligations have been paid in full or (iii) any
transfer of such servicing by the Seller.

 

(b)  Each Seller hereby (i) acknowledges
and agrees that the Purchased Loans are being sold to the Buyer hereunder on a
servicing released basis, (ii) acknowledges and agrees that the Buyer is
the collateral assignee of all servicing records, including but not limited to
any and all servicing agreements, files, documents, records, data bases,
computer files, copies of computer files, proof of insurance coverage,
insurance policies, appraisals, other closing documentation, payment history
records, and any other records relating to or evidencing the servicing of
Purchased Loans (the “Servicing Records”) and (iii) grants the
Buyer, to secure the obligation of each Seller or its designee to service in
conformity with this Section and any other obligation of the Sellers to
the Buyer, a security interest in all Servicing Records and all servicing fees
and rights relating to the Purchased Loans. The Sellers covenant to safeguard
all Servicing Records and to deliver them or arrange for the relevant Servicer
to deliver them promptly to the Buyer or its designee (including the Custodian)
at the Buyer’s request.

 

(c)  The Sellers shall provide the Buyer with a
copy of all servicing agreements, if any, applicable to the Purchased Loans
(each, a “Servicing Agreement”), which Servicing Agreements shall be in form and
substance acceptable to the Buyer, and with respect to each Servicing
Agreement, the Sellers shall provide the Buyer with a properly completed and
fully

 

51

 

executed Servicer Notice and Agreement substantially
in the form of Exhibit G hereto (a “Servicer Notice”). Each
Seller hereby irrevocably assigns to the Buyer, and the Buyer’s successors and
assigns, all right, title and interest, if any, of such Seller in, to and
under, and the benefits of, each Servicing Agreement. Any successor or assignee
of a Servicer shall be approved in writing by the Buyer and shall acknowledge
and agree to a Servicer Notice prior to such successor’s assumption of
servicing obligations with respect to the Purchased Loans.

 

(d)  After the Purchase Date for any Purchased
Loan, until such Purchased Loan is repurchased by the applicable Seller and
possession thereof is relinquished by the Custodian, no Seller or Servicer will
have any right to modify or alter the terms of such Purchased Loan without
notice to the Buyer and no Seller will have any obligation or right to
repossess such Purchased Loan or substitute another Purchased Loan, except as
provided in the Custodial Agreement. Each Seller acknowledges that after the
terms of a Purchased Loan are modified or altered, the Buyer may reduce
the Recognized Value of such Purchased Loan as a result of such modification.

 

(e)  In the event that a Seller or an Affiliate
of a Seller is servicing any Purchased Loans, the Buyer shall be permitted from
time to time to inspect the servicing facilities of such Seller or its
Affiliate, as applicable, for the purpose of satisfying the Buyer that such
Seller or its Affiliate, as the case may be, has the ability to service
the Purchased Loans as required under this Repurchase Agreement.

 

(f)  Upon the occurrence of any Event of
Default, the Buyer may terminate any Servicing Agreement and in any event
transfer servicing to the Buyer’s designee, at no cost or expense to the Buyer,
it being agreed that the Sellers will pay any and all fees required to
terminate the Servicing Agreement and to effectuate the transfer of servicing
to the designee of the Buyer.

 

11.16                     Periodic
Due Diligence Review. Each Seller acknowledges that the Buyer has the right
to perform continuing due diligence reviews with respect to the Purchased
Loans (including a review of the Mortgage Loan Documents and such other
documents, records, agreements, instruments, mortgaged properties or
information relating to the Purchased Loans as the Buyer in its sole discretion
deems appropriate to review) and the manner in which they were originated, for
purposes of verifying compliance with the representations, warranties and
specifications made hereunder, or otherwise, and each Seller agrees that,
unless a Default has occurred (in which case no notice is required), upon
reasonable (but no less than one (1) Business Day’s) prior notice to the
Sellers, the Buyer or its authorized representatives will be permitted during
normal business hours to examine, inspect, and make copies and extracts of, the
Mortgage Files and any and all documents, records, agreements, instruments or
information relating to such Purchased Loans, including, without limitation,
any related internal credit analyses, in the possession or under the control of
the Sellers and/or, pursuant to the Custodial Agreement, the Custodian. The
Sellers also shall make available to the Buyer a knowledgeable financial or
accounting officer for the purpose of answering questions respecting the
Mortgage Files and the Purchased Loans. Without limiting the generality of the
foregoing, the Sellers acknowledge that the Buyer may enter into
Transactions based solely upon the information provided by the Sellers to the
Buyer in the Mortgage Loan Data File and the representations, warranties and
covenants contained herein, and that the Buyer, at its option, has the right at
any

 

52

 

time to conduct a partial
or complete due diligence review on some or all of the Purchased Loans related
to Transactions from time to time outstanding hereunder, including without limitation
ordering new credit reports and new appraisals on the related Mortgaged
Properties and otherwise re-generating the information used to originate such
Purchased Loan. The Buyer may underwrite such Purchased Loans itself or
engage a mutually agreed upon third party underwriter to perform such
underwriting. The Sellers agree to cooperate with the Buyer and any third party
underwriter in connection with such underwriting, including, but not limited
to, providing the Buyer and any third party underwriter with access to any and
all documents, records, agreements, instruments or information relating to such
Purchased Loans in the possession, or under the control, of the Sellers. Each
Seller further agrees that such Seller shall reimburse the Buyer for any and
all out-of-pocket costs and expenses incurred by the Buyer in connection with
the Buyer’s activities pursuant to this Section 11.16; provided,
that so long as no Default or Event of Default shall have occurred and be
continuing, the Sellers shall not be obligated to reimburse the Buyer for such
out-of-pocket costs and expenses solely to the extent that the aggregate amount
of such costs and expenses incurred by the Buyer during any calendar year
exceeds $25,000.

 

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

 

11.18                     Intent.

 

(a)  The parties
intend and acknowledge that each Transaction is a “repurchase agreement” and a “master
netting agreement” as each such term is defined in Section 101 of Title 11
of the United States Code, as amended (except insofar as the type of Eligible
Mortgage Loans subject to such Transaction or the term of such Transaction
would render such definition inapplicable), and a “securities contract” as that
term is defined in Section 741 of Title 11 of the United States Code, as
amended (except insofar as the type of assets subject to such Transaction would
render such definition inapplicable).

 

(b)  It is
understood that any party’s right to liquidate Purchased Loans delivered to it
in connection with any Transaction entered into hereunder or to exercise any
other remedies pursuant to the terms of this Repurchase Agreement, is a
contractual right, to liquidate, terminate or accelerate such Transaction as
described in Sections 555, 559 and 561 of Title 11 of the United States Code,
as amended.

 

53

 

(c)  The parties agree and acknowledge that, if
a party hereto is an “insured depository institution,” as such term is defined
in the Federal Deposit Insurance Act, as amended (“FDIA”), then each
Transaction hereunder is a “qualified financial contract,” as that term is
defined in FDIA and any rules, orders or policy statements thereunder (except
insofar as the type of assets subject to such Transaction would render such
definition inapplicable).

 

(d)  It is understood that this agreement
constitutes a “netting contract” as defined in and subject to Title IV of the
Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”)
and each payment entitlement and payment obligation under any Transaction hereunder
shall constitute a “covered contractual payment entitlement” or “covered
contractual payment obligation”, respectively, as defined in and subject to
FDICIA (except insofar as one or both of the parties is not a “financial
institution” as that term is defined in FDICIA).

 

11.19                     Disclosure Relating to
Certain Federal Protections.  The parties
acknowledge that they have been advised that:

 

(a)  in the case of Transactions in which one of the
parties is a broker or dealer registered with the Securities and Exchange
Commission (“SEC”) under Section 15 of the Securities Exchange Act
of 1934 (“1934 Act”), the Securities Investor Protection Corporation has
taken the position that the provisions of the Securities Investor Protection
Act of 1970 (“SIPA”) do not protect the other party with respect to any
Transaction hereunder;

 

(b)  in the case of Transactions in which one of the
parties is a government securities broker or a government securities dealer
registered with the SEC under Section 15C of the 1934 Act, SIPA will not
provide protection to the other party with respect to any Transaction
hereunder; and

 

(c)  in the case of Transactions in which one of the
parties is a financial institution, funds held by the financial institution
pursuant to a Transaction hereunder are not a deposit and therefore are not
insured by the Federal Deposit Insurance Corporation, the Federal Savings and
Loan Insurance Corporation or the National Credit Union Share Insurance Fund,
as applicable.

 

11.20                     Joint and
Several Liability.  Each Seller
hereby acknowledges and agrees that such Seller shall be jointly and severally
liable to the Buyer to the maximum extent permitted by the applicable law for
all representations, warranties, covenants, obligations and indemnities of the
Sellers hereunder.

 

11.21                     Treatment
of Certain Information.  Notwithstanding
anything to the contrary contained herein or in any other Repurchase Document,
all Persons may disclose to any and all Persons, without limitation of any
kind, the federal income tax treatment of the Transactions contemplated by this
Repurchase Agreement or any other Repurchase Document, any fact relevant to
understanding the federal tax treatment thereof and all materials of any kind
(including opinions or other tax analyses) relating to such federal income tax
treatment; provided, that except as otherwise required by law, rule or
regulation, no Person may disclose the name of or identifying information
with respect to any party identified herein or in any other Repurchase Document
or any pricing terms (including, without limitation, the Applicable Pricing

 

54

 

Spread and any commitment
or other fees) or other nonpublic business or financial information (including
Recognized Value and financial covenants) that is unrelated to the purported or
claimed federal income tax treatment of the Contemplated Actions and is not
relevant to understanding the purported or claimed federal income tax treatment
of the transaction, without the prior consent of the Buyer.

 

11.22                     Substitution.
 This Repurchase Agreement substitutes
and replaces in its entirety the Existing Loan Agreement. All Loans, as defined
in and outstanding under the Existing Loan Agreement shall, as of the Effective
Date hereof, be deemed, mutatis mutandis,
to be Transactions outstanding under this Repurchase Agreement and upon the
Effective Date hereof, without limiting the scope of any other conforming
changes necessary to be made, (i) the aggregate unpaid principal amount of
all such Loans shall be deemed to be Purchase Price outstanding hereunder, (ii) all
amounts of accrued and unpaid interest shall be deemed to be accrued and unpaid
Price Differential hereunder, (iii) all other amounts owing by the Sellers
who are borrowers under the Existing Loan Agreement shall be included in the
aggregate Repurchase Price outstanding hereunder and (iv) all Collateral
(as defined in and pledged under the Existing Loan Agreement) shall be deemed
to be Purchased Items or Collateral hereunder, as applicable.

 

 

[SIGNATURE PAGES FOLLOW]

 

55

 

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

 

	
   

  	
  SELLERS

  
	
   

  	
   

  	
   

  
	
   

  	
  AAMES CAPITAL CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Jon D. Van Deuren

  	
   

  
	
   

  	
   

  	
  Name: Jon D. Van Deuren

  
	
   

  	
   

  	
  Title: Executive Vice President and Chief

  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
  350 South Grand Avenue

  
	
   

  	
  43rd Floor

  
	
   

  	
  Los Angeles, California 90071

  
	
   

  	
  Attention:

  	
  Jon Van Deuren

  
	
   

  	
   

  	
  Executive Vice President-Finance &

  Chief Financial Officer

  
	
   

  	
  Telecopier No.: 323-210-5036

  
	
   

  	
  Telephone No: 323-210-4855

  
	
   

  	
   

  	
   

  
	
   

  	
  With a copy to:

  
	
   

  	
  General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  AAMES FUNDING CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
  /s/ Jon D. Van Deuren

  	
   

  
	
   

  	
   

  	
  Name: Jon D. Van Deuren

  
	
   

  	
   

  	
  Title: Executive Vice President and Chief

  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
  350 South Grand Avenue

  
	
   

  	
  43rd Floor

  
	
   

  	
  Los Angeles, California 90071

  
	
   

  	
  Attention: Jon Van Deuren

  
	
   

  	
  Executive Vice President-Finance &

  Chief Financial Officer

  
							

 

 

	
   

  	
  Telecopier No.: 323-210-5036

  
	
   

  	
  Telephone No: 323-210-4855

  
	
   

  	
   

  	
   

  
	
   

  	
  With a copy to:

  
	
   

  	
  General Counsel

  

 

 

	
   

  	
  AAMES INVESTMENT CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Jon D. Van Deuren

  	
   

  
	
   

  	
   

  	
  Name: Jon D. Van Deuren

  
	
   

  	
   

  	
  Title: Executive Vice President and Chief

  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
  350 South Grand Avenue

  
	
   

  	
  43rd Floor

  
	
   

  	
  Los Angeles, California 90071

  
	
   

  	
  Attention: Jon Van Deuren

  
	
   

  	
  Executive Vice President-Finance &

  
	
   

  	
  Chief Financial Officer

  
	
   

  	
  Telecopier No.: 323-210-5036

  
	
   

  	
  Telephone No: 323-210-4855

  
	
   

  	
   

  	
   

  
	
   

  	
  With a copy to:

  
	
   

  	
  General Counsel

  

 

 

	
   

  	
  BUYER

  
	
   

  	
   

  	
   

  
	
   

  	
  MORGAN STANLEY BANK

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Andrew B. Neuberger

  	
   

  
	
   

  	
   

  	
  Name: Andrew B. Neuberger

  
	
   

  	
   

  	
  Title: VP

  
	
   

  	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
  2500 Lake Park Boulevard

  
	
   

  	
  West Valley City, Utah 84120

  
	
   

  	
  Attention: Richard Felix

  
	
   

  	
   

  	
   

  
	
   

  	
  with a copy to:

  
	
   

  	
  1221 Avenue of the Americas, 27th
  Floor

  
	
   

  	
  New York, New York 10020

  
	
   

  	
  Attention: Paul Najarian

  
	
   

  	
  Telecopier No.: 212-762-9495

  
	
   

  	
  Telephone No.: 212-762-6401

  
					

 

Schedule 1

 

REPRESENTATIONS
AND WARRANTIES RE:  MORTGAGE LOANS

 

Part 1.               Eligible
Residential Mortgage Loans

 

As to each residential Mortgage Loan included
in the Margin Base on a Purchase Date (and the related Mortgage, Mortgage Note,
Assignment of Mortgage and Mortgaged Property), each Seller shall be deemed to
make the following representations and warranties to the Buyer as of such date
and as of each date the Margin Base is determined (certain defined terms used
herein and not otherwise defined in the Repurchase Agreement appearing in Part II
to this Schedule 1):

 

(a)                                  Mortgage Loans as
Described.  The information set forth
in the Mortgage Loan Schedule with respect to the Mortgage Loan is
complete, true and correct in all material respects.

 

(b)                                 Payments Current.
 Except in the case of a Defaulted Loan
and to the extent contemplated by the definition of the applicable Class of
Defaulted Loan, not more than one payment required under the Mortgage Loan is
delinquent. The first Monthly Payment shall be made, or shall have been made,
with respect to the Mortgage Loan on its Due Date or within any applicable
grace period, all in accordance with the terms of the related Mortgage Note.

 

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

 

(d)                                 Original Terms
Unmodified.  The terms of the
Mortgage Note and Mortgage have not been impaired, waived, altered or modified
in any respect, from the date of origination; except by a written instrument
which has been recorded, if necessary to protect the interests of the Buyer,
and which has been delivered to the Custodian and the terms of which are
reflected in the Mortgage Loan Schedule. The substance of any such waiver,
alteration or modification has been approved by the title insurer, to the
extent required, and its terms are reflected on the Mortgage Loan Schedule. No
Mortgagor in respect of the Mortgage Loan has been released, in whole or in
part, except in connection with an assumption agreement approved by the title
insurer, to the extent required by such policy, and which assumption agreement
is part of the Mortgage File delivered to the Custodian and the terms of
which are reflected in the Mortgage Loan Schedule.

 

1-1

 

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

 

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

 

1-2

 

attorney, firm or other Person, and no such unlawful items have been
received, retained or realized by any Seller.

 

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

 

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

 

(i)                                     Location and
Type of Mortgaged Property.  The
Mortgaged Property is located in an Acceptable State as identified in the
Mortgage Loan Schedule and consists of a single parcel of real property
with a detached single family residence erected thereon, or a two- to
four-family dwelling, or an individual condominium unit in a condominium
project of not more than four stories or such greater number of stories as
shall be common for condominium projects in the location of such Mortgaged
Property, or an individual unit in a planned unit development or a de minimis
planned unit development, provided, however, that any condominium unit or
planned unit development shall conform with the applicable Fannie Mae and
Freddie Mac requirements regarding such dwellings and that no residence or
dwelling is a mobile home or a manufactured dwelling. No portion of the Mortgaged
Property is used for commercial purposes.

 

(j)                                     Valid First or
Second Lien.  The Mortgage is a
valid, subsisting, enforceable and perfected first lien, in the case of a First
Lien Loan, or second lien, in the case of a Second Lien Loan, on the real property
included in the Mortgaged Property, including all buildings on the Mortgaged
Property and all installations and mechanical, electrical, plumbing, heating
and air conditioning systems located in or annexed to such buildings, and all
additions, alterations and replacements made at any time with respect to the
foregoing. The lien of the Mortgage is subject only to:

 

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

 

1-3

 

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

 

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

 

(4)                                  in
the case of any Second Lien Loan, the lien of the related primary mortgage.

 

Any security agreement, chattel mortgage or equivalent document related
to and delivered in connection with the Mortgage Loan establishes and creates a
valid, subsisting and enforceable first or second lien and first or second
priority security interest on the property described therein and such Seller
has full right to sell and assign the same to the Buyer. Except with respect to
Second Lien Loans, the Mortgaged Property was not, as of the date of
origination of the Mortgage Loan, subject to a mortgage, deed of trust, deed to
secure debt or other security interest creating a lien subordinate to the lien
of the Mortgage.

 

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

 

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

 

1-4

 

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

 

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

 

(o)                                 LTV;
CLTV; PMI.  No Mortgage Loan that is
secured by a first mortgage lien on the Mortgaged Property has an LTV greater
than 100%. No Mortgage Loan that is secured by a second mortgage lien on the
Mortgaged Property has a CLTV greater than 100%.

 

(p)                                 Title
Insurance.  The Mortgage Loan is
covered by either (i) an attorney’s opinion of title and abstract of
title, the form and substance of which is acceptable to prudent mortgage
lending institutions originating the same or similar types of mortgage loans in
the jurisdiction wherein the Mortgaged Property is located, or (ii) an
ALTA lender’s title insurance policy or other generally acceptable form of
policy or insurance acceptable to Fannie Mae or Freddie Mac and each such title
insurance policy is issued by a title insurer acceptable to Fannie Mae or
Freddie Mac and qualified to do business in the jurisdiction where the
Mortgaged Property is located, insuring the relevant Seller, its successors and
assigns, as to the first or second priority lien of the Mortgage in the
original principal amount of the Mortgage Loan (or to the extent a Mortgage
Note provides for negative amortization, the maximum amount of negative
amortization in accordance with the Mortgage), subject only to the exceptions contained
in clauses (1), (2) and (3) of paragraph (j) of this Part I of Schedule 1,
and in the case of adjustable rate Mortgage Loans, against any loss by reason
of the invalidity or unenforceability of the lien resulting from the provisions
of the Mortgage providing for adjustment to the Mortgage Interest Rate and
Monthly Payment. Where required by state law or regulation, the Mortgagor has
been given the opportunity to choose the carrier of the required mortgage title
insurance. Additionally, such lender’s title insurance policy affirmatively
insures ingress and egress and against encroachments by or upon the Mortgaged
Property or any interest therein. The title policy does not contain any special
exceptions (other than the standard exclusions) for zoning and uses and has
been marked to delete the standard survey exception or to replace the standard
survey exception with a specific survey reading. The relevant Seller, its
successors and assigns, are the sole insureds of such lender’s title insurance
policy, and such lender’s title insurance policy is valid and remains in full
force and effect and will be in force and effect upon the consummation of the
transactions contemplated by this Repurchase Agreement. No claims have

 

1-5

 

been made under such
lender’s title insurance policy, and no prior holder or servicer of the related
Mortgage, including any Seller, has done, by act or omission, anything which
would impair the coverage of such lender’s title insurance policy, including,
without limitation, no unlawful fee, commission, kickback or other unlawful
compensation or value of any kind has been or will be received, retained or
realized by any attorney, firm or other Person, and no such unlawful items have
been received, retained or realized by any Seller.

 

(q)                                 No
Defaults.  Other than payment
delinquencies, there is no default, breach, violation or event of acceleration
existing under the Mortgage or the Mortgage Note and no event has occurred
which, with the passage of time or with notice and the expiration of any grace
or cure period, would constitute a default, breach, violation or event of
acceleration, and no Seller nor its predecessors have waived any such default,
breach, violation or event of acceleration. With respect to each Mortgage Loan
secured by a second lien on the Mortgaged Property, (i) the prior mortgage
is in full force and effect, (ii) there is no default, breach, violation
or event of acceleration existing under the prior mortgage or the related
mortgage note, (iii) no event which, with the passage of time or with
notice and the expiration of any grace or cure period, would constitute a
default, breach, violation or event of acceleration thereunder, and (iv) either
(A) the prior mortgage contains a provision that allows or (B) applicable
law requires, the mortgagee under the second lien Mortgage Loan to receive
notice of, and affords such mortgagee an opportunity to cure, any default by
payment in full or otherwise under the prior mortgage.

 

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

 

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

 

(t)                                    Origination;
Payment Terms.  The Mortgage Loan was
originated by or in conjunction with a mortgagee approved by the Secretary of
Housing and Urban Development pursuant to Sections 203 and 211 of the National
Housing Act, a savings and loan association, a savings bank, a commercial bank,
credit union, insurance company or similar banking institution which is
supervised and examined by a federal or state authority. The Mortgage Interest
Rate is adjusted, with respect to adjustable rate Mortgage Loans, on each
Interest Rate Adjustment Date to equal the Index plus the Gross Margin (rounded
up or down to the nearest 0.125%), subject to the Mortgage Interest Rate Cap. The
Mortgage Note is payable on the first day of each month in equal monthly
installments of principal and/or interest, which installments of interest, with
respect to adjustable rate Mortgage Loans and Interest-Only Mortgage Loans, are
subject to change on the Interest Only Adjustment Date and, due to the adjustments
to the Mortgage Interest Rate, on each Interest Rate Adjustment Date, with
interest calculated and payable in arrears, sufficient to amortize the Mortgage
Loan fully by the stated maturity date (and such

 

1-6

 

Mortgage Loan shall at no
time prior to the stated maturity date be subject to any negative
amortization), over an original term of not more than thirty (30) years from
commencement of amortization, except that ‘balloon’ Mortgage Loans are subject
to a ‘balloon’ payment on the stated maturity date and may have a maturity
date of up to forty (40) years. Except with respect to Interest-Only Mortgage
Loans the due date of the first principal payment under the Mortgage Note is no
more than sixty (60) calendar days after the date of the Mortgage Note.

 

(u)                                 Customary
Provisions.  The Mortgage Note has a
stated maturity. The Mortgage and related Mortgage Note contain customary and
enforceable provisions such as to render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of the benefits of
the security provided thereby, including, (i) in the case of a Mortgage
designated as a deed of trust, by trustee’s sale, and (ii) otherwise by
judicial foreclosure. Upon default by a Mortgagor on a Mortgage Loan and
foreclosure on, or trustee’s sale of, the Mortgaged Property pursuant to the
proper procedures, the holder of the Mortgage Loan will be able to deliver good
and merchantable title to the Mortgaged Property. There is no homestead or
other exemption (other than under the Servicemembers Civil Relief Act)
available to a Mortgagor which would interfere with the right to sell the
Mortgaged Property at a trustee’s sale or the right to foreclose the Mortgage.

 

(v)                                 Conformance
with Underwriting Guidelines and Agency Standards.  The Mortgage Loan was underwritten in
accordance with the Underwriting Guidelines. The Mortgage Note and Mortgage are
on forms similar to those used by Freddie Mac or Fannie Mae, except with respect
to prepayment penalties, and no Seller has made any representations to a
Mortgagor that are inconsistent with the mortgage instruments used.

 

(w)                               Occupancy
of the Mortgaged Property.  As of the
Purchase Date, the Mortgaged Property (other than with respect to Second Lien
Loans) is lawfully occupied under applicable law. All inspections, licenses and
certificates required to be made or issued with respect to all occupied
portions of the Mortgaged Property and, with respect to the use and occupancy
of the same, including but not limited to certificates of occupancy and fire
underwriting certificates, have been made or obtained from the appropriate
authorities. No Seller has received notification from any Governmental
Authority that the Mortgaged Property is in material non-compliance with such
laws or regulations, is being used, operated or occupied unlawfully or has
failed to have or obtain such inspection, licenses or certificates, as the case
may be. No Seller has received notice of any violation or failure to conform with
any such law, ordinance, regulation, standard, license or certificate. The
Mortgagor represented at the time of origination of the Mortgage Loan that the
Mortgagor would occupy the Mortgaged Property as the Mortgagor’s primary
residence, unless otherwise indicated in the Mortgage File and Mortgage Loan
Schedule.

 

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

 

(y)                                 Deeds
of Trust.  In the event the Mortgage
constitutes a deed of trust, a trustee, authorized and duly qualified under
applicable law to serve as such, has been properly designated and currently so
serves and is named in the Mortgage, and no fees or expenses are or

 

1-7

 

will become payable by
the Custodian or the Buyer to the trustee under the deed of trust, except in
connection with a trustee’s sale after default by the Mortgagor.

 

(z)                                   Delivery
of Mortgage Documents.  The Mortgage
Note, the Mortgage, the Assignment of Mortgage and any other documents required
to be delivered under the Custodial Agreement for each Mortgage Loan have been
delivered to the Custodian. A Seller or its agent is in possession of a
complete, true and accurate Mortgage File in compliance with the Custodial
Agreement, except for such documents the originals of which have been delivered
to the Custodian. With respect to each Mortgage Loan for which a lost note
affidavit has been delivered to the Custodian in place of the original Mortgage
Note, the related Mortgage Note is no longer in existence, and, if such
Mortgage Loan is subsequently in default, the enforcement of such Mortgage Loan
or of the related Mortgage by or on behalf of the Buyer will not be affected by
the absence of the original Mortgage Note.

 

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

 

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

 

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

 

(dd)                          Consolidation
of Future Advances.  Any future
advances made to the Mortgagor prior to the Purchase Date have been
consolidated with the outstanding principal amount secured by the Mortgage, and
the secured principal amount, as consolidated, bears a single interest rate and
single repayment term. The lien of the Mortgage securing the consolidated
principal amount is expressly insured as having first lien priority, in the
case of a first Mortgage, or second lien priority, in the case of a second
mortgage, by a title insurance policy, an endorsement to the policy insuring
the Mortgagee’s consolidated interest or by other title evidence acceptable to
Fannie Mae and Freddie Mac. The consolidated principal amount does not exceed
the original principal amount of the Mortgage Loan.

 

(ee)                            Mortgaged
Property Undamaged.  The Mortgaged
Property is undamaged by waste, fire, earthquake or earth movement, windstorm,
flood, tornado or other casualty so as to affect adversely the value of the
Mortgaged Property as security for the Mortgage Loan or the use for which the
premises were intended and each Mortgaged Property is in good repair. There

 

1-8

 

have not been any
condemnation proceedings with respect to the Mortgaged Property and no Seller
has any knowledge of any such proceedings.

 

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

 

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

 

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

 

(ii)                                  Servicemembers
Civil Relief Act.  The Mortgagor has
not notified the related Seller, and such Seller has no knowledge, of any
relief requested or allowed to the Mortgagor under the Servicemembers Civil
Relief Act of 2003 (formerly known as the Soldiers’ and Sailors’ Civil Relief
Act of 1940) or any similar state or local laws.

 

(jj)                                  Appraisal.
 The Mortgage File contains an appraisal
of the related Mortgaged Property signed prior to the approval of the Mortgage
Loan application by a qualified appraiser, duly appointed by the Sellers, who
had no interest, direct or indirect in the Mortgaged Property or in any loan
made on the security thereof, and whose compensation is not affected by the
approval or disapproval of the Mortgage Loan, and the appraisal and appraiser
both satisfy the requirements of Fannie Mae or Freddie Mac and Title XI of the
Federal Institutions Reform, Recovery, and Enforcement Act of 1989 as amended
and the regulations promulgated thereunder, all as in effect on the date the
Mortgage Loan was originated.

 

1-9

 

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

 

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

 

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

 

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

 

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

 

(pp)                          No
Violation of Environmental Laws.  The
Mortgaged Property is free from any and all toxic or hazardous substances and
there exists no violation of any local, state or federal environmental law, rule or
regulation. There is no pending action or proceeding directly involving any
Mortgaged Property of which the Seller is aware in which compliance with any
environmental law, rule or regulation is an issue; and nothing further
remains to be done to satisfy in full all requirements of each such law, rule or
regulation constituting a prerequisite to use and enjoyment of said property.

 

(qq)                          Withdrawn
Mortgage Loans.  If the Mortgage Loan
has been released to any Seller pursuant to a Request for Release as permitted
under Section 5 of the Custodial Agreement, then the promissory note
relating to the Mortgage Loan was returned to the

 

1-10

 

Custodian within ten (10) days
(or if such tenth (10th) day was not a Business Day, the next
succeeding Business Day).

 

(rr)                                Origination
Date.  The Origination Date is no
earlier than three (3) months prior to the date the Mortgage Loan is first
included in the Margin Base.

 

(ss)                            No
Exception.  The Custodian has not
noted any material exceptions on an Exception Report (as defined in the
Custodial Agreement) with respect to the Mortgage Loan which would materially
adversely affect the Mortgage Loan or the Buyer’s security interest, granted by
the Sellers, in the Mortgage Loan.

 

(tt)                                The
Mortgagor.  The Mortgagor is one or
more natural persons and/or an Illinois land trust or a “living trust” and such
“living trust” is in compliance with Fannie Mae or Freddie Mac guidelines. In
the event the Mortgagor is a trust, the trustee of such trust is a natural
person and is an obligor under the Mortgage Note in his or her individual
capacity.

 

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

 

(vv)                          Homeownership
and Equity Protection Act; No High Cost Loans.  No Mortgage Loan is (a) a “high cost”
loan under the Home Ownership and Equity Protection Act of 1994 as amended, or (b) a
“high cost,” “threshold,” “covered,” “predatory,” “abusive,” or similarly
defined loan, including refinance loans, under any other Applicable Law (or a
similarly classified loan using different terminology under a law imposing
heightened regulatory scrutiny or additional legal liability for residential
mortgage loans having high interest rates, points and/or fees), provided that
any Mortgage Loan secured by a Mortgaged Property in Illinois characterized as
a “threshold” loan shall not be a “high cost” loan unless it is characterized
as “predatory” under applicable local law or (c) a “High Cost Loan” or “Covered
Loan” as defined in the current S&P LEVELS® Glossary; the Company has implemented
and conducted compliance procedures to determine if each Mortgage Loan is “high-cost”
home loan under the Applicable Laws and performed a review of the disclosure
provided to the related Mortgagor in accordance with such laws and the related
Mortgage Note in order to determine that such Mortgage Loan, if subject to any
such law, does not violate any such law. Any breach of this representation
shall be deemed to materially and adversely affect the interests of the owner
of the Mortgage Loan and shall require a repurchase of the affected Mortgage.

 

(ww)                      Origination.
 Each Mortgage Loan was originated by or
purchased by a Seller.

 

(xx)                              FICO
Score.  The Mortgagor related to such
Mortgage Loan does not have a FICO score below 500.

 

(yy)                          Adjustments.
 All of the terms of the related Mortgage
Note pertaining to interest adjustments, payment adjustments and adjustments of
the outstanding principal balance, if any, are enforceable and such adjustments
on such Mortgage Loan have been made properly and in accordance with the
provisions of such Mortgage Loan.

 

1-11

 

(zz)                              Leaseholds.
 If the Mortgage Loan is secured by a
leasehold estate:   (1) the
Mortgagor is the owner of a valid and subsisting leasehold interest under such
ground lease; (2) such ground lease is in full force and effect,
unmodified and not supplemented by any writing or otherwise; (3) all rent,
additional rent and other charges reserved therein have been fully paid to the
extent payable as of the related Closing Date; (4) the Mortgagor enjoys
the quiet and peaceful possession of the leasehold estate; (5) the
Mortgagor is not in default under any of the terms of such ground lease, and
there are no circumstances which, with the passage of time or the giving of
notice, or both, would result in a default under such ground lease; (6) the
lessor under such ground lease is not in default under any of the terms or
provisions of such ground lease on the part of the lessor to be observed
or performed; (7) the lessor under such ground lease has satisfied any
repair or construction obligations due as of the related Closing Date pursuant
to the terms of such ground lease; (8) the execution, delivery and
performance of the Mortgage do not require the consent (other than those
consents which have been obtained and are in full force and effect) under, and
will not contravene any provision of or cause a default under, such ground
lease; (9) the term of such lease does not terminate earlier than five (5) years
after the maturity date of the Mortgage Note; (10) the ground lease is
assignable or transferable; (11) the ground lease does not provide for
termination of the lease in the event of lessee’s default without the mortgagee
being entitled to receive written notice of, and a reasonable opportunity to
cure the default; (12) the ground lease permits the mortgaging of the related
Mortgaged Property; (13) the ground lease protects the mortgagee’s interests in
the event of a property condemnation; and (14) the use of leasehold estates for
residential properties is a widely accepted practice in the jurisdiction in
which the Mortgaged Property is located.

 

(aaa)                      No
Litigation Pending.  There is no
action, suit, proceeding or investigation pending, or to the Seller’s knowledge
threatened, that is related to the Mortgage Loan and likely to affect
materially and adversely the servicing of such Mortgage Loan.

 

(bbb)                   No
Arbitration Provisions.  No Mortgagor
agreed to submit to arbitration to resolve any dispute arising out of or relating
in any way to the related Mortgage Loan or the origination thereof.

 

(ccc)                      Down
Payment.  The source of the down
payment, if any, with respect to each Mortgage Loan has been fully verified by
such Seller as and if required pursuant to the Underwriting Guidelines.

 

(ddd)                   Broker Fees.
 With respect to any broker fees
collected and paid on any of the Mortgage Loans, all broker fees have been
properly assessed to the borrower and no claims will arise as to broker fees
that are double charged and for which the borrower would be entitled to
reimbursement.

 

(eee)                      Second
Mortgages.  With respect to each
Mortgage Loan secured by a second lien on the related Mortgaged Property:

 

(i)                                     if
the Loan-to-Value Ratio is higher than 70%, either the related first lien does
not provide for a balloon payment or the maturity date of each Mortgage Loan
with respect to which a first lien on the related Mortgaged Property provides
for a balloon payment is prior to the maturity date of the mortgage loan
relating to such first lien;

 

1-12

 

(ii)                                  the
related first lien on any Mortgaged Property with respect to which the related
Mortgage Loan secured by a second lien does not provide for negative
amortization;

 

(iii)                               either no consent for
the Mortgage Loan secured by a second lien on the related Mortgaged Property is
required by the holder of the related first lien or such consent has been
obtained and is contained in the Mortgage File; and

 

(iv)                              where
required or customary in the jurisdiction in which the related Mortgaged
Property is located, the original lender has filed for record a request for
notice of any action by the senior lienholder under the related First Lien, and
the original lender has notified any senior lienholder in writing of the
existence of the second lien Mortgage Loan and requested notification of any
action to be taken against the Mortgagor by the senior lienholder.

 

1-13

 

Part 1.               Defined Terms

 

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

 

“Acceptable State” shall mean any
state notified by the Sellers to the Buyer from time to time and approved in
writing by the Buyer, which approval has not been revoked by the Buyer in their
sole discretion, any such notice of revocation to be given no later than ten (10) Business
Days prior to its intended effective date.

 

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

 

“ALTA” means the American Land Title
Association.

 

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

 

“Best’s” means Best’s Key Rating
Guide, as the same shall be amended from time to time.

 

“CLTV” shall mean with respect to any
Second Lien Loan, the ratio of the sum of the outstanding principal amount of
the Second Lien Loan plus the outstanding principal amount of the first
priority mortgage loan secured by the same Mortgaged Property to the lesser of (a) the
Appraised Value of the Mortgaged Property at origination or (b) if the
Mortgaged Property was purchased within six (6) months of the origination
of the Mortgage Loan, the purchase price of the Mortgaged Property, which CLTV
shall be calculated in accordance with the Underwriting Guidelines.

 

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

 

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

 

“Fannie Mae” means the Federal
National Mortgage Association, or any successor thereto.

 

“Freddie Mac” means the Federal Home
Loan Mortgage Corporation, or any successor thereto.

 

1-14

 

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

 

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

 

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

 

“Interest Only Adjustment Date” means,
with respect to each Interest-Only Mortgage Loan, the date specified in the
related Mortgage Note on which the Monthly Payment will be adjusted to include
principal as well as interest.

 

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

 

“Loan-to-Value Ratio” or “LTV”
means with respect to any Mortgage Loan, the ratio of the original outstanding
principal amount of the Mortgage Loan to the lesser of (a) the Appraised
Value of the Mortgaged Property at origination or (b) in the case of a
purchase money mortgage loan, the purchase price of the Mortgaged Property.

 

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

 

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

 

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

 

“Mortgagee” means the relevant Seller
or any subsequent holder of a Mortgage Loan.

 

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

 

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

 

“Qualified Insurer” means an insurance
company duly qualified as such under the laws of the states in which the
Mortgaged Property is located, duly authorized and licensed in such states to
transact the applicable insurance business and to write the insurance provided,
and

 

1-15

 

approved as an insurer by Fannie Mae and Freddie Mac and whose claims
paying ability is rated in the two highest rating categories by any of the
rating agencies with respect to primary mortgage insurance and in the two
highest rating categories by Best’s with respect to hazard and flood insurance.

 

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

 

1-16

 

Schedule 2

 

FILING
JURISDICTIONS AND OFFICES; IDENTIFICATION NUMBERS

 

	
  Seller

  	
   

  	
  Filing Jurisdiction

  and Office

  	
   

  	
  Federal Tax

  ID Nbr

  	
   

  	
  Organizational

  ID Nbr

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Aames
  Capital

  	
   

  	
  Secretary of
  State, California

  	
   

  	
  95-4438859

  	
   

  	
  C1729815

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Aames
  Funding

  	
   

  	
  Secretary of
  State, California

  	
   

  	
  95-2622032

  	
   

  	
  C0553091

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Aames
  Investment

  	
   

  	
  Department
  of Assessments and Taxation, Maryland

  	
   

  	
  34-1981408

  	
   

  	
  D07810567

  

 

 

Schedule 3

 

CAPITALIZATION

 

	
  Issuer

  	
   

  	
  Number of Shares

  	
   

  	
  Holder

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Aames
  Capital Corporation

  	
   

  	
  100 shares

  	
   

  	
  Aames Financial Corporation

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Aames
  Funding Corporation

  	
   

  	
  66 2/3 shares

  	
   

  	
  Aames Financial Corporation

  

 

 

Schedule 4

 

SERVICING
FIELDS

 

•                  Loan ID

•                  Name

•                  Paid To Date

•                  Current Balance

•                  P&I

•                  Rate

 

 

Schedule 5

 

TRADE NAMES

 

	
  Aames
  Capital Corporation:

  	
   

  	
  Aames Home Loan

  
	
   

  	
   

  	
   

  
	
  Aames
  Funding Corporation:

  	
   

  	
  The Center for Loan Servicing

  Wilshire Reconveyance, Inc.

  Aames Mortgage, Inc.

  
	
   

  	
   

  	
   

  
	
  Aames
  Investment Corporation:

  	
   

  	
  [None]

  

 

Exhibit A

 

FORM OF
CUSTODIAL AGREEMENT

 

 

Exhibit B

 

FORM OF TAKEOUT PROCEEDS IDENTIFICATION
LETTER

 

[Date]

 

Morgan Stanley Bank

1221 Avenue of the Americas

27th Floor

New York, New York 10020

 

Ladies and Gentlemen:

 

On [date] the Takeout Investor previously
identified to you with respect to the Mortgage Loan(s) referenced on Exhibit A
attached hereto wired to your account at                          ,
[total amount of wire]. Contained within the total amount of the wire was a
disbursement amount of                .
This amount represents proceeds for one or more Mortgage Loans which were not
purchased through Morgan Stanley Bank the details of which are:

 

	
  Mortgage Loan #:

  	
   

  
	
   

  
	
  Obligor’s name:

  	
   

  
	
   

  
	
  Mortgage Loan #:

  	
   

  
	
   

  
	
  Obligor’s name:

  	
   

  

 

[list additional Mortgage Loans, if
necessary]

 

Please wire these funds to:

 

[insert wire instructions here]

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

 

Exhibit C

 

FORM OF
OPINION OF COUNSEL TO SELLERS

 

 

Exhibit D

 

FORM OF
TRANSACTION REQUEST

 

Master Repurchase Agreement, dated as of December 2,
2005 (the “Repurchase Agreement”), by and among Aames Capital
Corporation (“Aames Capital”), Aames Funding Corporation (“Aames
Funding”) and Aames Investment Corporation (“Aames Investment” and
together with Aames Capital and Aames Funding, 
collectively, the “Sellers”, each a “Seller”) and Morgan
Stanley Bank (the “Buyer”).

 

	
  Buyer:

  	
  Morgan Stanley Bank

  
	
   

  	
   

  
	
  Seller:

  	
  [Aames Capital Corporation

  
	
   

  	
  Aames Funding Corporation

  
	
   

  	
  Aames Investment Corporation]

  

 

Requested Purchase Date:

 

Transmission Date:

 

Transmission Time:

 

Eligible Mortgage Loans to be Purchased:  (See attached)

 

UPB:  $

 

Requested Wire Amount:  $

 

Wire Instructions:

 

D-1

 

Requested by:

 

	
  AAMES CAPITAL CORPORATION

  	 

	
   

  	 

	
   

  	 

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	 

	
   

  	 

	
  AAMES FUNDING CORPORATION

  	 

	
   

  	 

	
   

  	 

	
  By:

  	
   

  	
   

  	 

	
   

  	
  Name:

  	 

	
   

  	
  Title:

  	 

	
   

  	
   

  	 

	
   

  	
   

  	 

	
  AAMES INVESTMENT CORPORATION

  	 

	
   

  	 

	
   

  	 

	
  By:

  	
   

  	
   

  	 

	
   

  	
  Name:

  	 

	
   

  	
  Title:

  	 

						

 

D-2

 

Attachment 1

 

SCHEDULE OF MORTGAGE LOANS
PROPOSED TO BE PLEDGED

 

D-3

 

Attachment 2

 

OFFICER’S CERTIFICATE

 

The undersigned hereby certifies to the Buyer on behalf of the Seller,
as of the requested Purchase Date, that:

 

a)                                      no
Default or Event of Default has occurred and is continuing on the date hereof
nor will occur after giving effect to the requested Transaction;

 

b)                                     each
of the representations and warranties made by the Sellers in or pursuant to the
Repurchase Documents is true and correct in all material respects on and as of
such date (in the case of the representations and warranties in respect of
Mortgage Loans, solely with respect to Mortgage Loans being included the Margin
Base on such Purchase Date) as if made on and as of the date hereof (or, if any
such representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date); and

 

c)                                      each
Seller is in compliance with all governmental licenses and authorizations and
is qualified to do business and in good standing in all required jurisdictions.

 

	
   

  	
  Responsible Officer Certification:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

D-4

 

Exhibit E-1

 

FORM OF
SELLER’S RELEASE LETTER

 

[Date]

 

Morgan Stanley Bank

2500 Lake Park Boulevard

West Valley City, Utah  84120

 

Re:                               Master
Repurchase Agreement, dated as of December 2, 2005 (the “Repurchase
Agreement”), by and among Aames Capital Corporation (“Aames Capital”),
Aames Funding Corporation (“Aames Funding”) and Aames Investment Corporation
(“Aames Investment” and together with Aames Capital and Aames
Funding,  collectively, the “Sellers”,
each a “Seller”) and Morgan Stanley Bank (the “Buyer”)

 

Ladies and Gentlemen:

 

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

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  [SELLER]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

E-1

 

Exhibit E-2

 

FORM OF
WAREHOUSE LENDER’S RELEASE LETTER

 

(Date)

 

Morgan Stanley Bank  

2500 Lake Park Boulevard

West Valley City, Utah  84120

 

Re:                               Certain
Mortgage Loans Identified on Schedule A hereto and owned by [Aames Capital
Corporation / Aames Funding Corporation / Aames Investment Corporation]

 

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

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [WAREHOUSE LENDER]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

E-2

 

Exhibit F

 

UNDERWRITING
GUIDELINES

 

[Sellers to Provide]

 

 

Exhibit G

 

FORM OF
SERVICER NOTICE AND AGREEMENT

 

                    
    , 200   

[SERVICER], as Servicer

[ADDRESS]

Attention:                         

 

Re:                               Master
Repurchase Agreement, dated as of December 2, 2005 (the “Repurchase
Agreement”), by and among Aames Capital Corporation (“Aames Capital”),
Aames Funding Corporation (“Aames Funding”) and Aames Investment
Corporation (“Aames Investment” and together with Aames Capital and
Aames Funding,  collectively, the “Sellers”,
each a “Seller”) and Morgan Stanley Bank (the “Buyer”).

 

Ladies and Gentlemen:

 

[SERVICER] (the “Servicer”) is
servicing certain mortgage loans for the Seller(s) pursuant to certain
Servicing Agreements (each, a “Servicing Agreement”) between the
Servicer and such Sellers. Pursuant to the Repurchase Agreement between the
Buyer and the Sellers, the Servicer is hereby notified that the Sellers have
sold to the Buyer certain mortgage loans which are serviced by the Servicer
(the “Purchased Loans”) and have granted the Buyer a back up security
interest in the Purchase Loans.

 

Upon receipt from the Buyer of a notice Event
of Default (a “Notice of Event of Default”)  in which the Buyer shall identify the
Purchased Loans, the Servicer shall segregate all amounts collected on account
of such Purchased Loans, hold them in trust for the sole and exclusive benefit
of the Buyer, and remit such collections in accordance with the Buyer’s written
instructions. Following such Notice of Event of Default, the Servicer shall
follow the instructions of the Buyer with respect to the Purchased Loans, and
shall deliver to the Buyer any information with respect to the Purchased Loans
reasonably requested by the Buyer. The Servicer acknowledges and agrees that it
is holding and servicing the Purchased Loans for the benefit of the Buyer and
that the Buyer may from time to time inspect such Servicer’s servicing
facilities.

 

Notwithstanding any contrary information or
direction which may be delivered to the Servicer by any Seller, the
Servicer may conclusively rely on any information, direction or notice of
an Event of Default delivered by the Buyer, and the Sellers shall indemnify and
hold the Servicer harmless for any and all claims asserted against the Servicer
for any actions taken in good faith by the Servicer in connection with the
delivery of such information or Notice of Event of Default. Each of the Sellers
and the Servicer acknowledges and agrees that the Buyer shall have no duties
and shall not assume any obligations of the related Seller or the Servicer with
respect to servicing the Purchased Loans, including without limitation, duties
owed to the Servicer, payment of any reimbursement or indemnification, or
payment of any servicing fees or any other fees due the Servicer.

 

G-1

 

Notwithstanding anything to the contrary
contained herein or in any Servicing Agreement, the Servicer hereby
acknowledges that the Buyer may terminate such Servicing Agreement upon
the occurrence of an Event of Default under the Repurchase Agreement at no cost
or expense to the Buyer.

 

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

 

Please acknowledge receipt and your agreement
to the terms of this instruction letter by signing in the signature block below
and forwarding an executed copy to the Buyer promptly upon receipt. Any notices
to the Buyer should be delivered to the following address: 2500 Lake Park
Boulevard, West Valley City, Utah, 84120 Attention: Richard Felix; with a copy
to 1221 Avenue of the Americas, 27th Floor, New York, New York 10020
Attention: Mr. Paul Najarian; Telephone: (212)762-6401; Facsimile:
(212)762-9495, and to Ms. Su Bai; Telephone:  (212) 762-6789; Facsimile:  (212) 762-8896.

 

[SIGNATURES FOLLOW]

 

G-2

 

Very truly yours,

 

AAMES CAPITAL
CORPORATION

 

 

	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  AAMES FUNDING CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  AAMES INVESTMENT CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

ACKNOWLEDGED:

 

as Servicer

 

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  
	
   

  	
  Telephone:

  
	
   

  	
  Facsimile:

  

 

G-3

 

Exhibit H

 

FORM OF
ASSIGNMENT AND ACCEPTANCE

 

Reference is made to the Master Repurchase
Agreement dated as of December 2, 2005 (as amended, supplemented or
otherwise modified from time to time, the “Repurchase Agreement”), among
Aames Capital Corporation (“Aames Capital”), Aames Funding Corporation (“Aames
Funding”) and Aames Investment Corporation (“Aames Investment” and
together with Aames Capital and Aames Funding, 
collectively, the “Sellers”, each a “Seller”) and Morgan
Stanley Bank (the “Buyer”). Capitalized terms not otherwise defined
herein shall have the same meanings as specified therefor in the Repurchase
Agreement.

 

Each “Assignor”
referred to on Schedule I hereto (each, an “Assignor”) and each “Assignee” referred to on Schedule I hereto (each an “Assignee”)
hereby agrees severally with respect to all information relating to it and its
assignment hereunder and on Schedule I hereto as follows:

 

Subject to the provisions of Section 11.05
of the Repurchase Agreement, such Assignor hereby sells and assigns, without
recourse except as to the representations and warranties made by it herein, to
such Assignee, and such Assignee hereby purchases and assumes from such
Assignor, an interest in and to such Assignor’s rights and obligations under
the Repurchase Agreement as of the Effective Date (as hereinafter defined)
equal to the percentage interest specified on Schedule I hereto of all
outstanding rights and obligations under the Repurchase Agreement
(collectively, the “Assigned Interests”).

 

Such Assignor:

 

(a)                                  hereby
represents and warrants that its name set forth on Schedule I hereto is
its legal name, that it is the legal and beneficial owner of the Assigned
Interest and that such Assigned Interest is free and clear of any adverse
claim;

 

(b)                                 other
than as provided herein, makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Repurchase Agreement or any of the other
Repurchase Documents, or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of, or the perfection or priority of any lien
or security interest created or purported to be created under or in connection
with, the Repurchase Agreement or any of the other Repurchase Documents, or any
other instrument or document furnished pursuant thereto; and

 

(c)                                  makes
no representation or warranty and assumes no responsibility with respect to the
financial condition of the Sellers or the Parent or the performance or
observance by the Sellers or the Parent of any of their respective Repurchase
Obligations under or in respect of any of the Repurchase Documents, or any
other instrument or document furnished pursuant thereto.

 

H-1

 

Such Assignee:

 

(a)                                  confirms
that it has received a copy of the Repurchase Agreement, together with copies
of the financial statements referred to in Section 7.01 thereof and such
other documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance;

 

(b)                                 agrees
that it will, independently and without reliance upon the Buyer and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Repurchase Agreement;

 

(c)                                  represents
and warrants that its name set forth on Schedule I hereto is its legal
name;

 

(d)                                 agrees
that, from and after the Effective Date, it will be bound by the provisions of
the Repurchase Agreement and the other Repurchase Documents and, to the extent
of the Assigned Interest, it will perform in accordance with their terms
all of the obligations that by the terms of the Repurchase Agreement are
required to be performed by it as a Buyer; and

 

(e)                                  The
effective date for this Assignment and Acceptance (the “Effective Date”)
shall be the date specified on Schedule I hereto.

 

As of the Effective Date, (a) such
Assignee shall be a party to the Repurchase Agreement and, to the extent that
rights and obligations under the Repurchase Agreement have been assigned to it
pursuant to this Assignment and Acceptance, have the rights and obligations of
a Buyer thereunder and (b) such Assignor shall, to the extent that any
rights and obligations under the Repurchase Agreement have been assigned by it
pursuant to this Assignment and Acceptance, relinquish its rights (other than
provisions of the Repurchase Documents that are specified under the terms of
such Repurchase Documents to survive the payment in full of the Repurchase
Obligations of the Sellers under or in respect of the Repurchase Documents) and
be released from its obligations under the Repurchase Agreement (and, if this
Assignment and Acceptance covers all or the remaining rights and obligations of
such Assignor under the Repurchase Agreement, such Assignor shall cease to be a
party thereto).

 

From and after the Effective Date, the
Sellers shall make all payments under the Repurchase Agreement in respect of
the Assigned Interest to such Assignee. Such Assignor and such Assignee shall
make all appropriate adjustments in payments under the Repurchase Agreement for
periods prior to the Effective Date directly between themselves.

 

This Assignment and Acceptance shall be
governed by, and construed in accordance with, the laws of the State of New
York.

 

This Assignment and Acceptance shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective successors and assigns. This Assignment and Acceptance may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed

 

H-2

 

counterpart of Schedule I hereto by telecopier shall be
effective as delivery of an originally executed counterpart of this
Assignment and Acceptance.

 

IN WITNESS WHEREOF, each Assignor and each
Assignee have caused Schedule I hereto to be executed by their respective
officers thereunto duly authorized, as of the date specified thereon.

 

H-3

 

Schedule I

to

ASSIGNMENT AND ACCEPTANCE

 

	
  Percentage interest
  assigned

  	
   

  	
  %

  	
   

  	
  %

  	
   

  	
  %

  	
   

  	
  %

  	
   

  	
  %

  	
   

  
	
  Amount of
  Maximum Amount assigned

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Aggregate
  outstanding Purchase Price of Transactions assigned

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  

 

	
  Effective Date:

  	
                       
          
        ,             

  

 

	
   

  	
  Assignor

  
	
   

  	
  [Type or print legal name of Assignor]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
  Dated:                   
          ,              

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Assignee

  
	
   

  	
   

  
	
   

  	
  [Type or print legal name of Assignee]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
  Dated:                   
          ,              

  

 

H-4

 

Exhibit I

 

FORM OF
NOTICE OF PREPAYMENT

 

[Date]

 

Morgan Stanley Bank

1221 Avenue of the Americas

27th Floor

New York, New York 10020

Attention:                                        

 

Re:                               Aames
Capital Corporation, Aames Funding Corporation and Aames Investment Corporation

 

Ladies and Gentlemen:

 

This Notice of Prepayment is delivered to you
pursuant to Section 2.06 of the Master Repurchase Agreement, dated as of December 2,
2005 (as amended, supplemented, restated, or otherwise modified from time to
time, the “Repurchase Agreement”) among Aames Capital Corporation (“Aames
Capital”), Aames Funding Corporation (“Aames Funding”) and Aames
Investment Corporation (“Aames Investment” and together with Aames
Capital and Aames Funding,  collectively,
the “Sellers”, each a “Seller”) and Morgan Stanley Bank (the “Buyer”).
Unless otherwise defined herein or the context otherwise requires, terms used
herein have the meanings provided in the Repurchase Agreement.

 

The Sellers hereby irrevocably notify the
Buyer that on                       ,
20     the Sellers shall make a prepayment against the
Repurchase Price outstanding under the Repurchase Agreement in an aggregate
amount equal to $[                  ].
Such prepayment shall be applied [to all Transactions pro rata] [against the
Repurchase Price for the Purchased Loans identified on Schedule A hereto].
[The Sellers request the release by the Buyer of all right, interest, lien or
claim of any kind with respect to the Purchased Loans described in the attached
Schedule A.]

 

[Signature page follows]

 

I-1

 

Each Seller has caused this Notice of
Prepayment to be executed and delivered, and the certification and warranties
contained herein to be made, by its duly authorized officer this
    th day of                             ,
20    .]

 

	
   

  	
  AAMES CAPITAL CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AAMES FUNDING CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AAMES INVESTMENT CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
					

 

I-2

 

Schedule A

 

SCHEDULE OF PURCHASED
LOANS TO BE PREPAID [/ RELEASED]

 

I-3

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