Document:

<PAGE>   1
                                                                   EXHIBIT 10.12

                         EXECUTIVE EMPLOYMENT AGREEMENT

        Peter C. Wulff ("Employee") hereby accepts the offer of Natural
Alternatives International, Inc. ("NAI") for employment as Chief Financial
Officer and Treasurer beginning October 25, 1999. Collectively, NAI and Employee
will be referred to herein as the "Parties."

        1. The Parties anticipate that Employee will be employed from the date
hereof through September 30, 2000 (the "Term"). During the Term, Employee's
employment will be at-will and may be terminated by either Employee or NAI at
any time for any reason or no reason, with or without cause upon written notice
to the other. The at-will status of the employment relationship may not be
modified except in writing authorized in advance by the Board of Directors of
NAI and signed by the Chief Executive Officer of NAI and Employee.

        2. Employee and NAI further understand and agree that nothing in the NAI
Employee Handbook is intended to be, and nothing in it should be construed to
be, a limitation of NAI's right to terminate, transfer, demote, suspend and
administer discipline at any time for any reason. Employee and NAI understand
and agree nothing in the Handbook is intended to, and nothing in the Handbook
should be construed to, create an implied or express contract of employment
contrary to this agreement.

        3. While Employee is employed by NAI, Employee's rate of compensation
will be at least $12,500 per month, which will be reviewed at least annually to
determine, based upon Employee's performance and the performance of NAI, the
amount of increase, (if any), in the rate of compensation. The compensation set
forth in this Section 3 will be Employee's only compensation except standard
employee benefits available to other level one executives of NAI or any other
written compensation arrangement approved by the Board of Directors of NAI. NAI
is currently evaluating a system of bonus compensation for certain of its
employees. Employee will be entitled to participate in any such bonus
compensation in a manner and at a level consistent with other level one
executives of NAI. Currently all the level one executives of NAI include all of
the Corporate Officers of NAI, except for the Chief Executive Officer.

        4. If Employee continues working for NAI past the end of the Term, and
if NAI still desires Employee's services, then the following terms and
conditions will apply:

               (a) Employee shall be an at-will employee and either Employee or
        NAI will be entitled to terminate the employment relationship for any
        reason or for no reason, with or without cause and with or without
        notice.

               (b) Employee will be compensated at the rate set forth in section
        3 herein above unless another rate is mutually agreed upon; and

               (c) As to benefits and other terms of employment, Employee shall
        be subject to the same policies and procedures as other employees of NAI
        in similar positions.

                                     - 1 -

<PAGE>   2

        5. During the Term, and any extension thereof, Employee shall have such
responsibilities, duties and authority as NAI through its Chief Executive
Officer may from time to time assign to Employee, and that are normal and
customary duties of a Chief Financial Officer and Treasurer of a publicly held
corporation. Employee's initial title shall be Chief Financial Officer and
Treasurer.

        6. In the event this Agreement is terminated by NAI without cause,
whether during or at the end of the Term (and any renewals thereof), Employee
shall be entitled to severance pay, including standard employee benefits
available to other level one executives of NAI, in an amount equivalent to his
then current compensation rate for the period set forth below opposite the
number of complete calendar months which have elapsed from the beginning date
set forth in the first paragraph hereof at the time of termination. One half of
such amount shall be paid upon termination and the balance shall be paid on a
bi- weekly basis during said severance period:

<TABLE>
<CAPTION>

               MONTHS OF                           SEVERANCE
               EMPLOYMENT                          PERIOD
               ----------                          ------

               <S>                                 <C>
               1 through 6 months                  2 months
               7 through 12 months                 6 months
               13 through 24 months                9 months
               more than 24 months                 12 months
</TABLE>

        NAI may terminate this Agreement with cause, which shall be limited to
the occurrence of one or more of the following events: (i) the Employee's
commission of any fraud against NAI; (ii) Employee's intentional appropriation
for his personal use or benefit the funds of the Company not authorized by the
Chief Executive Officer of the Board of Directors, (iii) Employee's conviction
of any crime involving moral turpitude, (iv) Employee's conviction of a
violation of any state or federal law which could result in a material adverse
impact upon the business of NAI; or (v) Employee's material violation of this
Agreement, provided that Employee shall be given written notice by NAI of any
alleged material violation of the Agreement and an opportunity within 60 days,
to cure the alleged breach, which Employee must diligently pursue to completion.
No severance pay shall be due to Employee if Employee is terminated for cause.

        7. In the event of any Change in Control, the following provisions will
apply.

           Any of the following shall constitute a "Change in Control" for the
purposes of this Section 7:

           A. A "person" (meaning an individual, a partnership, or other group
or association as defined in sections 13(d) and 14(d) of the Securities Exchange
Act of 1934) acquires fifty percent (50%) or more of the combined voting power
of the outstanding securities of NAI having a right to vote in elections of
directors; or

                                      - 2 -
<PAGE>   3

               B. The members of the Board of Directors of the Company who were
members of the Board of Directors on the commencement date hereof, shall for any
reason cease to constitute a majority of the Board of Directors of the Company;
or

               C. All, or substantially all of the business of NAI is disposed
of by NAI to a party or parties other than a subsidiary or other affiliate of
NAI, in which NAI owns less than a majority of the equity, pursuant to a partial
or complete liquidation of NAI, sale of assets (including stock of a subsidiary
of NAI) or otherwise.

        In the event of any such Change in Control, this Agreement shall
continue in effect unless the Employee at his sole option, and at any time
elects voluntarily to terminate this Agreement. In such case, NAI shall pay
Employee as severance pay or liquidated damages, or both, a lump sum payment
("Change in Control Severance Payment") equal to one hundred fifty percent
(150%) of the Employee's annual salary and bonus specified in Section 3 above or
such greater amount as the Board of Directors determines from time to time
pursuant to terms which may not be revoked or reduced thereafter.

        In the event this Agreement is terminated following a Change in Control
by NAI, and/or the surviving or resulting corporation, without cause, Employee
shall be entitled to a Change in Control Severance Payment equal to one hundred
fifty percent (150%) of the Employee's annual salary specified in Section 3
above or such greater amount as the Board of Directors determines from time to
time pursuant to terms which may not be revoked or reduced thereafter.

        Any Severance Payment shall be made not later than the fifteenth (15th)
day following the effective date of the voluntary or involuntary termination of
this Agreement in connection with a Change in Control; provided, however, that
if the amount of such payments cannot be finally determined on or before such
date, NAI shall pay to Employee on such date a good faith estimate of the
minimum amount of such payments, and shall pay the remainder of such payments
(together with interest at the rate provided in Internal Revenue Code Section
1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined, but
in no event later than the thirtieth (30th) day after the applicable termination
date. In the event the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
NAI payable on the fifteenth (15th) day after receipt by Employee of a written
demand for payment from NAI (together with interest calculated as above). The
total of any payment pursuant to this Section 7 shall be limited to the extent
necessary, in the opinion of legal counsel acceptable to Employee and NAI, to
avoid the payment of an "excess parachute" payment within the meaning of
Internal Revenue Code Section 280 G or any similar successor provision.

        In the event of termination of this Agreement either by the Employee
under paragraph 7(B) or by NAI under paragraph 7(C), NAI shall cause each stock
option heretofore granted by NAI to the Employee to become fully exercisable and
to remain exercisable for the term of the option.

                                     - 3 -
<PAGE>   4

        8. Employee and NAI hereby agree to the Mutual Agreement to Arbitrate
attached hereto and made a part hereof as Attachment #1.

        9. Employee and NAI hereby agree to the Assignment of Inventions,
Patents and Copyrights Agreement Regarding Confidential Information Covenant of
Exclusivity and Not to Compete attached hereto and made a part hereof as
Attachment #2.

        10. This Agreement contains the entire agreement between the parties. It
supersedes any and all other agreements, either oral or in writing, between the
parties hereto with respect to Employee's employment by NAI. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein and acknowledges that no
other agreement, statement of promise not contained in this Agreement shall be
valid or binding. This Agreement may not be modified or amended by oral
agreement or course of conduct, but only by an agreement in writing signed by
the Chief Executive Officer of NAI and Employee.

        11. This Executive Employment Agreement shall be construed and enforced
in accordance with the laws of the State of California.

        12. Should any part or provision of this Executive Employment Agreement
be held unenforceable or in conflict with the law of any jurisdiction, the
validity of the remaining parts shall not be affected by such holding.

                                    "EMPLOYEE"

                                       /s/ Peter C. Wulff
                                    --------------------------------------------
                                    Peter C. Wulff

                                    NATURAL ALTERNATIVES INTERNATIONAL, INC.
                                    a Delaware corporation

                                    By:   /s/ Mark A. LeDoux
                                       -----------------------------------------
                                       Mark A. LeDoux, Chief Executive Officer

                                      - 4 -

<PAGE>   5

                                  ATTACHMENT #1

                      MUTUAL AGREEMENT TO ARBITRATE CLAIMS

        This Mutual Agreement to Arbitrate Claims is entered into between Peter
C. Wulff ("Employee") and Natural Alternatives International, Inc. ("NAI").

1.      Binding Arbitration of Disagreement and Claims

               We each voluntarily promise and agree to arbitrate any claims
covered by this Agreement. We further agree that such binding arbitration
pursuant tot his Agreement shall be the sole and exclusive remedy for resolving
any such claims or disputes.

2.      Claims Covered by this Agreement

        A. Claims and disputes covered by this Agreement include all claims
against NAI (as defined below) and all claims that NAI may have against the
Employee, including, without limitation, those arising under:

               (1) Any federal, state or local laws, regulations or statutes
prohibiting employment discrimination (such as, without limitation: race, sex,
national origin, age, disability, religion, sexual orientation) and harassment.

               (2) Any alleged or actual agreement or covenant (oral, written or
implied) between Employee and NAI.

               (3) Any company policy or compensation or benefit plan, unless
the decision in question was made by an entity other than NAI.

               (4) Any public policy.

               (5) Any other claim for personal, emotional, physical or economic
injury.

        B. The only disputes between Employee and NAI which are not included
within this Mutual Agreement to Arbitrate Claims are:

               (1) Any claim by Employee for workers' compensation or
unemployment compensation benefits.

               (2) Any claim by Employee for benefits under a company plan which
provides for its own arbitration procedure.

3.      Arbitration Procedure

        A. The arbitration will be conducted in accordance with the rules of the
current Judicial Arbitration and Mediation Services ("JAMS"), except that the
arbitrator shall be mutually acceptable to both parties. The arbitration will be
held in the state and county of the Employee's primary

                                     - 1 -

<PAGE>   6

employment at the time of the act giving rise to the dispute. The fees and
expenses of the Arbitrator, and the arbitration, will be borne by the Company.
Each party will pay for the fees and expenses of its own attorneys, experts,
witnesses, transcripts and preparation and presentation of proofs and
post-hearing briefs, unless the party prevails on a claim for which attorneys'
fees and costs are recoverable by statute or contract, in which case the
prevailing party shall be awarded attorneys fees and costs in accordance with
that statute or contract.

        B. Before such arbitration, each party shall have the right to conduct
discovery on the same basis and to the same extent as a civil action brought in
the Federal District Court for the Southern District of California.

        C. Any action to enforce or vacate the arbitrator's award shall be
governed by the Federal Arbitration Act if applicable, and otherwise by
applicable state law.

4.      Miscellaneous Provisions

        A. The term "company" means NAI, and all related entities, all officers,
employees, directors, agents, shareholders, partners, benefit plan sponsors,
fiduciaries, administrators or affiliates of any of the above, and all
successors and assignees of any of the above.

        B. If either party pursues a covered claim against the other by any
action, method or legal proceeding other than the arbitration provided herein,
the responding party shall be entitled to dismissal or injunctive relief
regarding such action and recovery of all costs, losses and attorneys' fees
related to such other action or proceeding.

        C. The parties of this arbitration agreement acknowledge and agree that
they are waiving their right to a jury trial on the issues covered by this
Agreement.

        D. This is the complete Agreement of the parties on the subject of
arbitration of disputes and claims. This Agreement supersedes any prior or
contemporaneous oral, written or implied understanding on the subject, shall
survive the termination of Employee's employment and can only be revoked or
modified by a written agreement signed by the parties which specifically states
an intent to revoke or modify this agreement. If any provision of this Agreement
is adjusted to be void or otherwise unenforceable in whole or in part, such
adjudication shall not affect the validity of the remainder of the Agreement.

        E. If any provision of this Agreement is held to be unenforceable by a
final court decision, the remainder of the Agreement shall continue in full
force and effect.

        My signature below signifies that I have read, understand and agree to
the Arbitration Agreement.

                               "EMPLOYEE"

                               /s/ Peter C. Wulff
                               ------------------------------------------------
                               Peter C. Wulff

                               NATURAL ALTERNATIVES INTERNATIONAL, INC.
                               a Delaware corporation

                               By:    /s/ Mark A. LeDoux
                                  ---------------------------------------------
                                  Mark A. LeDoux, Chief Executive Officer

                                      - 2 -

<PAGE>   7

                                  ATTACHMENT #2

ASSIGNMENT OF INVENTIONS, PATENTS AND COPYRIGHTS AGREEMENT REGARDING
CONFIDENTIAL INFORMATION COVENANT OF EXCLUSIVITY AND NOT TO COMPETE

        In consideration of and as a condition of my prospective and continued
employment and the compensation afforded to me under the terms and conditions
thereof by Natural Alternatives International, Inc. (the "Company"), I agree to
the following, and I agree the following shall be in addition to the terms and
conditions of any Confidential Information and Invention Assignment Agreement
executed by employees of the Company generally, and which I may execute in
addition hereto:

        1 .    INVENTIONS

               a. Disclosure. I will disclose promptly in writing to the
appropriate officer or other representative of the Company, any idea, invention,
work of authorship, design, formula, pattern, compilation, program, device,
method, technique, process, improvement, development or discovery, whether or
not patentable or copyrightable or entitled to legal protection as a trade
secret, trademark service mark, trade name or otherwise ("Invention"), that I
may conceive, make, develop, reduce to practice or work on, in whole or in part,
solely or jointly with others ("Invent"), during the term of my employment with
the Company. The disclosure required by this Section 1 (a) applies to each and
every Invention that I Invent (i) whether during my regular hours of employment
or during my time away from work (ii) whether or not the Invention was made at
the suggestion of the Company, and (iii) whether or not the Invention was
reduced to or embodied in writing, electronic media or tangible form. The
disclosure required by this Section 1 (a) also applies to any Invention which
may relate at the time of conception or reduction to practice of the Invention
to the Company's business or actual or demonstrably anticipated research or
development of the Company, and to any Invention which results from any work
performed by me for the Company. The disclosure required by this Section 1 (a)
shall be received in confidence by the Company within the meaning of and to the
extent required by California Labor Code Section 2871, the provisions of which
are set forth on Exhibit "A" hereto.

               b. Assignment. I hereby assign to the Company without royalty or
any other further consideration my entire right, title and interest in and to
each and every Invention I am required to disclose under Section 1 (a) other
than an Invention that (i) I have or shall have developed entirely on my own
time without using the Company's equipment, supplies, facilities or trade secret
information, (ii) does not relate at the time of conception or reduction to
practice of the Invention to the Company's business, or actual or demonstrably
anticipated research or development of the Company and (iii) does not result
from any work performed by me for the Company. I acknowledge that the Company
has notified me that the assignment provided for in this Section l(b) does not
apply to any Invention to which the assignment may not lawfully apply under the
provisions of Section Section 2870 of the California Labor Code, a copy of which
is attached as Exhibit "A" hereto.

                                     - 1 -
<PAGE>   8

               c. Additional Assistance and Documents. I will assist the Company
in obtaining, maintaining and enforcing patents, copyrights, trade secrets,
trademarks, service marks, trade names and other proprietary rights in
connection with any Invention I have assigned to the Company under Section 1(b),
and I further agree that my obligations under this Section l(c) shall continue
beyond the termination of my employment with the Company. Among other things,
for the foregoing purposes I will (i) testify at the request of the Company in
any interference, litigation or other legal proceeding that may arise during or
after my employment, and (ii) execute, verify, acknowledge and deliver any
proper document (and, if, because of my mental or physical incapacity or for any
other reason whatsoever, the Company is unable to obtain my signature to apply
for or to pursue any application for any United States or foreign patent or
copyright covering Inventions assigned to the Company by me, I hereby
irrevocably designate and appoint each of the Company and its duly authorized
officers and agents as my agent and attorney in fact to act for me and in my
behalf and stead to execute and file any such applications and to do all other
lawfully permitted acts to further the prosecution and issuance of any United
States or foreign patent or copyright thereon with the same legal force and
effect as if executed by me). I shall be entitled to reimbursement of any
out-of-pocket expenses incurred by me in rendering such assistance and, if I am
required to render such assistance after the termination of my employment, the
Company shall pay me a reasonable rate of compensation for time spent by me in
rendering such assistance to the extent permitted by law (provided, I understand
that no compensation shall be paid for my time in connection with preparing for
or rendering any testimony or statement under oath in any judicial proceeding,
arbitration or similar proceeding).

               d. Prior Contracts and Inventions; Rights of Third Parties. I
represent to the Company that, except as set forth on Exhibit "B" hereto, there
are no other contracts to assign Inventions now in existence between me and any
other person or entity (and if no Exhibit "B" is attached hereto or there is no
such contract described thereon, then it means that by signing this Agreement, I
represent to the Company that there is no such other contracts). In addition, I
represent to the Company that I have no other employments or undertaking which
do or would restrict or impair my performance of this Agreement. I further
represent to the Company that Exhibit "C" hereto sets forth a brief description
of all Inventions made or conceived by me prior to my employment with the
Company which I desire to be excluded from this Agreement (and if no Exhibit "C"
is attached hereto or there is no such description set forth thereon, then it
means that by signing this Agreement I represent to the Company that there is no
such Invention made or conceived by me prior to my employment with the Company).
In connection with my employment with the Company, I promise not to use or
disclose to the Company any patent, copyright, confidential trade secret or
other proprietary information of any previous employer or other person that I am
not lawfully entitled so to use or disclose. If in the course of my employment
with the Company I incorporate into an Invention or any product process or
service of the Company any Invention made or conceived by me prior to my
employment with the Company, I hereby grant to the Company a royalty-free,
irrevocable, worldwide nonexclusive license to make, have made, use and sell
that Invention without restriction as to the extent of my ownership or interest.

        2.     CONFIDENTIAL INFORMATION

               a. Company Confidential Information. I will not use or disclose
Confidential Information, whether before, during or after the term of my
employment except to perform my duties as an employee of the Company based on my
reasonable judgment as an Officer of the Company, or in

                                     - 2 -
<PAGE>   9

accordance with instruction or authorization of the Company, without prior
written consent of the Company or pursuant to process or requirements of law
after I have disclosed such process or requirements to the Company so as to
afford it the opportunity to seek appropriate relief therefrom. "Confidential
Information" means any Invention of any person in which the Company has an
interest and in addition means any financial, client, customer, supplier,
marketing, distribution and other information of a confidential or private
nature connected with the business of the Company or any person with whom it
deals, provided by the Company to me or to which I have access during or in the
course of any employment.

               b. Third Party Information. I acknowledge that during my
employment with the Company I may have access to patent, copyright,
confidential, trade secret or other proprietary information of third parties
subject to restrictions on the use or disclosure thereof by the Company. During
the term of my employment and thereafter I will not use or disclose any such
information other than consistent with the restrictions and my duties as an
employee of the Company.

        3. PROPERTY OF THE COMPANY. All documents, instruments, notes,
memoranda, reports, drawings, blueprints, manuals, materials, data and other
papers and records of every kind which come into my possession during or in the
course of my employment, relating to any Inventions or Confidential Information,
are and shall remain the property of the Company and shall be surrendered by me
to the Company upon termination of my employment with the Company, or upon the
request of the Company, at any time during or after termination of my employment
with the Company.

        4. NO SOLICITATION OF COMPANY EMPLOYEES. While employed by the Company
and for a period of one year after termination of my employment with the
Company, I agree not to induce or attempt to influence directly or indirectly
any employee of the Company to terminate employment with the Company or to work
for me or any other person or entity.

        5. COVENANT OF EXCLUSIVITY AND NOT TO COMPETE. During the term of my
employment with the Company, I will not engage in any other professional
employment or consulting or directly or indirectly participate in or assist any
business which is a current or potential supplier, customer or competitor of the
Company without prior written approval from the Chief Executive Officer of the
Company.

        6. GENERAL.

               a. Assignments, Successors and Assignees. All representations,
warranties, covenants and agreements of the parties shall bind their respective
heirs, executors, personal representatives, successors and assignees
("transferees") and shall inure to the benefit of their respective permitted
transferees. The Company shall have the right to assign any or all of its rights
and to delegate any or all of its obligations hereunder. The undersigned
employee shall not have the right to assign any rights or delegate any
obligations hereunder without the prior written consent of the Company or its
transferee.

               b. Number and Gender Headings. Each number and gender shall be
deemed to include each other number and gender as the context may require. The
headings and captions contained

                                     - 3 -
<PAGE>   10

in this agreement shall not constitute a part thereof and shall not be used in
its construction or interpretation.

               c. Severability. If any provision of this agreement is found by
any court or arbitral tribunal of competent jurisdiction to be invalid or
unenforceable, the invalidity of such provision shall not affect the other
provisions of this agreement and all provisions not affected by the invalidity
shall remain in full force and effect.

               d. Amendment and Modification. This agreement may be amended or
modified only by a writing executed by each party.

               e. Government Law. The construction, interpretation and
performance of this agreement and all transactions under it shall be governed by
the internal laws of California.

               f. Remedies. I acknowledge that breach by me of any of the
provisions of this agreement will cause irreparable injury that cannot
adequately be compensated by money damages. The Company shall be entitled to
specific performance, temporary restraining orders, preliminary injunctions and
permanent injunctive relief to enforce my obligations under this agreement. No
remedy conferred by any of the specific provisions of this agreement is intended
to be exclusive of any other remedy. I agree to arbitrate on a final and binding
basis all disputes under this Agreement in accordance with and before the
Judicial Arbitration and Mediation Service ("JAMS").

               g. Attorneys' Fees. In the event of any litigation or other
action in connection with this agreement, the prevailing party shall be entitled
to recover its reasonable attorneys' fees and disbursements from the other party
as costs of suit and not as damages.

               h. No Effect on Other Terms or Conditions of Employment. I
acknowledge that this agreement does not affect any term or condition of my
employment except as expressly provided in this agreement, and that this
agreement does not give rise to any right or entitlement on my part to
employment or continued employment with the Company. I further acknowledge that
this agreement does not affect in any way the right of the Company to terminate
my employment.

        IN WITNESS WHEREOF, I have executed this agreement as of the date set
forth next to my signature below.

                                                      /s/ Peter C. Wulff
                                                   -----------------------------
                                                   Signature of Employee
                                                   Peter C. Wulff
                                                   -----------------------------
                                                   Printed Name of Employee
ACCEPTED:
NATURAL ALTERNATIVES INTERNATIONAL, INC.
a Delaware corporation

By:    /s/ Mark A. LeDoux
   -------------------------------------------
      Mark A. LeDoux, Chief Executive Officer

                                      - 4 -

<PAGE>   11

                                   EXHIBIT "A"

CALIFORNIA LABOR CODE

SECTION 2870.  INVENTION ON OWN TIME-EXEMPTION FROM AGREEMENT.

        (a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities or trade secret information expect for those
inventions that either:

               (1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.

               (2) Result from any work performed by the employee for the
employer.

        (b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.

SECTION 2871.  RESTRICTIONS ON EMPLOYER FOR CONDITION OF EMPLOYMENT.

        No employer shall require a provision made void or unenforceable by
Section 2870 as a condition of employment or continued employment. Nothing in
this article shall be construed to forbid or restrict the right of an employer
to provide in contracts of employment for disclosure, provided that any such
disclosures be received in confidence, of all of the employee's inventions made
solely or jointly with others during the term of his or her employment, a review
process by the employer to determine such issues as may arise, and for full
title to certain patents and inventions to be in the United States, as required
by contracts between the employer and the United States or any of its agencies.

                                      - 5 -

<PAGE>   12

                                   EXHIBIT "B"

        Except as set forth below, Employee represents to the Company that there
are no other contracts to assign Inventions now in existence between Employee
and any other person or entity (see Section l(d) of the Agreement):

                                      - 6 -

<PAGE>   13

                                   EXHIBIT "C"

        Set forth below is a brief description of all Inventions made or
conceived by Employee prior to Employee's employment with the Company which
Employee desires to be excluded from this agreement (see Section l(d) of the
Agreement):

                                      - 7 -EXHIBIT 4.3

                        RESIDENTIAL FUNDING CORPORATION,
                               as Master Servicer

                            HOME LOAN TRUST 2000-HI4,
                                    as Issuer

                                       and

                            THE CHASE MANHATTAN BANK
                              as Indenture Trustee

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

                               SERVICING AGREEMENT

                         Dated as of September 28, 2000

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

                                   Home Loans

<PAGE>

<TABLE>
<CAPTION>

                                TABLE OF CONTENTS

                                                                                         Page

                                    ARTICLE I

                                   Definitions

<S>     <C>                                                                                 <C>
Section 1.01.  Definitions...................................................................1
Section 1.02.  Other Definitional Provisions.................................................1
Section 1.03.  Interest Calculations.........................................................2

                                   ARTICLE II

                         Representations and Warranties

Section 2.01.  Representations and Warranties Regarding the Master Servicer..................3
Section 2.02.  Representations and Warranties of the Issuer..................................4
Section 2.03.  Enforcement of Representations and Warranties.................................4

                                   ARTICLE III

                          Administration and Servicing
                                  of Home Loans

Section 3.01.  The Master Servicer...........................................................6
Section 3.02.  Collection of Certain Home Loan Payments......................................8
Section 3.03.  Withdrawals from the Custodial Account.......................................11
Section 3.04.  Maintenance of Hazard Insurance; Property Protection Expenses................12
Section 3.05.  Modification Agreements; Release or Substitution of Lien.....................13
Section 3.06.  Trust Estate; Related Documents..............................................15
Section 3.07.  Realization Upon Defaulted Home Loans; Loss Mitigation.......................15
Section 3.08.  Issuer and Indenture Trustee to Cooperate....................................17
Section 3.09.  Servicing Compensation; Payment of Certain Expenses by Master Servicer.......18
Section 3.10.  Annual Statement as to Compliance............................................19
Section 3.11.  Annual Servicing Report......................................................19
Section 3.12.  Access to Certain Documentation and Information Regarding the Home Loans
                ............................................................................19
Section 3.13.  Maintenance of Certain Servicing Insurance Policies..........................20
Section 3.14.  Information Required by the Internal Revenue Service and Reports of Foreclosures
               and Abandonments of Mortgaged Property.......................................20
Section 3.15.  Optional Repurchase of Defaulted Home Loans..................................20

                                        i

<PAGE>

                                                                                      Page

                                   ARTICLE IV

                              Servicing Certificate

Section 4.01.  Statements to Securityholders................................................21
Section 4.02.  Tax Reporting................................................................23

                                    ARTICLE V

                                 Payment Account

Section 5.01.  Payment Account..............................................................24

                                   ARTICLE VI

                               The Master Servicer

Section 6.01.  Liability of the Master Servicer.............................................25
Section 6.02.  Merger or Consolidation of, or Assumption of the Obligations of, the Master Servicer
                                                                                            25
Section 6.03.  Limitation on Liability of the Master Servicer and Others....................25
Section 6.04.  Master Servicer Not to Resign................................................26
Section 6.05.  Delegation of Duties.........................................................27
Section 6.06.  Master Servicer to Pay Indenture Trustee's and Owner Trustee's Fees and Expenses;
               Indemnification..............................................................27

                                   ARTICLE VII

                                     Default

Section 7.01.  Servicing Default............................................................29
Section 7.02.  Indenture Trustee to Act; Appointment of Successor...........................31
Section 7.03.  Notification to Securityholders..............................................32

                                  ARTICLE VIII

                            Miscellaneous Provisions

Section 8.01.  Amendment....................................................................33
SECTION 8.02.  GOVERNING LAW................................................................33

                                       ii

<PAGE>

                                                                                      Page

Section 8.03.  Notices......................................................................33
Section 8.04.  Severability of Provisions...................................................34
Section 8.05.  Third-Party Beneficiaries....................................................34
Section 8.06.  Counterparts.................................................................34
Section 8.07.  Effect of Headings and Table of Contents.....................................34
Section 8.08.  Termination Upon Purchase by the Master Servicer or Liquidation of All Home
               Loans; Partial Redemption....................................................34
Section 8.09.  Certain Matters Affecting the Indenture Trustee..............................35
Section 8.10.  Owner Trustee Not Liable for Related Documents...............................36

EXHIBIT A-1 - HOME LOAN SCHEDULE FOR GROUP I LOANS.........................................A-1
EXHIBIT A-2 - HOME LOAN SCHEDULE FOR GROUP II LOANS........................................A-2
EXHIBIT B - POWER OF ATTORNEY..............................................................B-1
EXHIBIT C - FORM OF REQUEST FOR RELEASE....................................................D-1

</TABLE>

                                       iii

<PAGE>

               This is a Servicing  Agreement,  dated as of September  28, 2000,
among Residential  Funding  Corporation (the "Master  Servicer"),  the Home Loan
Trust  2000-HI4 (the  "Issuer")  and The Chase  Manhattan  Bank (the  "Indenture
Trustee").

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

               WHEREAS,  pursuant  to  the  terms  of  the  Home  Loan  Purchase
Agreement, Residential Funding Corporation (in its capacity as Seller) will sell
to the  Depositor  the Home Loans  together  with the Related  Documents  on the
Closing Date;

               WHEREAS,  the  Depositor  will sell the Home Loans and all of its
rights under the Home Loan Purchase  Agreement to the Issuer,  together with the
Related Documents on the Closing Date;

               WHEREAS, pursuant to the terms of the Trust Agreement, the Issuer
will  issue  and  transfer  to  or  at  the  direction  of  the  Depositor,  the
Certificates;

     WHEREAS,  pursuant to the terms of the Indenture, the Issuer will issue and
transfer to or at the direction of the Depositor, the Notes; and

               WHEREAS,  pursuant to the terms of this Servicing Agreement,  the
Master  Servicer  will  service  the Home Loans  directly or through one or more
Subservicers;

               NOW,  THEREFORE,  in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:

                                    ARTICLE I

                                   Definitions

        Section 1.01. Definitions. For all purposes of this Servicing Agreement,
except as otherwise  expressly  provided herein or unless the context  otherwise
requires, capitalized terms not otherwise defined herein shall have the meanings
assigned  to such  terms  in the  Definitions  contained  in  Appendix  A to the
Indenture  dated September 28, 2000 (the  "Indenture"),  between Home Loan Trust
2000-HI4,  as issuer, and The Chase Manhattan Bank, as indenture trustee,  which
is incorporated by reference  herein.  All other  capitalized  terms used herein
shall have the meanings specified herein.

        Section 1.02. Other  Definitional  Provisions.  (a) All terms defined in
this  Servicing  Agreement  shall  have the  defined  meanings  when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein.

                                        1

<PAGE>

        (b) As used in this Servicing  Agreement and in any certificate or other
document  made or delivered  pursuant  hereto or thereto,  accounting  terms not
defined  in  this  Servicing  Agreement  or in any  such  certificate  or  other
document,  and accounting terms partly defined in this Servicing Agreement or in
any such  certificate or other document,  to the extent not defined,  shall have
the  respective  meanings  given to them  under  generally  accepted  accounting
principles.  To the extent  that the  definitions  of  accounting  terms in this
Servicing   Agreement  or  in  any  such   certificate  or  other  document  are
inconsistent with the meanings of such terms under generally accepted accounting
principles, the definitions contained in this Servicing Agreement or in any such
certificate or other document shall control.

        (c) The words  "hereof,"  "herein,"  "hereunder"  and  words of  similar
import  when used in this  Servicing  Agreement  shall  refer to this  Servicing
Agreement  as a whole  and not to any  particular  provision  of this  Servicing
Agreement;  Section and Exhibit references contained in this Servicing Agreement
are references to Sections and Exhibits in or to this Servicing Agreement unless
otherwise  specified;  and the term  "including"  shall mean "including  without
limitation".

        (d) The definitions contained in this Servicing Agreement are applicable
to the singular as well as the plural  forms of such terms and to the  masculine
as well as the feminine and neuter genders of such terms.

        (e) Any agreement,  instrument or statute  defined or referred to herein
or in any instrument or certificate  delivered in connection herewith means such
agreement,  instrument  or statute  as from time to time  amended,  modified  or
supplemented and includes (in the case of agreements or instruments)  references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.

        Section  1.03.  Interest  Calculations.  All  calculations  of  interest
hereunder  that are made in respect of the Loan  Balance of a Home Loan shall be
made in accordance  with the Mortgage Note. All  calculations of interest on the
Securities  (other than the Class A-I-1  Notes)  shall be made on the basis of a
30-day month and a year assumed to consist of 360 days.  Calculation of interest
on the Class A-I-1 Notes shall be made on the basis of the actual number of days
in the Interest  Accrual  Period and a year assumed to consist of 360 days.  The
calculation  of the  Servicing  Fee shall be made on the basis of a 30-day month
and a year  assumed  to  consist  of 360 days.  All  dollar  amounts  calculated
hereunder shall be rounded to the nearest penny with one-half of one penny being
rounded up.

                                        2

<PAGE>

                                   ARTICLE II

                         Representations and Warranties

        Section  2.01.  Representations  and  Warranties  Regarding  the  Master
Servicer.  The Master Servicer represents and warrants to the Issuer and for the
benefit  of the  Indenture  Trustee,  as pledgee  of the Home  Loans,  as of the
Cut-off Date:

                    (i) The Master  Servicer is a  corporation  duly  organized,
        validly  existing  and in good  standing  under the laws of the State of
        Delaware and has the  corporate  power to own its assets and to transact
        the business in which it is currently  engaged.  The Master  Servicer is
        duly  qualified to do business as a foreign  corporation  and is in good
        standing in each  jurisdiction  in which the  character  of the business
        transacted  by it or  properties  owned or  leased by it  requires  such
        qualification  and in which  the  failure  to so  qualify  would  have a
        material  adverse  effect  on  the  business,   properties,  assets,  or
        condition (financial or other) of the Master Servicer;

                   (ii) The Master Servicer has the power and authority to make,
        execute,  deliver and perform this  Servicing  Agreement  and all of the
        transactions  contemplated under this Servicing Agreement, and has taken
        all necessary corporate action to authorize the execution,  delivery and
        performance  of this Servicing  Agreement.  When executed and delivered,
        this Servicing  Agreement will  constitute the legal,  valid and binding
        obligation of the Master  Servicer  enforceable  in accordance  with its
        terms, except as enforcement of such terms may be limited by bankruptcy,
        insolvency  or similar laws  affecting  the  enforcement  of  creditors'
        rights generally and by the availability of equitable remedies;

                  (iii) The  Master  Servicer  is not  required  to  obtain  the
        consent  of any  other  Person  or any  consent,  license,  approval  or
        authorization   from,  or   registration   or   declaration   with,  any
        governmental  authority,   bureau  or  agency  in  connection  with  the
        execution,  delivery,  performance,  validity or  enforceability of this
        Servicing  Agreement,  except for such  consent,  license,  approval  or
        authorization,  or  registration  or  declaration,  as shall  have  been
        obtained or filed, as the case may be;

                   (iv) The execution and delivery of this  Servicing  Agreement
        and the  performance  of the  transactions  contemplated  hereby  by the
        Master  Servicer  will not violate any  provision of any existing law or
        regulation or any order or decree of any court  applicable to the Master
        Servicer or any provision of the Certificate of  Incorporation or Bylaws
        of the Master Servicer, or constitute a material breach of any mortgage,
        indenture, contract or other agreement to which the Master Servicer is a
        party or by which the Master Servicer may be bound; and

               (v) No litigation or  administrative  proceeding of or before any
          court,  tribunal or governmental body is currently pending,  or to the
          knowledge of the Master

                                        3

<PAGE>

        Servicer  threatened,   against  the  Master  Servicer  or  any  of  its
        properties or with respect to this Servicing Agreement or the Securities
        which in the opinion of the Master Servicer has a reasonable  likelihood
        of  resulting  in  a  material   adverse  effect  on  the   transactions
        contemplated by this Servicing Agreement.

        The  foregoing   representations   and  warranties   shall  survive  any
termination of the Master Servicer hereunder.

        Section 2.02.  Representations  and Warranties of the Issuer. The Issuer
hereby represents and warrants to the Master Servicer and for the benefit of the
Indenture Trustee, as pledgee of the Home Loans, as of the Cut-off Date:

                    (i) The Issuer is a business  trust duly  formed and in good
        standing  under the laws of the State of  Delaware  and has full  power,
        authority  and  legal  right  to  execute  and  deliver  this  Servicing
        Agreement and to perform its obligations under this Servicing Agreement,
        and has taken all necessary action to authorize the execution,  delivery
        and performance by it of this Servicing Agreement; and

                   (ii)  The  execution  and  delivery  by the  Issuer  of  this
        Servicing Agreement and the performance by the Issuer of its obligations
        under this Servicing Agreement will not violate any provision of any law
        or  regulation  governing  the Issuer or any order,  writ,  judgment  or
        decree of any court,  arbitrator  or  governmental  authority  or agency
        applicable to the Issuer or any of its assets. Such execution, delivery,
        authentication  and  performance  will not conflict with, or result in a
        breach or  violation  of, any  mortgage,  deed of trust,  lease or other
        agreement or instrument to which the Issuer is bound.

        Section 2.03. Enforcement of Representations and Warranties.  The Master
Servicer, on behalf of and subject to the direction of the Indenture Trustee, as
pledgee of the Home Loans, or the Issuer,  shall enforce the representations and
warranties of the Seller pursuant to the Home Loan Purchase Agreement.  Upon the
discovery by the Seller,  the  Depositor,  the Master  Servicer,  the  Indenture
Trustee, the Credit Enhancer, the Issuer, or any Custodian of a breach of any of
the  representations  and warranties made in the Home Loan Purchase Agreement or
of the  existence  of a  Repurchase  Event,  in  respect  of any Home Loan which
materially  and adversely  affects the interests of the  Securityholders  or the
Credit  Enhancer,  the party  discovering  such breach or  existence  shall give
prompt written notice to the other parties.  The Master  Servicer shall promptly
notify the Seller of such breach or existence and request that,  pursuant to the
terms of the Home Loan  Purchase  Agreement,  the  Seller  either  (i) cure such
breach or Repurchase Event in all material respects within 45 days (with respect
to a breach of the representations and warranties contained in Section 3.1(a) of
the Home Loan Purchase  Agreement or Repurchase  Event) or 90 days (with respect
to a breach of the representations and warranties contained in Section 3.1(b) of
the Home Loan Purchase  Agreement) from the date the Seller was notified of such
breach or  Repurchase  Event or (ii)  purchase such Home Loan from the Issuer at
the  price  and in the  manner  set  forth in  Section  3.1(b)  of the Home Loan
Purchase Agreement; provided that the Seller shall, subject to compliance

                                        4

<PAGE>

with all the conditions set forth in the Home Loan Purchase Agreement,  have the
option to substitute an Eligible Substitute Loan or Loans for such Home Loan. In
the event that the Seller elects to substitute  one or more Eligible  Substitute
Loans pursuant to Section 3.1(b) of the Home Loan Purchase Agreement, the Seller
shall deliver to the Issuer with respect to such Eligible  Substitute Loans, the
original Mortgage Note, the Mortgage, and such other documents and agreements as
are required by the Home Loan Purchase  Agreement.  Payments due with respect to
Eligible  Substitute Loans in the month of substitution shall not be transferred
to the Issuer and will be retained by the Master  Servicer  and  remitted by the
Master  Servicer to the Seller on the next  succeeding  Payment Date  provided a
payment at least equal to the  applicable  Monthly  Payment has been received by
the Issuer for such month in respect of the Home Loan to be removed.  The Master
Servicer  shall amend or cause to be amended  the Home Loan  Schedule to reflect
the removal of such Home Loan and the  substitution  of the Eligible  Substitute
Loans and the Master  Servicer  shall  promptly  deliver the  amended  Home Loan
Schedule to the Owner Trustee and the Indenture Trustee.

        It is  understood  and agreed that the  obligation of the Seller to cure
such  breach or  purchase  or  substitute  for such Home Loan as to which such a
breach  has  occurred  and  is  continuing  shall  constitute  the  sole  remedy
respecting  such breach  available to the Issuer and the Indenture  Trustee,  as
pledgee of the Home Loans,  against the Seller.  In connection with the purchase
of or substitution for any such Home Loan by the Seller, the Issuer shall assign
to the Seller all of its right,  title and  interest in respect of the Home Loan
Purchase Agreement  applicable to such Home Loan. Upon receipt of the Repurchase
Price, or upon completion of such substitution, the Master Servicer shall notify
the  Custodian and then the  Custodian  shall deliver the Mortgage  Files to the
Master  Servicer,  together  with  all  relevant  endorsements  and  assignments
prepared by the Master Servicer which the Indenture Trustee shall execute.

                                        5

<PAGE>

                                   ARTICLE III

                          Administration and Servicing
                                  of Home Loans

        Section 3.01. The Master Servicer. (a) The Master Servicer shall service
and  administer  the Home Loans in accordance  with the terms of this  Servicing
Agreement,  following  such  procedures  as it would  employ  in its good  faith
business  judgment  and  which are  normal  and  usual in its  general  mortgage
servicing activities,  and shall have full power and authority,  acting alone or
through  a  subservicer,  to do any and  all  things  in  connection  with  such
servicing and administration which it may deem necessary or desirable,  it being
understood,  however,  that  the  Master  Servicer  shall  at all  times  remain
responsible to the Issuer and the Indenture  Trustee for the  performance of its
duties and obligations  hereunder in accordance  with the terms hereof.  Without
limiting the generality of the foregoing,  the Master  Servicer shall  continue,
and is hereby authorized and empowered by the Issuer and the Indenture  Trustee,
as pledgee of the Home Loans, to execute and deliver,  on behalf of itself,  the
Issuer,  the  Indenture  Trustee  or any of  them,  any and all  instruments  of
satisfaction or cancellation,  or of partial or full release or discharge, or of
consent  to  modification  in  connection  with  a  proposed  conveyance,  or of
assignment of any Mortgage and Mortgage Note in connection  with the  repurchase
of a Home Loan and all other  comparable  instruments  with  respect to the Home
Loans and with  respect  to the  Mortgaged  Properties,  or with  respect to the
modification  or  re-recording  of a Mortgage for the purpose of correcting  the
Mortgage,  the  subordination  of the lien of the  Mortgage in favor of a public
utility company or government agency or unit with powers of eminent domain,  the
taking  of a deed in lieu  of  foreclosure,  the  commencement,  prosecution  or
completion  of judicial or  non-judicial  foreclosure,  the  acquisition  of any
property  acquired  by  foreclosure  or  deed in  lieu  of  foreclosure,  or the
management,  marketing and conveyance of any property acquired by foreclosure or
deed  in  lieu  of  foreclosure.  The  Issuer,  the  Indenture  Trustee  and the
Custodian,  as applicable,  shall furnish the Master Servicer with any powers of
attorney  and other  documents  necessary  or  appropriate  to enable the Master
Servicer to carry out its  servicing and  administrative  duties  hereunder.  In
addition,  the Master  Servicer may, at its own  discretion and on behalf of the
Indenture Trustee,  obtain credit information in the form of a Credit Score from
a credit repository. On the Closing Date, the Indenture Trustee shall deliver to
the Master  Servicer a limited  power of attorney  substantially  in the form of
Exhibit B hereto.

        If the  Mortgage  relating  to a Home Loan did not have a lien senior to
the Home Loan on the related Mortgaged Property as of the Cut-off Date, then the
Master  Servicer,  in such  capacity,  may not  consent to the placing of a lien
senior  to  that of the  Mortgage  on the  related  Mortgaged  Property.  If the
Mortgage  relating  to a Home  Loan had a lien  senior  to the Home  Loan on the
related Mortgaged Property as of the Cut-off Date, then the Master Servicer,  in
such capacity, may consent to the refinancing of the prior senior lien, provided
that the following requirements are met:

               (i) (A) the Mortgagor's  debt-to-income ratio resulting from such
        refinancing is less than the original  debt-to-income ratio as set forth
        on the  Mortgage  Loan  Schedule  and,  in the event that the  resulting
        Combined Loan-to-Value Ratio ("Combined Loan-to-Value

                                        6

<PAGE>

        Ratio") of such Home Loan  increases by more than 10% above the Combined
        Loan-to-Value Ratio prior to such refinancing, the Master Servicer shall
        obtain the prior consent of the Credit Enhancer, which consent shall not
        be unreasonably withheld;  provided,  however, that in no instance shall
        the resulting Combined  Loan-to-Value  Ratio of such Home Loan be higher
        than that permitted by the Program Guide; or

                      (B) the  resulting  Combined  Loan-to-Value  Ratio of such
        Home Loan is no higher than the  Combined  Loan-to-Value  Ratio prior to
        such refinancing; provided, however, if such refinanced mortgage loan is
        a "rate and term" mortgage loan (meaning, the Mortgagor does not receive
        any cash from the  refinancing),  the Combined  Loan-to-Value  Ratio may
        increase  to the extent of either (a) the  reasonable  closing  costs of
        such  refinancing  or (b)  any  decrease  in the  value  of the  related
        Mortgaged  Property,  if the Mortgagor is in good standing as defined by
        the Program Guide;

        (ii) the interest rate,  or, in the case of an adjustable  rate existing
senior lien, the maximum  interest rate, for the loan  evidencing the refinanced
senior lien is no more than 2.0% higher  than the  interest  rate or the maximum
interest rate, as the case may be, on the loan  evidencing  the existing  senior
lien immediately prior to the date of such refinancing; provided, however (a) if
the loan  evidencing  the existing  senior lien prior to the date of refinancing
has an adjustable rate and the loan evidencing the refinanced  senior lien has a
fixed rate, then the current interest rate on the loan evidencing the refinanced
senior lien may be up to 2.0% higher than the then-current loan rate of the loan
evidencing the existing  senior lien and (b) if the loan evidencing the existing
senior  lien  prior to the  date of  refinancing  has a fixed  rate and the loan
evidencing the refinanced  senior lien has an adjustable  rate, then the maximum
interest rate on the loan  evidencing the  refinanced  senior lien shall be less
than or  equal to (x) the  interest  rate on the loan  evidencing  the  existing
senior lien prior to the date of refinancing plus (y) 2.0%; and

               (iii)  the loan  evidencing  the  refinanced  senior  lien is not
          subject to negative amortization.

        The  relationship  of the Master  Servicer  (and of any successor to the
Master Servicer as servicer under this Servicing  Agreement) to the Issuer under
this Servicing Agreement is intended by the parties to be that of an independent
contractor and not that of a joint venturer, partner or agent.

        (b) The Master Servicer may continue in effect  Subservicing  Agreements
entered into by Residential  Funding and Subservicers prior to the execution and
delivery of this  Agreement,  and may enter into  Subservicing  Agreements  with
Subservicers for the servicing and  administration of certain of the Home Loans.
Each  Subservicer  of a Home Loan shall be entitled  to receive  and retain,  as
provided in the related Subservicing  Agreement and in Section 3.02, the related
Subservicing  Fee from  payments  of  interest  received on such Home Loan after
payment of all amounts required to be remitted to the Master Servicer in respect
of such Home Loan.  For any Home Loan not subject to a  Subservicing  Agreement,
the Master  Servicer  shall be entitled to receive and retain an amount equal to
the  Subservicing  Fee from payments of interest.  References in this  Servicing
Agreement  to actions  taken or to be taken by the Master  Servicer in servicing
the Home Loans include actions

                                        7

<PAGE>

taken or to be taken by a  Subservicer  on behalf of the Master  Servicer.  Each
Subservicing  Agreement  will be  upon  such  terms  and  conditions  as are not
inconsistent  with this Servicing  Agreement and as the Master  Servicer and the
Subservicer have agreed. With the approval of the Master Servicer, a Subservicer
may  delegate its  servicing  obligations  to  third-party  servicers,  but such
Subservicers  will remain obligated under the related  Subservicing  Agreements.
The Master Servicer and the Subservicer may enter into amendments to the related
Subservicing Agreements;  provided,  however, that any such amendments shall not
cause  the  Home  Loans to be  serviced  in a manner  that  would be  materially
inconsistent  with the  standards  set forth in this  Servicing  Agreement.  The
Master  Servicer  shall be entitled to terminate any  Subservicing  Agreement in
accordance  with the terms and conditions  thereof and without any limitation by
virtue of this  Servicing  Agreement;  provided,  however,  that in the event of
termination  of  any  Subservicing  Agreement  by  the  Master  Servicer  or the
Subservicer,  the Master  Servicer  shall  either act as servicer of the related
Home Loan or enter into a Subservicing  Agreement  with a successor  Subservicer
which  will be bound by the terms of the  related  Subservicing  Agreement.  The
Master Servicer shall be entitled to enter into any agreement with a Subservicer
for  indemnification  of the  Master  Servicer  and  nothing  contained  in this
Servicing Agreement shall be deemed to limit or modify such indemnification.

        In the event  that the  rights,  duties  and  obligations  of the Master
Servicer are terminated  hereunder,  any successor to the Master Servicer in its
sole  discretion may, to the extent  permitted by applicable law,  terminate the
existing  Subservicing  Agreement with any  Subservicer  in accordance  with the
terms of the applicable  Subservicing  Agreement or assume the terminated Master
Servicer's  rights and obligations under such  subservicing  arrangements  which
termination or assumption will not violate the terms of such arrangements.

        As part of its servicing activities hereunder,  the Master Servicer, for
the benefit of the Securityholders and the Credit Enhancer, shall use reasonable
efforts  to  enforce  the  obligations  of each  Subservicer  under the  related
Subservicing  Agreement,  to the  extent  that the  non-performance  of any such
obligation   would  have  a  material  adverse  effect  on  a  Home  Loan.  Such
enforcement,  including,  without  limitation,  the legal prosecution of claims,
termination  of  Subservicing  Agreements  and the pursuit of other  appropriate
remedies,  shall be in such form and  carried  out to such an extent and at such
time as the Master Servicer would employ in its good faith business judgment and
which are normal and usual in its general  mortgage  servicing  activities.  The
Master Servicer shall pay the costs of such enforcement at its own expense,  and
shall be reimbursed  therefor only (i) from a general  recovery  resulting  from
such  enforcement to the extent,  if any, that such recovery exceeds all amounts
due in respect of the  related  Home Loan or (ii) from a  specific  recovery  of
costs,   expenses  or  attorneys  fees  against  the  party  against  whom  such
enforcement is directed.

        Section 3.02.  Collection of Certain Home Loan Payments.  (a) The Master
Servicer shall make reasonable  efforts to collect all payments called for under
the terms and  provisions  of the Home  Loans,  and shall,  to the  extent  such
procedures  shall be  consistent  with this  Servicing  Agreement  and generally
consistent with any related insurance policy,  follow such collection procedures
as it would employ in its good faith business  judgment and which are normal and
usual

                                        8

<PAGE>

in its general mortgage servicing activities. Consistent with the foregoing, and
without limiting the generality of the foregoing, the Master Servicer may in its
discretion waive any late payment charge,  prepayment charge or penalty interest
or other fees which may be collected in the  ordinary  course of servicing  such
Home Loan. The Master Servicer may also extend the Due Date for payment due on a
Home Loan in accordance  with the Program  Guide,  provided,  however,  that the
Master Servicer shall first determine that any such waiver or extension will not
impair the  coverage of any related  insurance  policy or  materially  adversely
affect  the lien of the  related  Mortgage  (except as  described  below) or the
interests of the  Securityholders  and the Credit Enhancer.  Consistent with the
terms of this Servicing Agreement, the Master Servicer may also:

        (i) waive, modify or vary any term of any Home Loan;

          (ii) consent to the  postponement  of strict  compliance with any such
          term or in any manner grant indulgence to any Mortgagor;

          (iii) arrange with a Mortgagor a schedule for the payment of principal
          and interest due and unpaid;

          (iv) forgive any portion of the amounts  contractually  owed under the
          Home Loan;

        (v)  capitalize  past due amounts owed under the Home Loan by adding any
        amounts in arrearage to the existing  principal balance of the Home Loan
        (a  "Capitalization  Workout")  of which  will  result  in an  increased
        Monthly  Payment  amount,  provided  that:  (A) the amount  added to the
        existing  principal balance of the Home Loan (the "Capitalized  Amount")
        shall be no greater  than five  times the  Mortgagor's  current  Monthly
        Payment  amount;  and (B) the  Master  Servicer  shall not enter  into a
        Capitalization  Workout unless the Combined  Loan-to- Value Ratio of the
        Home Loan prior to the Capitalization  Workout equals or exceeds 80% and
        the Mortgagor has  qualified  for the  Capitalization  Workout under the
        Master Servicer's servicing guidelines;

          (vi) reset the due date for the Home Loan, or any  combination  of the
          foregoing;

if  in  the  Master   Servicer's   determination   such  waiver,   modification,
postponement or indulgence, arrangement or other action referred to above is not
materially  adverse  to the  interests  of  the  Securityholders  or the  Credit
Enhancer and is generally  consistent with the Master  Servicer's  policies with
respect  to  mortgage  loans  similar  to those in the Home Loan Pool  (meaning,
mortgage  loans  used for home  improvement  or debt  consolidation);  provided,
however,  that the Master  Servicer may not modify or permit any  Subservicer to
modify any Home Loan (including  without  limitation any modification that would
change the Loan Rate,  forgive the payment of any principal or interest  (unless
in connection with the liquidation of the related Home Loan) or extend the final
maturity  date of such Home Loan) unless such Home Loan is in default or, in the
judgment of the Master  Servicer,  such default is reasonably  foreseeable.  The
general  terms of any waiver,  modification,  postponement  or  indulgence  with
respect to any of the Home Loans will be included in the Servicing Certificate,

                                        9

<PAGE>

and such Home Loans will not be considered  "delinquent" for the purposes of the
Basic Documents so long as the Mortgagor complies with the terms of such waiver,
modification, postponement or indulgence.

        (b) The Master Servicer shall establish a Custodial Account, which shall
be an Eligible Account in which the Master Servicer shall deposit or cause to be
deposited any amounts  representing  payments and  collections in respect of the
Home Loans  received by it subsequent to the Cut-off Date (other than in respect
of the payments referred to in the following  paragraph) within one Business Day
following  receipt  thereof  (or  otherwise  on or prior to the  Closing  Date),
including the following payments and collections received or made by it (without
duplication):

                    (i) all  payments of principal or interest on the Home Loans
        received by the Master Servicer from the respective Subservicer,  net of
        any  portion of the  interest  thereof  retained by the  Subservicer  as
        Subservicing Fees;

          (ii) the aggregate Repurchase Price of the Home Loans purchased by the
          Master Servicer pursuant to Section 3.15;

          (iii) Net Liquidation Proceeds net of any related Foreclosure Profit;

                   (iv) all proceeds of any Home Loans repurchased by the Seller
        pursuant  to the Home  Loan  Purchase  Agreement,  and all  Substitution
        Adjustment  Amounts  required to be  deposited  in  connection  with the
        substitution  of an Eligible  Substitute  Loan pursuant to the Home Loan
        Purchase Agreement;

          (v) insurance proceeds, other than Net Liquidation Proceeds, resulting
          from any insurance policy maintained on a Mortgaged Property; and

          (vi) amounts  required to be paid by the Master  Servicer  pursuant to
          Sections 3.04 and 8.08.

provided,  however,  that with  respect to each  Collection  Period,  the Master
Servicer  shall be permitted  to retain from  payments in respect of interest on
the Home  Loans,  the  Master  Servicing  Fee for such  Collection  Period.  The
foregoing  requirements   respecting  deposits  to  the  Custodial  Account  are
exclusive,  it being  understood  that,  without  limiting the generality of the
foregoing, the Master Servicer need not deposit in the Custodial Account amounts
representing Foreclosure Profits,  prepayment penalties,  fees (including annual
fees) or late  charge  penalties  payable  by  Mortgagors  (such  amounts  to be
retained as additional  servicing  compensation  in accordance with Section 3.09
hereof),  or  amounts  received  by the  Master  Servicer  for the  accounts  of
Mortgagors for  application  towards the payment of taxes,  insurance  premiums,
assessments  and  similar  items.  In the event any  amount not  required  to be
deposited in the Custodial  Account is so deposited,  the Master Servicer may at
any time withdraw such amount from the Custodial  Account,  any provision herein
to the contrary  notwithstanding.  The Custodial  Account may contain funds that
belong to one or more trust

                                       10

<PAGE>

funds  created  for the notes or  certificates  of other  series and may contain
other funds respecting  payments on other mortgage loans belonging to the Master
Servicer  or   serviced   or  master   serviced  by  it  on  behalf  of  others.
Notwithstanding  such  commingling  of funds,  the  Master  Servicer  shall keep
records that  accurately  reflect the funds on deposit in the Custodial  Account
that have been  identified  by it as being  attributable  to the Home  Loans and
shall hold all collections in the Custodial Account to the extent they represent
collections on the Home Loans for the benefit of the Trust, the  Securityholders
and the Indenture  Trustee,  as their interests may appear.  The Master Servicer
shall retain all Foreclosure Profits as additional servicing compensation.

        The Master Servicer may cause the institution  maintaining the Custodial
Account to invest any funds in the  Custodial  Account in Permitted  Investments
(including obligations of the Master Servicer or any of its Affiliates,  if such
obligations otherwise qualify as Permitted Investments),  which shall mature not
later than the Business Day  preceding the next Payment Date and which shall not
be sold or disposed of prior to its  maturity.  Except as  provided  above,  all
income and gain realized from any such investment  shall inure to the benefit of
the Master Servicer and shall be subject to its withdrawal or order from time to
time.  The amount of any losses  incurred in respect of the principal  amount of
any such investments  shall be deposited in the Custodial  Account by the Master
Servicer out of its own funds immediately as realized.

        (c) The Master Servicer will require each  Subservicer to hold all funds
constituting  collections on the Home Loans,  pending  remittance thereof to the
Master Servicer, in one or more accounts meeting the requirements of an Eligible
Account, and invested in Permitted Investments.

        Section  3.03.  Withdrawals  from  the  Custodial  Account.  The  Master
Servicer shall, from time to time as provided herein,  make withdrawals from the
Custodial  Account of amounts on deposit  therein  pursuant to Section 3.02 that
are attributable to the Home Loans for the following purposes:

                    (i) to deposit in the Payment  Account,  on the Business Day
        prior to each Payment Date, an amount equal to the Interest  Collections
        and Principal  Collections  required to be  distributed  on such Payment
        Date;

                   (ii) to the extent  deposited to the  Custodial  Account,  to
        reimburse itself or the related Subservicer for previously  unreimbursed
        expenses incurred in maintaining  individual insurance policies pursuant
        to Section 3.04, or Liquidation Expenses,  paid pursuant to Section 3.07
        or  otherwise  reimbursable  pursuant  to the  terms  of this  Servicing
        Agreement  (to the extent not payable  pursuant to Section  3.09),  such
        withdrawal  right being limited to amounts  received on particular  Home
        Loans  (other  than any  Repurchase  Price  in  respect  thereof)  which
        represent  late  recoveries of the payments for which such advances were
        made,  or from  related  Liquidation  Proceeds  or the  proceeds  of the
        purchase of such Home Loan;

                                       11

<PAGE>

                  (iii) to pay to itself out of each payment received on account
        of interest on a Home Loan as  contemplated  by Section  3.09, an amount
        equal to the related  Master  Servicing  Fee (to the extent not retained
        pursuant  to  Section  3.02),   and  to  pay  to  any   Subservicer  any
        Subservicing Fees not previously withheld by the Subservicer;

                   (iv) to the extent deposited in the Custodial  Account to pay
        to  itself  as  additional   servicing   compensation  any  interest  or
        investment income earned on funds deposited in the Custodial Account and
        Payment  Account  that it is entitled  to withdraw  pursuant to Sections
        3.02(b) and 5.01;

               (v) to the extent deposited in the Custodial  Account,  to pay to
          itself as additional servicing compensation any Foreclosure Profits;

                   (vi) to pay to itself or the Seller, with respect to any Home
        Loan or property  acquired in respect thereof that has been purchased or
        otherwise  transferred  to the  Seller,  the  Master  Servicer  or other
        entity,  all amounts received thereon and not required to be distributed
        to Securityholders as of the date on which the related Purchase Price or
        Repurchase Price is determined; and

                  (vii) to withdraw any other amount  deposited in the Custodial
        Account  that was not  required  to be  deposited  therein  pursuant  to
        Section 3.02.

Since, in connection with withdrawals  pursuant to clauses (ii),  (iii), (v) and
(vi),  the Master  Servicer's  entitlement  thereto is limited to collections or
other  recoveries on the related Home Loan,  the Master  Servicer shall keep and
maintain separate accounting, on a Home Loan by Home Loan basis, for the purpose
of  justifying  any  withdrawal  from the  Custodial  Account  pursuant  to such
clauses.  Notwithstanding any other provision of this Servicing  Agreement,  the
Master  Servicer  shall be  entitled  to  reimburse  itself  for any  previously
unreimbursed   expenses   incurred   pursuant  to  Section   3.07  or  otherwise
reimbursable  pursuant to the terms of this Servicing  Agreement that the Master
Servicer determines to be otherwise  nonrecoverable  (except with respect to any
Home Loan as to which the Repurchase  Price has been paid),  by withdrawal  from
the Custodial  Account of amounts on deposit  therein  attributable  to the Home
Loans on any Business Day prior to the Payment Date  succeeding the date of such
determination.

        Section  3.04.  Maintenance  of Hazard  Insurance;  Property  Protection
Expenses.  The Master  Servicer  shall cause to be maintained for each Home Loan
hazard insurance naming the Master Servicer or related Subservicer as loss payee
thereunder  providing  extended coverage in an amount which is at least equal to
at  least  100%  of  the  insurable  value  of  the   improvements   (guaranteed
replacement)  or the sum of the unpaid  principal  balance of the first mortgage
loan and the Home Loan  amount.  The  Master  Servicer  shall  also  cause to be
maintained  on  property  acquired  upon   foreclosure,   or  deed  in  lieu  of
foreclosure,  of any Home Loan,  fire  insurance  with  extended  coverage in an
amount which is at least equal to the amount  necessary to avoid the application
of any co- insurance clause  contained in the related hazard  insurance  policy.
Amounts collected by the Master

                                       12

<PAGE>

Servicer  under any such  policies  (other  than  amounts  to be  applied to the
restoration  or  repair of the  related  Mortgaged  Property  or  property  thus
acquired or amounts  released to the  Mortgagor  in  accordance  with the Master
Servicer's  normal  servicing  procedures)  shall be deposited in the  Custodial
Account  to the  extent  called  for by  Section  3.02.  In cases  in which  any
Mortgaged  Property  is located at any time  during the life of a Home Loan in a
federally  designated  flood area, the hazard insurance to be maintained for the
related Home Loan shall include flood insurance (to the extent  available).  All
such flood  insurance  shall be in amounts equal to the lesser of (i) the amount
required to  compensate  for any loss or damage to the  Mortgaged  Property on a
replacement  cost basis and (ii) the maximum amount of such insurance  available
for the related  Mortgaged  Property under the national flood insurance  program
(assuming  that  the  area in  which  such  Mortgaged  Property  is  located  is
participating in such program). The Master Servicer shall be under no obligation
to require that any Mortgagor maintain earthquake or other additional  insurance
and  shall  be  under no  obligation  itself  to  maintain  any such  additional
insurance on property acquired in respect of a Home Loan, other than pursuant to
such  applicable  laws and  regulations  as shall at any time be in force and as
shall require such additional insurance. If the Master Servicer shall obtain and
maintain  a  blanket  policy  consistent  with its  general  mortgage  servicing
activities  insuring  against  hazard losses on all of the Home Loans,  it shall
conclusively  be deemed to have  satisfied its  obligations  as set forth in the
first  sentence of this Section 3.04, it being  understood  and agreed that such
blanket  policy  may  contain a  deductible  clause,  in which  case the  Master
Servicer  shall,  in the event that there shall not have been  maintained on the
related  Mortgaged  Property a policy  complying with the first sentence of this
Section  3.04 and there shall have been a loss which would have been  covered by
such policy,  deposit in the Custodial  Account the amount not otherwise payable
under the blanket policy because of such deductible  clause. Any such deposit by
the Master  Servicer  shall be made on the last  Business Day of the  Collection
Period in the month in which  payments  under any such  policy  would  have been
deposited  in the  Custodial  Account.  In  connection  with its  activities  as
servicer of the Home Loans, the Master Servicer agrees to present,  on behalf of
itself,  the Issuer and the  Indenture  Trustee,  claims  under any such blanket
policy.

        Section 3.05. Modification Agreements;  Release or Substitution of Lien.
(a) The Master Servicer or the related Subservicer, as the case may be, shall be
entitled  to  (A)  execute  assumption  agreements,   modification   agreements,
substitution  agreements,  and instruments of satisfaction or cancellation or of
partial or full release or discharge, or any other document contemplated by this
Servicing  Agreement and other  comparable  instruments with respect to the Home
Loans and with respect to the Mortgaged Properties subject to the Mortgages (and
the Issuer  and the  Indenture  Trustee  each shall  promptly  execute  any such
documents on request of the Master  Servicer) and (B) approve the granting of an
easement thereon in favor of another Person, any alteration or demolition of the
related  Mortgaged  Property or other  similar  matters,  in each case if it has
determined, exercising its good faith business judgment in the same manner as it
would if it were the owner of the related Home Loan,  that the security for, and
the timely and full  collectability  of,  such Home Loan would not be  adversely
affected  thereby.  A partial  release  pursuant to this  Section  3.05 shall be
permitted only if the Combined Loan-to-Value Ratio for such Home Loan after such
partial release does not exceed the Combined  Loan-to-Value  Ratio for such Home
Loan as of the Cut-off

                                       13

<PAGE>

Date. Any fee collected by the Master  Servicer or the related  Subservicer  for
processing  such  request  will  be  retained  by the  Master  Servicer  or such
Subservicer as additional servicing compensation.

        (b) The Master  Servicer may enter into an agreement with a Mortgagor to
release  the  lien  on the  Mortgaged  Property  relating  to a Home  Loan  (the
"Existing  Lien"),  if at the time of such agreement the Home Loan is current in
payment of principal and interest, under any of the following circumstances:

               (i) in any case in which,  simultaneously with the release of the
        Existing  Lien,  the  Mortgagor  executes  and  delivers  to the  Master
        Servicer a Mortgage on a substitute  Mortgaged  Property,  provided that
        the Combined  Loan-to-Value  Ratio of the Home Loan (calculated based on
        the Appraised Value of the substitute Mortgaged Property) is not greater
        than the Combined  Loan-to-Value  Ratio prior to releasing  the Existing
        Lien;

               (ii) in any case in which, simultaneously with the release of the
        Existing  Lien,  the  Mortgagor  executes  and  delivers  to the  Master
        Servicer a Mortgage on a substitute  Mortgaged Property,  provided that:
        (A) the Combined  Loan-to-Value Ratio of the Home Loan (calculated based
        on the  Appraised  Value of the  substitute  Mortgaged  Property) is not
        greater  than  the  lesser  of (1)  125%  and (2)  105% of the  Combined
        Loan-to-Value  Ratio prior to releasing the Existing  Lien;  and (B) the
        Master Servicer  determines  that at least two appropriate  compensating
        factors  are  present   (compensating   factors  may  include,   without
        limitation,  an increase in the Mortgagor's monthly cash flow after debt
        service,  the Mortgagor's  debt-to-income  ratio has not increased since
        origination, or an increase in the Mortgagor's credit score); or

               (iii)  in any  case  in  which,  at the  time of  release  of the
        Existing Lien, the Mortgagor does not provide the Master Servicer with a
        Mortgage on a substitute  Mortgaged Property (any Home Loan that becomes
        and remains unsecured in accordance with this subsection,  an "Unsecured
        Loan"),  provided that: (A) the Mortgagor,  in addition to being current
        in payment of  principal  and  interest  on the  related  Home Loan,  is
        current in payment of  principal  and interest on any loan senior to the
        Home Loan; (B) the Mortgagor's Credit Score, as determined by the Master
        Servicer at the time of the  request  for  release of lien,  is not less
        than 640; (C) the Mortgagor  makes a cash  contribution  in reduction of
        the outstanding  principal  balance of the Home Loan,  which may include
        any net proceeds from the sale of the original  Mortgaged  Property,  of
        not less than 20% of the unpaid principal  balance of the Home Loan; and
        (D) the Mortgagor signs a  reaffirmation  agreement  acknowledging  that
        they must continue to pay in  accordance  with the terms of the original
        Mortgage Note.

               (iv) If the above  conditions  (iii)(A)  through (iii)(D) are not
        met,  the Master  Servicer  may still enter into an agreement to release
        the Existing  Lien,  provided  that:  (A) the Master  Servicer shall not
        permit the  release of an Existing  Lien under this  clause  (iii) as to
        more than 200 Home Loans in any calendar  year; (B) at no time shall the
        aggregate Principal

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<PAGE>

        Balance of Unsecured  Loans exceed 5% of the then Pool Balance;  (C) the
        Mortgagor  agrees to an automatic debit payment plan; and (D) the Master
        Servicer  shall provide  notice to each Rating Agency that has requested
        notice of such releases.

        In connection  with any Unsecured  Loan, the Master Servicer may require
the Mortgagor to enter into an agreement  under which:  (i) the Loan Rate may be
increased  effective until a substitute  Mortgage meeting the criteria under (i)
or (ii) above is  provided;  or (ii) any other  provision  may be made which the
Master  Servicer  considers to be appropriate.  Thereafter,  the Master Servicer
shall determine in its discretion whether to accept any proposed Mortgage on any
substitute  Mortgaged  Property  as security  for the Home Loan,  and the Master
Servicer may require the Mortgagor to agree to any further  conditions which the
Master  Servicer  considers  appropriate in connection  with such  substitution,
which may include a  reduction  of the Loan Rate (but not below the Loan Rate in
effect  at the  Closing  Date).  Any  Home  Loan  as to  which a  Mortgage  on a
substitute  Mortgaged  Property  is provided in  accordance  with the  preceding
sentence shall no longer be deemed to be an Unsecured Loan.

        Section 3.06. Trust Estate; Related Documents.  (a) When required by the
provisions of this  Servicing  Agreement,  the Issuer or the  Indenture  Trustee
shall  execute  instruments  to  release  property  from the  terms of the Trust
Agreement,  Indenture  or  Custodial  Agreement,  as  applicable,  or convey the
Issuer's or the Indenture  Trustee's interest in the same, in a manner and under
circumstances  which are not inconsistent  with the provisions of this Servicing
Agreement.  No party  relying upon an  instrument  executed by the Issuer or the
Indenture  Trustee as provided in this  Section 3.06 shall be bound to ascertain
the Issuer's or the Indenture Trustee's authority, inquire into the satisfaction
of any conditions precedent or see to the application of any monies.

        (b) If from  time to time  the  Master  Servicer  shall  deliver  to the
Custodian copies of any written assurance,  assumption agreement or substitution
agreement or other similar  agreement  pursuant to Section  3.05,  the Custodian
shall check that each of such documents purports to be an original executed copy
(or a copy of the original  executed  document if the original executed copy has
been  submitted for recording and has not yet been  returned)  and, if so, shall
file such  documents,  and upon receipt of the original  executed  copy from the
applicable  recording  office or  receipt  of a copy  thereof  certified  by the
applicable  recording  office shall file such originals or certified copies with
the Related Documents. If any such documents submitted by the Master Servicer do
not meet the above qualifications,  such documents shall promptly be returned by
the  Custodian  to  the  Master  Servicer  pursuant  to  the  related  Custodial
Agreement,  with a  direction  to the Master  Servicer  to forward  the  correct
documentation.

        (c) Upon receipt of a Request for Release from the Master  Servicer,  to
the  effect  that a Home  Loan has  been the  subject  of a final  payment  or a
prepayment  in full  and the  related  Home  Loan has  been  terminated  or that
substantially all Liquidation  Proceeds which have been determined by the Master
Servicer  in  its  reasonable  judgment  to be  finally  recoverable  have  been
recovered,  and upon  deposit to the  Custodial  Account  of such final  monthly
payment,  prepayment in full  together  with accrued and unpaid  interest to the
date of such payment with respect to such Home Loan or, if

                                       15

<PAGE>

applicable,  Liquidation  Proceeds,  the Custodian  shall  promptly  release the
Related  Documents  to the Master  Servicer  pursuant to the  related  Custodial
Agreement,  which the Indenture Trustee shall execute, along with such documents
as the Master Servicer or the Mortgagor may request to evidence satisfaction and
discharge of such Home Loan, upon request of the Master  Servicer.  If from time
to time and as  appropriate  for the servicing or  foreclosure of any Home Loan,
the Master Servicer  requests the Custodian to release the Related Documents and
delivers  to the  Custodian  a  trust  receipt  reasonably  satisfactory  to the
Custodian  and  signed by a  Responsible  Officer of the  Master  Servicer,  the
Custodian shall release the Related Documents to the Master Servicer pursuant to
the related Custodial Agreement.  If such Home Loans shall be liquidated and the
Custodian  receives a certificate  from the Master  Servicer as provided  above,
then, upon request of the Master Servicer, the Custodian shall release the trust
receipt to the Master Servicer pursuant to the related Custodial Agreement.

        Section 3.07.  Realization  Upon Defaulted Home Loans;  Loss Mitigation.
With respect to such of the Home Loans as come into and continue in default, the
Master  Servicer  will  decide  whether  to (i)  foreclose  upon  the  Mortgaged
Properties securing such Home Loans, (ii) write off the unpaid principal balance
of the Home Loans as bad debt,  (iii) take a deed in lieu of  foreclosure,  (iv)
accept a short sale (a payoff of the Home Loan for an amount less than the total
amount  contractually  owed in  order  to  facilitate  a sale  of the  Mortgaged
Property by the  Mortgagor) or permit a short  refinancing (a payoff of the Home
Loan for an amount  less than the total  amount  contractually  owed in order to
facilitate refinancing transactions by the Mortgagor not involving a sale of the
Mortgaged  Property),  (v)  arrange  for  a  repayment  plan,  (vi)  agree  to a
modification  in  accordance  with this  Servicing  Agreement,  or (vii) take an
unsecured  note,  in  connection  with a  negotiated  release of the lien of the
Mortgage in order to facilitate a settlement  with the  Mortgagor;  in each case
subject  to the  rights of any  related  first  lien  holder;  provided  that in
connection with the foregoing if the Master  Servicer has actual  knowledge that
any  Mortgaged  Property is affected by hazardous or toxic wastes or  substances
and that the  acquisition of such Mortgaged  Property would not be  commercially
reasonable,  then the Master Servicer will not cause the Issuer or the Indenture
Trustee to acquire title to such Mortgaged  Property in a foreclosure or similar
proceeding.  In connection with such decision,  the Master Servicer shall follow
such  practices  (including,  in the case of any  default  on a  related  senior
mortgage  loan,  the  advancing of funds to correct such default if deemed to be
appropriate by the Master Servicer) and procedures as it shall deem necessary or
advisable  and as shall be normal and usual in its  general  mortgage  servicing
activities and as shall be required or permitted by the Program Guide;  provided
that the Master  Servicer  shall not be liable in any respect  hereunder  if the
Master Servicer is acting in connection  with any such  foreclosure or attempted
foreclosure  which is not  completed  or other  conversion  in a manner  that is
consistent  with the  provisions of this Servicing  Agreement.  The foregoing is
subject to the proviso that the Master  Servicer shall not be required to expend
its own funds in connection with any foreclosure or attempted  foreclosure which
is not completed or towards the  correction  of any default on a related  senior
mortgage loan or restoration of any property unless it shall determine that such
expenditure  will  increase  Net  Liquidation   Proceeds.  In  the  event  of  a
determination by the Master Servicer that any such  expenditure  previously made
pursuant to this Section 3.07 will not be reimbursable from Net

                                       16

<PAGE>

Liquidation Proceeds,  the Master Servicer shall be entitled to reimbursement of
its funds so expended pursuant to Section 3.03.

        Notwithstanding any provision of this Servicing  Agreement,  a Home Loan
may be deemed to be finally  liquidated if substantially all amounts expected by
the Master Servicer to be received in connection with the related defaulted Home
Loan have been received;  provided, however, the Master Servicer shall treat any
Home Loan that is 180 days or more delinquent as having been finally liquidated.
Any subsequent collections with respect to any such Home Loan shall be deposited
to the  Custodial  Account.  For  purposes  of  determining  the  amount  of any
Liquidation  Proceeds or Insurance Proceeds,  or other unscheduled  collections,
the Master Servicer may take into account minimal amounts of additional receipts
expected  to be  received  or  any  estimated  additional  liquidation  expenses
expected to be incurred in connection with the related defaulted Home Loan.

        In the  event  that  title to any  Mortgaged  Property  is  acquired  in
foreclosure or by deed in lieu of  foreclosure,  the deed or certificate of sale
shall be issued to the Indenture  Trustee,  who shall hold the same on behalf of
the Issuer in accordance with Section 3.13 of the Indenture. Notwithstanding any
such  acquisition  of title and  cancellation  of the  related  Home Loan,  such
Mortgaged  Property  shall (except as otherwise  expressly  provided  herein) be
considered to be an  outstanding  Home Loan held as an asset of the Issuer until
such time as such property shall be sold.

        Any proceeds  from the purchase or  repurchase of any Home Loan pursuant
to the terms of this Servicing Agreement  (including without limitation Sections
2.03 and 3.15) will be applied in the following order of priority: first, to the
Master Servicer or the related Subservicer, all Servicing Fees payable therefrom
to the Payment  Date on which such  amounts are to be  deposited  in the Payment
Account;  second,  as Interest  Collections,  accrued and unpaid interest on the
related  Home  Loan,  at the Net Loan  Rate to the  Payment  Date on which  such
amounts are to be  deposited  in the Payment  Account;  and third,  as Principal
Collections, as a recovery of principal on the Home Loan.

        Liquidation  Proceeds  with  respect to a  Liquidated  Home Loan will be
applied in the  following  order of priority:  first,  to  reimburse  the Master
Servicer or the related Subservicer in accordance with this Section 3.07 for any
Liquidation Expenses; second, to the Master Servicer or the related Subservicer,
all unpaid  Servicing Fees through the date of receipt of the final  Liquidation
Proceeds;  third,  as Principal  Collections,  as a recovery of principal on the
Home Loan,  up to an amount  equal to the Loan  Balance of the related Home Loan
immediately  prior to the date it became a  Liquidated  Home  Loan;  fourth,  as
Interest  Collections,  accrued and unpaid  interest on the related Home Loan at
the Net Loan Rate through the date of receipt of the final Liquidation Proceeds;
and fifth, to Foreclosure Profits.

        Proceeds  and  other  recoveries  from a Home  Loan  after it  becomes a
Liquidated Home Loan will be applied in the following order of priority:  first,
to reimburse the Master  Servicer or the related  Subservicer in accordance with
this Section  3.07 for any expenses  previously  unreimbursed  from  Liquidation
Proceeds  or  otherwise;   second,   to  the  Master  Servicer  or  the  related
Subservicer,  all unpaid  Servicing  Fees  payable  thereto  through the date of
receipt of the proceeds previously

                                       17

<PAGE>

unreimbursed  from  Liquidation  Proceeds  or  otherwise;   third,  as  Interest
Collections,  up to an amount  equal to the sum of (a) the Loan  Balance  of the
related  Home Loan  immediately  prior to the date it became a  Liquidated  Home
Loan, less any Net Liquidation Proceeds previously received with respect to such
Home Loan and  applied as a recovery  of  principal,  and (b) accrued and unpaid
interest  on the  related  Home  Loan at the Net Loan Rate  through  the date of
receipt of the proceeds; and fourth, to Foreclosure Profits.

        Section 3.08.  Issuer and Indenture  Trustee to Cooperate.  On or before
each Payment Date, the Master Servicer will notify the Indenture  Trustee or the
Custodian,  with a copy to the Issuer,  of the  termination of or the payment in
full and the  termination  of any Home  Loan  during  the  preceding  Collection
Period.  Upon receipt of payment in full,  the Master  Servicer is authorized to
execute,  pursuant  to the  authorization  contained  in  Section  3.01,  if the
assignments  of Mortgage  have been  recorded  if  required  under the Home Loan
Purchase  Agreement,   an  instrument  of  satisfaction  regarding  the  related
Mortgage,  which  instrument  of  satisfaction  shall be  recorded by the Master
Servicer if required by applicable  law and be delivered to the Person  entitled
thereto.  It is understood  and agreed that any expenses  incurred in connection
with such  instrument  of  satisfaction  or transfer  shall be  reimbursed  from
amounts deposited in the Custodial Account. From time to time and as appropriate
for the servicing or foreclosure of any Home Loan, the Indenture  Trustee or the
Custodian  shall,  upon  request  of the Master  Servicer  and  delivery  to the
Indenture  Trustee or  Custodian,  with a copy to the  Issuer,  of a Request for
Release,  signed by a Servicing  Officer,  release or cause to be  released  the
related Mortgage File to the Master Servicer and the Issuer or Indenture Trustee
shall  promptly  execute  such  documents,  in the forms  provided by the Master
Servicer,  as shall be necessary for the prosecution of any such  proceedings or
the taking of other  servicing  actions.  Such trust receipt shall  obligate the
Master  Servicer to return the  Mortgage  File to the  Indenture  Trustee or the
Custodian  (as  specified in such  receipt) when the need therefor by the Master
Servicer no longer  exists  unless the Home Loan shall be  liquidated,  in which
case,  upon  receipt of a  certificate  of a Servicing  Officer  similar to that
hereinabove  specified,  the  trust  receipt  shall be  released  to the  Master
Servicer.

        In order to facilitate the foreclosure of the Mortgage securing any Home
Loan that is in default following  recordation of the assignments of Mortgage in
accordance  with  the  provisions  of the  Home  Loan  Purchase  Agreement,  the
Indenture  Trustee or the Issuer shall, if so requested in writing by the Master
Servicer, promptly execute an appropriate assignment in the form provided by the
Master  Servicer to assign such Home Loan for the purpose of  collection  to the
Master  Servicer  (any such  assignment  shall  unambiguously  indicate that the
assignment is for the purpose of collection  only),  and, upon such  assignment,
such assignee for collection  will thereupon  bring all required  actions in its
own name and otherwise  enforce the terms of the Home Loan and deposit or credit
the Net Liquidation  Proceeds,  exclusive of Foreclosure Profits,  received with
respect  thereto in the  Custodial  Account.  In the event  that all  delinquent
payments  due under any such Home Loan are paid by the  Mortgagor  and any other
defaults are cured,  then the assignee for collection  shall  promptly  reassign
such Home Loan to the Indenture  Trustee and return all Related Documents to the
place where the related Mortgage File was being maintained.

                                       18

<PAGE>

        In connection  with the Issuer's  obligation to cooperate as provided in
this Section 3.08 and all other provisions of this Servicing Agreement requiring
the Issuer to  authorize  or permit any actions to be taken with  respect to the
Home Loans, the Indenture Trustee,  as pledgee of the Home Loans and as assignee
of record of the Home Loans on behalf of the Issuer  pursuant to Section 3.13 of
the  Indenture,  expressly  agrees,  on behalf of the  Issuer,  to take all such
actions  on  behalf  of the  Issuer  and to  promptly  execute  and  return  all
instruments  reasonably required by the Master Servicer in connection therewith;
provided that if the Master  Servicer shall request a signature of the Indenture
Trustee,  on behalf of the  Issuer,  the  Master  Servicer  will  deliver to the
Indenture  Trustee an  Officer's  Certificate  stating  that such  signature  is
necessary  or  appropriate  to  enable  the  Master  Servicer  to carry  out its
servicing and administrative duties under this Servicing Agreement.

        Section 3.09.  Servicing  Compensation;  Payment of Certain  Expenses by
Master  Servicer.  The Master  Servicer  shall be entitled to receive the Master
Servicing Fee in accordance with Sections 3.02 and 3.03 as compensation  for its
services in  connection  with  servicing  the Home Loans.  Moreover,  additional
servicing compensation in the form of late payment charges,  prepayment charges,
investment income on amounts in the Custodial Account or the Payment Account and
other  receipts  not  required  to be  deposited  in the  Custodial  Account  as
specified in Section 3.02 shall be retained by the Master  Servicer.  The Master
Servicer shall be required to pay all expenses incurred by it in connection with
its activities  hereunder  (including payment of all other fees and expenses not
expressly  stated  hereunder  to be for  the  account  of  the  Securityholders,
including,  without  limitation,  the fees and  expenses  of the Owner  Trustee,
Indenture  Trustee and any Custodian) and shall not be entitled to reimbursement
therefor.

        Section 3.10. Annual Statement as to Compliance. (a) The Master Servicer
will deliver to the Issuer, the Underwriters and the Indenture  Trustee,  with a
copy to the Credit Enhancer, on or before March 31 of each year, beginning March
31, 2001, an Officer's  Certificate  stating that (i) a review of the activities
of the Master Servicer during the preceding calendar year and of its performance
under  servicing  agreements,  including this Servicing  Agreement has been made
under  such  officer's  supervision  and  (ii) to the  best  of  such  officer's
knowledge,  based on such  review,  the  Master  Servicer  has  complied  in all
material respects with the minimum servicing  standards set forth in the Uniform
Single  Attestation  Program for Mortgage  Bankers and has  fulfilled all of its
material obligations in all material respects throughout such year, or, if there
has been material  noncompliance  with such servicing  standards or a default in
the fulfillment in all material respects of any such obligation relating to this
Servicing  Agreement,  such  statement  shall  include  a  description  of  such
noncompliance  or specify each such  default,  as the case may be, known to such
officer and the nature and status thereof.

        (b) The Master  Servicer  shall  deliver to the Issuer and the Indenture
Trustee,  with a copy to the Credit  Enhancer,  promptly  after having  obtained
knowledge  thereof,  but in no event later than five Business  Days  thereafter,
written notice by means of an Officer's  Certificate of any event which with the
giving of notice or the lapse of time or both, would become a Servicing Default.

                                       19

<PAGE>

        Section 3.11.  Annual  Servicing  Report.  On or before March 31 of each
year, beginning March 31, 2001, the Master Servicer at its expense shall cause a
firm of  nationally  recognized  independent  public  accountants  (who may also
render other services to the Master Servicer) to furnish a report to the Issuer,
the Indenture Trustee, the Depositor, the Underwriters,  the Credit Enhancer and
each Rating  Agency  stating its opinion  that,  on the basis of an  examination
conducted by such firm substantially in accordance with standards established by
the American  Institute of Certified  Public  Accountants,  the assertions  made
pursuant  to  Section  3.10  regarding  compliance  with the  minimum  servicing
standards  set forth in the Uniform  Single  Attestation  Program  for  Mortgage
Bankers  during the  preceding  calendar  year are fairly stated in all material
respects,  subject to such  exceptions  and other  qualifications  that,  in the
opinion of such  firm,  such  accounting  standards  require  it to  report.  In
rendering  such  statement,  such firm may rely,  as to matters  relating to the
direct servicing of such Home Loans by Subservicers,  upon comparable statements
for examinations  conducted by independent public  accountants  substantially in
accordance  with standards  established  by the American  Institute of Certified
Public Accountants  (rendered within one year of such statement) with respect to
such Subservicers.

        Section 3.12. Access to Certain  Documentation and Information Regarding
the Home Loans. Whenever required by statute or regulation,  the Master Servicer
shall provide to the Credit Enhancer, any Securityholder upon reasonable request
(or a regulator  for a  Securityholder)  or the  Indenture  Trustee,  reasonable
access to the documentation  regarding the Home Loans such access being afforded
without charge but only upon reasonable request and during normal business hours
at the  offices  of the Master  Servicer.  Nothing  in this  Section  3.12 shall
derogate from the  obligation of the Master  Servicer to observe any  applicable
law  prohibiting  disclosure of  information  regarding the  Mortgagors  and the
failure of the Master  Servicer to provide  access as  provided in this  Section
3.12 as a result  of such  obligation  shall  not  constitute  a breach  of this
Section 3.12.

        Section 3.13.  Maintenance of Certain Servicing Insurance Policies.  The
Master  Servicer  shall  during the term of its service as servicer  maintain in
force (i) a policy or policies of insurance covering errors and omissions in the
performance of its obligations as master servicer  hereunder and (ii) a fidelity
bond in respect  of its  officers,  employees  or  agents.  Each such  policy or
policies and bond shall be at least equal to the coverage that would be required
by FNMA or FHLMC,  whichever is greater,  for Persons  performing  servicing for
loans similar to the Home Loans purchased by such entity.

        Section 3.14.  Information  Required by the Internal Revenue Service and
Reports of  Foreclosures  and  Abandonments  of Mortgaged  Property.  The Master
Servicer  shall  prepare and deliver all federal and state  information  reports
when and as required by all  applicable  state and federal  income tax laws.  In
particular,  with respect to the requirement  under Section 6050J of the Code to
the effect  that the  Master  Servicer  or  Subservicer  shall  make  reports of
foreclosures and abandonments of any mortgaged  property for each year beginning
in 2000, the Master Servicer or Subservicer  shall file reports relating to each
instance  occurring  during  the  previous  calendar  year in which  the  Master
Servicer  (i) on behalf of the Issuer,  acquires  an  interest in any  Mortgaged
Property through  foreclosure or other comparable  conversion in full or partial
satisfaction of a Home

                                       20

<PAGE>

Loan, or (ii) knows or has reason to know that any  Mortgaged  Property has been
abandoned.  The reports from the Master Servicer or Subservicer shall be in form
and substance  sufficient to meet the reporting  requirements imposed by Section
6050J and Section 6050H (reports relating to mortgage interest  received) of the
Code.

        Section   3.15.   Optional   Repurchase   of   Defaulted   Home   Loans.
Notwithstanding  any  provision  in  Section  3.07 to the  contrary,  the Master
Servicer, at its option and in its sole discretion, may repurchase any Home Loan
delinquent in payment for a period of 60 days or longer for a price equal to the
Repurchase Price.

                                       21

<PAGE>

                                   ARTICLE IV

                              Servicing Certificate

        Section 4.01.  Statements to  Securityholders.  (a) With respect to each
Payment Date, on the Business Day following the related  Determination Date, the
Master Servicer shall forward to the Indenture Trustee and the Indenture Trustee
pursuant to Section 3.26 of the Indenture shall forward or cause to be forwarded
by  mail  to  each  Certificateholder,  Noteholder,  the  Credit  Enhancer,  the
Depositor,  the Owner  Trustee,  the  Certificate  Paying  Agent and each Rating
Agency,  a statement  setting forth the following  information  (the  "Servicing
Certificate") as to the Notes and Certificates, to the extent applicable:

               (i)  the  aggregate  amount  of  (a)  Interest  Collections,  (b)
          Principal Collections and (c) Substitution Adjustment Amounts;

               (ii)  the  amount  of  such  distribution  as  principal  to  the
          Noteholders;

               (iii)  the  amount  of  such  distribution  as  interest  to  the
          Noteholders,  separately  stating  the  portion  thereof in respect of
          overdue accrued interest;

               (iv) the number and Pool  Balance of the Home Loans as of the end
          of the related Collection Period;

               (v) the amount of any Credit Enhancement Draw Amount, if any, for
          such Payment Date and the aggregate  amount of prior draws  thereunder
          not yet reimbursed;

            (vi) the number and aggregate  Loan Balances of Home Loans (a) as to
        which the Monthly  Payment is Delinquent for 30-59 days,  60-89 days and
        90 or more days,  respectively,  (b) that are foreclosed,  (c) that have
        become REO, and (d) that have been finally  liquidated  due to being 180
        days  or more  delinquent,  in  each  case as of the end of the  related
        Collection Period; provided,  however, that such information will not be
        provided on the statements relating to the first Payment Date;

               (vii) the weighted  average Loan Rate for the related  Collection
          Period;

          (viii) the  aggregate  Liquidation  Loss  Amounts  with respect to the
        related   Collection   Period,   the  amount  of  any  Liquidation  Loss
        Distribution Amounts with respect to the Notes, and the aggregate of the
        Liquidation  Loss Amounts from all Collection  Periods to date expressed
        as  dollars  and as a  percentage  of the  aggregate  Cut-off  Date Loan
        Balance;

            (ix) the  aggregate  Excess Loss Amounts with respect to the related
        Collection  Period and the aggregate of the Excess Loss Amounts from all
        Collection Periods to date;

                                       22

<PAGE>

             (x) the  aggregate  Special  Hazard  Losses and Fraud  Losses  with
        respect to the related  Collection  Period and the  aggregate of each of
        such losses from all Collection Periods to date;

               (xi) the Note Balance of the Notes and the Certificate  Principal
          Balance of the Certificates after giving effect to the distribution of
          principal on such Payment Date;

               (xii) the  aggregate  Servicing  Fees for the related  Collection
          Period and the  aggregate  amount of Draws for the related  Collection
          Period;

               (xiii) the Outstanding Reserve Amount, the Special Hazard Amount,
          the Fraud  Loss  Amount  and the  Reserve  Amount  Target  immediately
          following such Payment Date;

           (xiv) (a) the  number  and  principal  amount of  release  agreements
        pursuant to Section  3.05(b)(iv)  entered into during the calendar  year
        and since the Closing Date, stated  separately,  for the Home Loans and,
        the aggregate  outstanding  principal amount of such release  agreements
        expressed as a percentage of the Pool Balance with information  provided
        separately  with respect to all  Unsecured  Loans and (b) the number and
        principal  amount  of   Capitalization   Workouts  pursuant  to  Section
        3.02(a)(v) entered into since the Closing Date; and

            (xv) the aggregate amount  recovered  during the related  Collection
        Period consisting of all subsequent recoveries on any Home Loan that was
        180 days or more delinquent.

        In the case of information  furnished pursuant to clauses (ii) and (iii)
above,  the amounts shall be expressed as an aggregate dollar amount per Note or
Certificate, as applicable, with a $1,000 denomination.

        (b) In addition,  with respect to each Payment Date, on the Business Day
following the related  Determination  Date, the Master Servicer shall forward to
the Credit Enhancer and the Rating  Agencies the following  information for each
Capitalization Workout entered into during the related Collection Period:

             (i)      the original Home Loan amount;

            (ii)      the Home Loan amount after the Capitalization Workout;

           (iii)      the original Monthly Payment amount;

               (iv) the Monthly Payment amount after the Capitalization Workout;

               (v) the  Capitalized  Amount as  defined  in  Section  3.02(a)(v)
          herein;

                                       23

<PAGE>

               (vi) the Combined Loan-to-Value Ratio prior to the Capitalization
          Workout;

               (vii) the Combined  Loan-to-Value  Ratio after the Capitalization
          Workout; and

          (viii)  if  an  appraisal  was  used  in   determining   the  Combined
        Loan-to-Value  Ratio  referred to in (vii)  above,  the type and date of
        appraisal.

        The Master  Servicer  shall also  forward to the  Indenture  Trustee any
other  information  reasonably  requested by the Indenture  Trustee necessary to
make distributions pursuant to Section 3.05 of the Indenture. Prior to the close
of business on the Business Day next  succeeding  each  Determination  Date, the
Master  Servicer  shall furnish a written  statement to the  Certificate  Paying
Agent and the Indenture  Trustee setting forth the aggregate amounts required to
be withdrawn from the Custodial  Account and deposited into the Payment  Account
on the Business Day preceding the related Payment Date pursuant to Section 3.03.
The  determination  by the Master Servicer of such amounts shall, in the absence
of  obvious  error,  be  presumptively  deemed to be  correct  for all  purposes
hereunder  and the Owner  Trustee and  Indenture  Trustee  shall be protected in
relying  upon  the same  without  any  independent  check  or  verification.  In
addition,  upon the Issuer's written request, the Master Servicer shall promptly
furnish  information  reasonably  requested  by the  Issuer  that is  reasonably
available to the Master Servicer to enable the Issuer to perform its federal and
state income tax reporting obligations.

        The Master Servicer shall also forward to the Credit Enhancer and/or its
designees any additional  information,  including without  limitation,  loss and
delinquency  information  requested by the Credit Enhancer,  with respect to the
Home Loans.

        Section 4.02. Tax  Reporting.  So long as 100% of the  Certificates  are
owned by the same person,  then no separate federal and state income tax returns
and information returns or reports will be filed with respect to the Issuer, and
the  Issuer   will  be  treated   as  an  entity   disregarded   from  the  100%
Certificateholder.

                                       24

<PAGE>

                                    ARTICLE V

                                 Payment Account

        Section 5.01. Payment Account. The Indenture Trustee shall establish and
maintain a Payment  Account  titled  "The Chase  Manhattan  Bank,  as  Indenture
Trustee,  for the benefit of the  Securityholders,  the Certificate Paying Agent
and the Credit  Enhancer  pursuant to the  Indenture,  dated as of September 28,
2000,  between  Home Loan Trust  2000-HI4  and The Chase  Manhattan  Bank".  The
Payment Account shall be an Eligible Account.  On each Payment Date,  amounts on
deposit in the Payment  Account will be distributed by the Indenture  Trustee in
accordance with Section 3.05 of the Indenture. The Indenture Trustee shall, upon
written  request  from the  Master  Servicer,  invest or cause  the  institution
maintaining  the Payment  Account to invest the funds in the Payment  Account in
Permitted  Investments  designated in the name of the Indenture  Trustee,  which
shall  mature not later than the Business  Day next  preceding  the Payment Date
next  following the date of such  investment  (except that (i) any investment in
the institution  with which the Payment Account is maintained may mature on such
Payment  Date and (ii) any other  investment  may mature on such Payment Date if
the  Indenture  Trustee  shall advance funds on such Payment Date to the Payment
Account in the amount payable on such  investment on such Payment Date,  pending
receipt thereof to the extent necessary to make distributions on the Securities)
and shall not be sold or  disposed  of prior to  maturity.  All  income and gain
realized  from  any  such  investment  shall be for the  benefit  of the  Master
Servicer and shall be subject to its  withdrawal or order from time to time. The
amount of any  losses  incurred  in  respect  of any such  investments  shall be
deposited  in the Payment  Account by the Master  Servicer  out of its own funds
immediately as realized.

                                       25

<PAGE>

                                   ARTICLE VI

                               The Master Servicer

        Section  6.01.  Liability of the Master  Servicer.  The Master  Servicer
shall be liable in  accordance  herewith  only to the extent of the  obligations
specifically imposed upon and undertaken by the Master Servicer herein.

        Section  6.02.   Merger  or  Consolidation  of,  or  Assumption  of  the
Obligations  of,  the Master  Servicer.  Any  corporation  into which the Master
Servicer may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger,  conversion or consolidation to which the
Master Servicer shall be a party, or any corporation  succeeding to the business
of  the  Master  Servicer,  shall  be the  successor  of  the  Master  Servicer,
hereunder,  without the  execution  or filing of any paper or any further act on
the  part  of  any  of the  parties  hereto,  anything  herein  to the  contrary
notwithstanding.

        The Master  Servicer  may assign its rights and  delegate its duties and
obligations under this Servicing  Agreement;  provided that the Person accepting
such  assignment or  delegation  shall be a Person which is qualified to service
mortgage  loans similar to those in the Trust Estate  (meaning,  mortgage  loans
used for home improvement or debt consolidation),  is reasonably satisfactory to
the Indenture Trustee (as pledgee of the Home Loans),  the Issuer and the Credit
Enhancer,  is willing to service the Home Loans and executes and delivers to the
Indenture Trustee and the Issuer an agreement,  in form and substance reasonably
satisfactory to the Credit Enhancer, the Indenture Trustee and the Issuer, which
contains an  assumption by such Person of the due and punctual  performance  and
observance  of each  covenant  and  condition to be performed or observed by the
Master  Servicer  under this  Servicing  Agreement;  provided  further that each
Rating  Agency's  rating of the Securities in effect  immediately  prior to such
assignment  and  delegation  will not be qualified,  reduced,  or withdrawn as a
result of such  assignment  and  delegation  (as  evidenced  by a letter to such
effect from each Rating  Agency),  if  determined  without  regard to the Credit
Enhancement Instrument;  and provided further that the Owner Trustee receives an
Opinion of Counsel to the effect that such  assignment or  delegation  shall not
cause the Owner Trust to be treated as a corporation for federal or state income
tax purposes.

        Section 6.03. Limitation on Liability of the Master Servicer and Others.
Neither the Master Servicer nor any of the directors or officers or employees or
agents of the Master  Servicer  shall be under any liability to the Issuer,  the
Owner Trustee, the Indenture Trustee or the Securityholders for any action taken
or for  refraining  from the taking of any action in good faith pursuant to this
Servicing Agreement,  provided,  however,  that this provision shall not protect
the Master  Servicer  or any such  Person  against  any  liability  which  would
otherwise  be imposed by reason of its willful  misfeasance,  bad faith or gross
negligence  in the  performance  of its  duties  hereunder  or by  reason of its
reckless disregard of its obligations and duties hereunder.  The Master Servicer
and any director or officer or employee or agent of the Master Servicer may rely
in good faith on any  document of any kind prima  facie  properly  executed  and
submitted by any Person respecting any

                                       26

<PAGE>

matters  arising  hereunder.  The Master Servicer and any director or officer or
employee or agent of the Master  Servicer shall be indemnified by the Issuer and
held harmless against any loss, liability or expense incurred in connection with
any  legal  action  relating  to this  Servicing  Agreement  or the  Securities,
including any amount paid to the Owner Trustee or the Indenture Trustee pursuant
to Section 6.06(b), other than any loss, liability or expense incurred by reason
of its willful misfeasance,  bad faith or gross negligence in the performance of
its duties  hereunder or by reason of its reckless  disregard of its obligations
and duties  hereunder.  The Master Servicer shall not be under any obligation to
appear in,  prosecute or defend any legal action which is not  incidental to its
duties to service the Home Loans in accordance  with this  Servicing  Agreement,
and which in its opinion may involve it in any expense or  liability;  provided,
however,  that the Master Servicer may in its sole discretion undertake any such
action which it may deem  necessary  or  desirable in respect of this  Servicing
Agreement,  and the rights and duties of the parties hereto and the interests of
the  Securityholders.  In such event, the reasonable legal expenses and costs of
such action and any liability resulting  therefrom shall be expenses,  costs and
liabilities  of the  Issuer,  and the Master  Servicer  shall be  entitled to be
reimbursed  therefor.  The Master Servicer's right to indemnity or reimbursement
pursuant to this Section 6.03 shall survive any  resignation  or  termination of
the Master Servicer pursuant to Section 6.04 or 7.01 with respect to any losses,
expenses,  costs or liabilities arising prior to such resignation or termination
(or arising from events that occurred prior to such resignation or termination).

        Section 6.04.  Master Servicer Not to Resign.  Subject to the provisions
of Section 6.02, the Master  Servicer shall not resign from the  obligations and
duties hereby imposed on it except (i) upon  determination  that the performance
of  its  obligations  or  duties  hereunder  are  no  longer  permissible  under
applicable law or are in material  conflict by reason of applicable law with any
other activities  carried on by it or its subsidiaries or Affiliates,  the other
activities of the Master Servicer so causing such a conflict being of a type and
nature carried on by the Master  Servicer or its  subsidiaries  or Affiliates at
the date of this Servicing  Agreement or (ii) upon satisfaction of the following
conditions:  (a) the Master  Servicer has  proposed a successor  servicer to the
Issuer and the Indenture Trustee in writing and such proposed successor servicer
is  reasonably  acceptable to the Issuer,  the Indenture  Trustee and the Credit
Enhancer;  (b) each Rating  Agency shall have  delivered a letter to the Issuer,
the Credit  Enhancer and the Indenture  Trustee prior to the  appointment of the
successor  servicer  stating that the  proposed  appointment  of such  successor
servicer  as Master  Servicer  hereunder  will not  result in the  reduction  or
withdrawal of the then current rating of the Securities,  if determined  without
regard to the Credit  Enhancement  Instrument;  and (c) such proposed  successor
servicer is  reasonably  acceptable  to the Credit  Enhancer,  as evidenced by a
letter to the Issuer and the Indenture Trustee; provided,  however, that no such
resignation by the Master  Servicer shall become  effective until such successor
servicer or, in the case of (i) above, the Indenture Trustee,  as pledgee of the
Home  Loans,  shall have  assumed  the Master  Servicer's  responsibilities  and
obligations  hereunder or the Indenture  Trustee,  as pledgee of the Home Loans,
shall have designated a successor  servicer in accordance with Section 7.02. Any
such resignation shall not relieve the Master Servicer of responsibility for any
of the  obligations  specified  in Sections  7.01 and 7.02 as  obligations  that
survive the resignation or termination of the Master Servicer. Any such

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<PAGE>

determination  permitting  the  resignation  of the  Master  Servicer  shall  be
evidenced  by an Opinion of Counsel to such effect  delivered  to the  Indenture
Trustee and the Credit Enhancer.

        Section 6.05.  Delegation of Duties. In the ordinary course of business,
the Master Servicer at any time may delegate any of its duties  hereunder to any
Person,  including any of its  Affiliates,  who agrees to conduct such duties in
accordance  with  standards  comparable to those with which the Master  Servicer
complies  pursuant to Section 3.01. Such delegation shall not relieve the Master
Servicer of its liabilities and responsibilities with respect to such duties and
shall not constitute a resignation within the meaning of Section 6.04.

        Section  6.06.  Master  Servicer to Pay  Indenture  Trustee's  and Owner
Trustee's Fees and Expenses; Indemnification.  (a) The Master Servicer covenants
and agrees to pay to the Owner Trustee, the Indenture Trustee and any co-trustee
of the Indenture  Trustee or the Owner Trustee from time to time,  and the Owner
Trustee,  the Indenture  Trustee and any such  co-trustee  shall be entitled to,
reasonable  compensation  (which shall not be limited by any provision of law in
regard to the  compensation  of a trustee of an express  trust) for all services
rendered by each of them in the execution of the trusts  created under the Trust
Agreement and the Indenture  and in the exercise and  performance  of any of the
powers and duties under the Trust  Agreement or the  Indenture,  as the case may
be, of the Owner  Trustee,  the Indenture  Trustee and any  co-trustee,  and the
Master  Servicer will pay or reimburse the Indenture  Trustee and any co-trustee
upon request for all reasonable expenses, disbursements and advances incurred or
made by the Indenture  Trustee or any  co-trustee in accordance  with any of the
provisions of this Servicing Agreement except any such expense,  disbursement or
advance as may arise from its negligence, wilful misfeasance or bad faith.

        (b) The Master  Servicer  agrees to indemnify the Indenture  Trustee and
the Owner Trustee for, and to hold the Indenture  Trustee and the Owner Trustee,
as the case may be, harmless  against,  any loss,  liability or expense incurred
without negligence, bad faith or willful misconduct on the part of the Indenture
Trustee  or the  Owner  Trustee,  as the  case  may be,  arising  out of,  or in
connection with, the acceptance and  administration of the Issuer and the assets
thereof,  including the costs and expenses (including  reasonable legal fees and
expenses) of defending the Indenture  Trustee or the Owner Trustee,  as the case
may be, against any claim in connection  with the exercise or performance of any
of its powers or duties under any Basic Document (including, without limitation,
any claim  against  the  Indenture  Trustee  or the  Owner  Trustee  alleging  a
violation of the  Homeownership  and Equity Protection Act of 1994, as amended),
provided that:

                    (i) with respect to any such claim, the Indenture Trustee or
        Owner Trustee,  as the case may be, shall have given the Master Servicer
        written  notice thereof  promptly  after the Indenture  Trustee or Owner
        Trustee, as the case may be, shall have actual knowledge thereof;

                   (ii) while  maintaining  control  over its own  defense,  the
        Issuer,  the  Indenture  Trustee or Owner  Trustee,  as the case may be,
        shall  cooperate and consult fully with the Master Servicer in preparing
        such defense; and

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<PAGE>

                  (iii) notwithstanding  anything in this Servicing Agreement to
        the contrary,  the Master Servicer shall not be liable for settlement of
        any claim by the Indenture Trustee or the Owner Trustee, as the case may
        be, entered into without the prior consent of the Master Servicer.

No termination of this Servicing  Agreement shall affect the obligations created
by this Section 6.06 of the Master  Servicer to indemnify the Indenture  Trustee
and the Owner Trustee under the conditions and to the extent set forth herein.

        Notwithstanding  the  foregoing,  the  indemnification  provided  by the
Master Servicer in this Section 6.06(b) shall not pertain to any loss, liability
or expense of the Indenture  Trustee or the Owner  Trustee,  including the costs
and expenses of defending itself against any claim,  incurred in connection with
any actions taken by the Indenture Trustee or the Owner Trustee at the direction
of the  Noteholders or  Certificateholders,  as the case may be, pursuant to the
terms of this Servicing Agreement.

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<PAGE>

                                   ARTICLE VII

                                     Default

               Section  7.01.  Servicing  Default.  If any one of the  following
          events ("Servicing Default") shall occur and be continuing:

                    (i) Any  failure  by the Master  Servicer  to deposit in the
        Custodial  Account or Payment  Account any  deposit  required to be made
        under the terms of this Servicing  Agreement which continues  unremedied
        for a period of five  Business  Days after the date upon  which  written
        notice of such failure  shall have been given to the Master  Servicer by
        the Issuer or the  Indenture  Trustee,  or to the Master  Servicer,  the
        Issuer and the Indenture Trustee by the Credit Enhancer; or

                   (ii)  Failure  on the  part of the  Master  Servicer  duly to
        observe  or perform  in any  material  respect  any other  covenants  or
        agreements of the Master Servicer set forth in the Securities or in this
        Servicing  Agreement,  which  failure,  in  each  case,  materially  and
        adversely  affects  the  interests  of  Securityholders  or  the  Credit
        Enhancer and which  continues  unremedied  for a period of 45 days after
        the date on which written notice of such failure,  requiring the same to
        be  remedied,  and  stating  that such  notice is a "Notice of  Default"
        hereunder, shall have been given to the Master Servicer by the Issuer or
        the Indenture  Trustee,  or to the Master  Servicer,  the Issuer and the
        Indenture Trustee by the Credit Enhancer; or

                  (iii) The entry  against  the Master  Servicer  of a decree or
        order by a court or agency or supervisory  authority having jurisdiction
        in the premises for the appointment of a trustee, conservator,  receiver
        or  liquidator  in  any   insolvency,   conservatorship,   receivership,
        readjustment  of debt,  marshalling of assets and liabilities or similar
        proceedings,  or for the winding up or liquidation  of its affairs,  and
        the continuance of any such decree or order undischarged or unstayed and
        in effect for a period of 60 consecutive days; or

                   (iv)  The  Master   Servicer   shall   voluntarily   go  into
        liquidation,  consent to the  appointment  of a  conservator,  receiver,
        liquidator or similar person in any  insolvency,  readjustment  of debt,
        marshalling  of assets  and  liabilities  or similar  proceedings  of or
        relating   to  the  Master   Servicer  or  of  or  relating  to  all  or
        substantially  all of its  property,  or a  decree  or order of a court,
        agency or supervisory  authority having jurisdiction in the premises for
        the appointment of a conservator, receiver, liquidator or similar person
        in any  insolvency,  readjustment  of debt,  marshalling  of assets  and
        liabilities or similar proceedings, or for the winding-up or liquidation
        of its affairs,  shall have been entered against the Master Servicer and
        such decree or order shall have remained in force undischarged, unbonded
        or unstayed for a period of 60 days; or the Master  Servicer shall admit
        in writing its inability to pay its debts  generally as they become due,
        file a petition to take advantage of any applicable

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<PAGE>

        insolvency or reorganization statute, make an assignment for the benefit
        of its creditors or voluntarily suspend payment of its obligations.

Then, and in every such case, so long as a Servicing Default shall not have been
remedied by the Master  Servicer,  either the Issuer or the  Indenture  Trustee,
with the consent of the Credit Enhancer,  or the Credit Enhancer, by notice then
given in  writing to the Master  Servicer  (and to the Issuer and the  Indenture
Trustee if given by the Credit  Enhancer)  may  terminate  all of the rights and
obligations of the Master  Servicer as servicer  under this Servicing  Agreement
other  than  its  right to  receive  servicing  compensation  and  expenses  for
servicing the Home Loans  hereunder  during any period prior to the date of such
termination  and the Issuer or the  Indenture  Trustee,  with the consent of the
Credit Enhancer,  or the Credit Enhancer may exercise any and all other remedies
available at law or equity. Any such notice to the Master Servicer shall also be
given to each Rating Agency, the Credit Enhancer and the Issuer. On or after the
receipt by the Master Servicer of such written  notice,  all authority and power
of the Master Servicer under this Servicing  Agreement,  whether with respect to
the  Securities or the Home Loans or  otherwise,  shall pass to and be vested in
the Indenture  Trustee,  pursuant to and under this Section 7.01;  and,  without
limitation,  the Indenture Trustee is hereby authorized and empowered to execute
and deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise,
any and all documents and other  instruments,  and to do or accomplish all other
acts or things necessary or appropriate to effect the purposes of such notice of
termination,  whether to complete the transfer and endorsement of each Home Loan
and related  documents,  or otherwise.  The Master  Servicer agrees to cooperate
with the Indenture Trustee in effecting the termination of the  responsibilities
and rights of the Master Servicer hereunder,  including, without limitation, the
transfer  to the  Indenture  Trustee  for the  administration  by it of all cash
amounts  relating to the Home Loans that shall at the time be held by the Master
Servicer and to be deposited by it in the Custodial  Account,  or that have been
deposited by the Master Servicer in the Custodial Account or thereafter received
by the Master Servicer with respect to the Home Loans.  All reasonable costs and
expenses (including, but not limited to, attorneys' fees) incurred in connection
with  amending  this  Servicing  Agreement to reflect such  succession as Master
Servicer  pursuant to this Section 7.01 shall be paid by the predecessor  Master
Servicer (or if the predecessor  Master Servicer is the Indenture  Trustee,  the
initial Master Servicer) upon  presentation of reasonable  documentation of such
costs and expenses.

        Notwithstanding any termination of the activities of the Master Servicer
hereunder,  the Master  Servicer  shall be entitled to receive,  out of any late
collection  of a  payment  on a Home  Loan  which  was due  prior to the  notice
terminating the Master Servicer's rights and obligations  hereunder and received
after such  notice,  that portion to which the Master  Servicer  would have been
entitled  pursuant to Sections 3.03 and 3.09 as well as its Master Servicing Fee
in  respect  thereof,  and any other  amounts  payable  to the  Master  Servicer
hereunder  the  entitlement  to  which  arose  prior to the  termination  of its
activities hereunder.

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<PAGE>

        Notwithstanding  the  foregoing,  a delay in or failure  of  performance
under  Section  7.01(i) or under Section  7.01(ii)  after the  applicable  grace
periods specified in such Sections,  shall not constitute a Servicing Default if
such delay or failure  could not be  prevented  by the  exercise  of  reasonable
diligence by the Master  Servicer and such delay or failure was caused by an act
of God or the public enemy, acts of declared or undeclared war, public disorder,
rebellion or  sabotage,  epidemics,  landslides,  lightning,  fire,  hurricanes,
earthquakes,  floods or similar causes. The preceding sentence shall not relieve
the Master  Servicer  from using  reasonable  efforts to perform its  respective
obligations  in a timely manner in accordance  with the terms of this  Servicing
Agreement  and the Master  Servicer  shall provide the  Indenture  Trustee,  the
Credit Enhancer and the Securityholders  with notice of such failure or delay by
it,  together with a description  of its efforts to so perform its  obligations.
The Master Servicer shall immediately notify the Indenture  Trustee,  the Credit
Enhancer and the Owner Trustee in writing of any Servicing Default.

        Section 7.02. Indenture Trustee to Act; Appointment of Successor. (a) On
and after the time the Master Servicer receives a notice of termination pursuant
to Section  7.01 or sends a notice  pursuant  to  Section  6.04,  the  Indenture
Trustee  shall be the  successor in all  respects to the Master  Servicer in its
capacity as servicer under this  Servicing  Agreement and the  transactions  set
forth or provided  for herein and shall be subject to all the  responsibilities,
duties and  liabilities  relating  thereto placed on the Master  Servicer by the
terms and provisions hereof. Nothing in this Servicing Agreement or in the Trust
Agreement  shall be construed to permit or require the Indenture  Trustee to (i)
succeed to the  responsibilities,  duties and  liabilities of the initial Master
Servicer in its capacity as Seller under the Home Loan Purchase Agreement,  (ii)
be  responsible or  accountable  for any act or omission of the Master  Servicer
prior to the issuance of a notice of  termination  hereunder,  (iii)  require or
obligate the Indenture Trustee, in its capacity as successor Master Servicer, to
purchase,  repurchase or substitute  any Home Loan,  (iv) fund any losses on any
Permitted Investment directed by any other Master Servicer or (v) be responsible
for the representations  and warranties of the Master Servicer.  As compensation
therefor,  the Indenture  Trustee shall be entitled to such  compensation as the
Master  Servicer  would have been  entitled  to  hereunder  if no such notice of
termination  had been given.  Notwithstanding  the above,  (i) if the  Indenture
Trustee  is  unwilling  to act as  successor  Master  Servicer,  or  (ii) if the
Indenture Trustee is legally unable so to act, the Indenture Trustee may (in the
situation  described  in clause  (i)) or shall (in the  situation  described  in
clause (ii))  appoint or petition a court of competent  jurisdiction  to appoint
any  established  housing and home finance  institution,  bank or other mortgage
loan  or  home  equity  loan  servicer  having  a net  worth  of not  less  than
$10,000,000 as the successor to the Master Servicer  hereunder in the assumption
of all or any part of the responsibilities,  duties or liabilities of the Master
Servicer  hereunder;  provided that any such successor  Master Servicer shall be
acceptable to the Credit Enhancer,  as evidenced by the Credit  Enhancer's prior
written  consent which consent shall not be  unreasonably  withheld and provided
further that the  appointment  of any such  successor  Master  Servicer will not
result in the qualification,  reduction or withdrawal of the ratings assigned to
the  Securities  by the Rating  Agencies,  if determined  without  regard to the
Credit Enhancement Instrument.  Pending appointment of a successor to the Master
Servicer  hereunder,  unless the Indenture  Trustee is prohibited by law from so
acting,  the  Indenture  Trustee  shall  act in  such  capacity  as  hereinabove
provided.  In connection with such  appointment  and  assumption,  the successor
shall

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<PAGE>

be entitled to receive  compensation  out of payments on Home Loans in an amount
equal to the  compensation  which  the  Master  Servicer  would  otherwise  have
received pursuant to Section 3.09 (or such lesser  compensation as the Indenture
Trustee and such successor shall agree).  The appointment of a successor  Master
Servicer shall not affect any liability of the predecessor Master Servicer which
may have arisen  under this  Servicing  Agreement  prior to its  termination  as
Master Servicer (including,  without limitation, the obligation to purchase Home
Loans pursuant to Section 3.01, to pay any deductible  under an insurance policy
pursuant to Section  3.04 or to  indemnify  the  Indenture  Trustee  pursuant to
Section 6.06), nor shall any successor Master Servicer be liable for any acts or
omissions of the  predecessor  Master  Servicer or for any breach by such Master
Servicer of any of its representations or warranties  contained herein or in any
related  document or agreement.  The Indenture  Trustee and such successor shall
take  such  action,  consistent  with  this  Servicing  Agreement,  as  shall be
necessary to effectuate any such succession.

        (b) Any  successor,  including  the  Indenture  Trustee,  to the  Master
Servicer  as  servicer  shall  during the term of its  service as  servicer  (i)
continue  to  service  and  administer  the Home  Loans for the  benefit  of the
Securityholders,  (ii)  maintain  in force a policy  or  policies  of  insurance
covering  errors and omissions in the  performance of its  obligations as Master
Servicer hereunder and a fidelity bond in respect of its officers, employees and
agents to the same  extent as the Master  Servicer  is so  required  pursuant to
Section 3.13 and (iii) be bound by the terms of the Insurance Agreement.

        (c) Any successor  Master  Servicer,  including  the Indenture  Trustee,
shall not be deemed in default or to have  breached its duties  hereunder if the
predecessor  Master  Servicer shall fail to deliver any required  deposit to the
Custodial Account or otherwise cooperate with any required servicing transfer or
succession hereunder.

        Section 7.03.  Notification to Securityholders.  Upon any termination of
or  appointment of a successor to the Master  Servicer  pursuant to this Article
VII or Section 6.04,  the Indenture  Trustee  shall give prompt  written  notice
thereof to the Securityholders,  the Credit Enhancer, the Issuer and each Rating
Agency.

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<PAGE>

                                  ARTICLE VIII

                            Miscellaneous Provisions

        Section 8.01.  Amendment.  This Servicing  Agreement may be amended from
time to time by the parties  hereto,  provided that any amendment be accompanied
by a letter from the Rating  Agencies that the amendment  will not result in the
downgrading  or  withdrawal of the rating then  assigned to the  Securities,  if
determined without regard to the Credit Enhancement Instrument,  and the consent
of the Credit Enhancer and the Indenture  Trustee.  Promptly after the execution
by the Master Servicer, the Issuer and the Indenture Trustee of any amendment of
this Servicing  Agreement  pursuant to this Section 8.01, the Indenture  Trustee
shall  provide the Custodian  with written  copies  thereof.  Any failure of the
Indenture  Trustee  to mail such  notice,  or any  defect  therein,  shall  not,
however, in any way impair or affect the validity of any such amendment.

        SECTION 8.02. GOVERNING LAW. THIS SERVICING AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES  HEREUNDER  SHALL BE DETERMINED  IN ACCORDANCE  WITH
SUCH LAWS.

        Section 8.03. Notices. All demands, notices and communications hereunder
shall be in writing  and shall be deemed to have been duly  given if  personally
delivered at or mailed by certified mail,  return receipt  requested,  to (a) in
the case of the Master Servicer,  2255 North Ontario Street, Suite 400, Burbank,
California 91504-3120,  Attention: Addition Director - Bond Administration,  (b)
in the case of the  Credit  Enhancer,  Ambac  Assurance  Corporation,  One State
Street  Plaza,  19th  Floor,  New  York,  New York  10004,  Attention:  Consumer
Asset-Backed  Securities  Group, (c) in the case of Moody's,  Home Mortgage Loan
Monitoring Group, 99 Church Street,  4th Floor, New York, New York 10007, (d) in
the case of Standard & Poor's,  55 Water Street - 41st Floor, New York, New York
10041,  Attention:  Residential Mortgage  Surveillance Group, (e) in the case of
the Owner Trustee,  Wilmington  Trust Company,  Rodney Square North,  1100 North
Market Street,  Wilmington,  Delaware  19890-0001,  Attention:  Corporate  Trust
Administration,  (f) in the case of the Issuer, to Home Loan Trust 2000-HI4, c/o
Owner Trustee,  Wilmington Trust Company, Rodney Square North, 1100 North Market
Street,   Wilmington,   Delaware   19890-0001,    Attention:   Corporate   Trust
Administration,  (g) in the case of the Indenture  Trustee,  The Chase Manhattan
Bank, 450 West 33rd Street, 14th Floor, New York, NY, 10001, Attention:  Capital
Markets  Fiduciary  Services  and (h) in the  case of the  Underwriters  c/o the
Representative, at Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York
10167;  or, as to each party,  at such other  address as shall be  designated by
such party in a written  notice to each other  party.  Any  notice  required  or
permitted to be mailed to a  Securityholder  shall be given by first class mail,
postage prepaid, at the address of such Securityholder as shown in the Register.
Any notice so mailed  within the time  prescribed  in this  Servicing  Agreement
shall be  conclusively  presumed  to have been duly  given,  whether  or not the
Securityholder receives such notice. Any notice or other document required to be
delivered or mailed by the Indenture Trustee to any Rating Agency shall be given
on a reasonable efforts basis

                                       34

<PAGE>

and only as a matter of courtesy and  accommodation  and the  Indenture  Trustee
shall have no liability  for failure to delivery  such notice or document to any
Rating Agency.

        Section  8.04.  Severability  of  Provisions.  If any one or more of the
covenants, agreements,  provisions or terms of this Servicing Agreement shall be
for any  reason  whatsoever  held  invalid,  then  such  covenants,  agreements,
provisions  or terms shall be deemed  severable  from the  remaining  covenants,
agreements,  provisions or terms of this Servicing Agreement and shall in no way
affect the validity or  enforceability of the other provisions of this Servicing
Agreement or of the Securities or the rights of the Securityholders thereof.

        Section 8.05. Third-Party  Beneficiaries.  This Servicing Agreement will
inure  to  the  benefit  of  and  be  binding  upon  the  parties  hereto,   the
Securityholders,  the Credit  Enhancer,  the Owner Trustee and their  respective
successors and permitted assigns. Except as otherwise provided in this Servicing
Agreement, no other Person will have any right or obligation hereunder.

               Section 8.06.  Counterparts.  This  instrument may be executed in
          any number of counterparts,  each of which so executed shall be deemed
          to be an original, but all such counterparts shall together constitute
          but one and the same instrument.

        Section 8.07. Effect of Headings and Table of Contents.  The Article and
Section  headings herein and the Table of Contents are for convenience  only and
shall not affect the construction hereof.

        Section  8.08.  Termination  Upon  Purchase  by the Master  Servicer  or
Liquidation  of  All  Home  Loans;   Partial  Redemption.   (a)  The  respective
obligations  and  responsibilities  of the Master  Servicer,  the Issuer and the
Indenture  Trustee  created hereby shall terminate upon the last action required
to be taken by the Issuer  pursuant to the Trust  Agreement and by the Indenture
Trustee pursuant to the Indenture following the earlier of:

               (i) the date on or before which the Indenture or Trust  Agreement
          is terminated, or

               (ii) the purchase by the Master  Servicer  from the Issuer of all
        Home Loans and all  property  acquired  in respect of any Home Loan at a
        price equal to the Termination Price.

The right of the Master  Servicer to purchase the assets of the Issuer  pursuant
to clause (ii) above on any Payment  Date is  conditioned  upon the Pool Balance
(after applying payments received in the related  Collection  Period) as of such
Payment  Date being less than ten percent of the  aggregate  of the Cut-off Date
Loan  Balances  of the Home  Loans.  If such  right is  exercised  by the Master
Servicer,  the Master  Servicer shall deposit the Termination  Price  calculated
pursuant to clause  (ii) above with the  Indenture  Trustee  pursuant to Section
4.10 of the  Indenture  and,  upon the receipt of such  deposit,  the  Indenture
Trustee or Custodian shall release to the Master Servicer,  the files pertaining
to the Home Loans being purchased.

                                       35

<PAGE>

        (b) Subject to the provisions of clause (c) below,  the Master  Servicer
has the right to  purchase a portion  of the assets of the Issuer  upon the Pool
Balance (after applying payments received in the related  Collection  Period) as
of such date being less than ten percent of the  aggregate  of the Cut-off  Date
Loan Balances of the Home Loans at a price equal to the  Termination  Price.  If
such right is  exercised  by the Master  Servicer,  the  Master  Servicer  shall
deposit the  Termination  Price with the Indenture  Trustee  pursuant to Section
5.02 of the  Indenture  and,  upon the receipt of such  deposit,  the  Indenture
Trustee or Custodian shall release to the Master Servicer,  the files pertaining
to the Home Loans being purchased.

        (c) With  respect to any  purchase of a portion of the Home Loans by the
Master  Servicer  pursuant to subsection (b) above or this  subsection  (c), the
following  conditions  must be  satisfied:  (i) the Master  Servicer  shall have
delivered  to the  Indenture  Trustee  and the Credit  Enhancer a loan  schedule
containing a list of all Home Loans  remaining in the Trust after such  removal;
(ii)  the  Master  Servicer  shall  represent  and  warrant  that  no  selection
procedures  adverse  to the  interests  of  the  Securityholders  or the  Credit
Enhancer  were used by the Master  Servicer in  selecting  such Home Loans;  and
(iii) each Rating  Agency  shall have  notified  the Master  Servicer  that such
retransfer  would not result in a reduction or  withdrawal of the ratings of the
Securities, if determined without regard to the Credit Enhancement Instrument.

        (d) The Master  Servicer,  at its expense,  shall prepare and deliver to
the  Indenture  Trustee  for  execution,  at the time the Home  Loans  are to be
released to the Master Servicer,  appropriate documents assigning each such Home
Loan from the  Indenture  Trustee or the Issuer to the  Master  Servicer  or the
appropriate party.

        (e) The Master  Servicer shall give the Indenture  Trustee not less than
seven  Business  Days' prior  written  notice of the  Payment  Date on which the
Master  Servicer  anticipates  that  the  final  distribution  will  be  made to
Noteholders.  Notice  of  any  termination,  specifying  the  anticipated  Final
Scheduled  Payment Date or other  Payment Date (which shall be a date that would
otherwise be a Payment  Date) upon which the  Noteholders  may  surrender  their
Notes to the Indenture  Trustee (if so required by the terms hereof) for payment
of the final  distribution  and  cancellation,  shall be given  promptly  by the
Master Servicer to the Indenture Trustee specifying:

               (i) the anticipated Final Scheduled Payment Date or other Payment
        Date upon which  final  payment of the Notes is  anticipated  to be made
        upon  presentation and surrender of Notes at the office or agency of the
        Indenture Trustee therein designated; and

               (ii)   the amount of any such final payment, if known.

        Section  8.09.  Certain  Matters  Affecting  the  Indenture  TruFor  all
purposes of this Servicing Agreement, in the performance of any of its duties or
in the exercise of any of its powers  hereunder,  the Indenture Trustee shall be
subject to and entitled to the benefits of Article VI of the Indenture.

                                       36

<PAGE>

        Section  8.10.  Owner  Trustee  Not Liable for  Related  Documents.  The
recitals contained herein shall be taken as the statements of the Depositor, and
the Owner Trustee assumes no  responsibility  for the correctness  thereof.  The
Owner Trustee makes no representations as to the validity or sufficiency of this
Servicing  Agreement,  of any Basic Document or of the Certificates  (other than
the signatures of the Owner Trustee on the Certificates) or the Notes, or of any
Related Documents. The Owner Trustee shall at no time have any responsibility or
liability  with  respect to the  sufficiency  of the Owner  Trust  Estate or its
ability to generate the payments to be distributed to  Certificateholders  under
the Trust  Agreement or the  Noteholders  under the  Indenture,  including,  the
compliance  by the  Depositor or the Seller with any warranty or  representation
made under any Basic Document or in any related  document or the accuracy of any
such warranty or representation,  or any action of the Certificate Paying Agent,
the  Certificate  Registrar or the  Indenture  Trustee  taken in the name of the
Owner Trustee.

                                       37

<PAGE>

        IN WITNESS WHEREOF,  the Master Servicer,  the Indenture Trustee and the
Issuer  have  caused  this  Servicing  Agreement  to be duly  executed  by their
respective  officers or  representatives  all as of the day and year first above
written.

                             RESIDENTIAL FUNDING CORPORATION,
                                    as Master Servicer

                             By:    /s/ Randy Van Zee
                             Name:  Randy Van Zee
                             Title: Director

                             HOME LOAN TRUST 2000-HI4

                             By:    Wilmington Trust Company, not in its
                                    individual capacity but solely as Owner
                                    Trustee

                             By:    /s/ James P. Lawler
                             Name: James P. Lawler
                             Title: Vice President

                             THE CHASE MANHATTAN BANK, as Indenture
                              Trustee

                                     By:    /s/ Mark McDermott
                                     Name: Mark McDermott
                                     Title: Trust Officer

<PAGE>

        IN WITNESS WHEREOF,  the Master Servicer,  the Indenture Trustee and the
Issuer  have  caused  this  Servicing  Agreement  to be duly  executed  by their
respective  officers or  representatives  all as of the day and year first above
written.

                              RESIDENTIAL FUNDING CORPORATION,
                                     as Master Servicer

                         By:
                              Name:  Randy Van Zee
                              Title: Director

                              HOME LOAN TRUST 2000-HI4

                              By:    Wilmington Trust Company, not in its
                                     individual capacity but solely as Owner
                                     Trustee

                         By:
                        Name:
                       Title:

                              THE CHASE MANHATTAN BANK, as Indenture
                       Trustee

                         By:
                        Name:
                       Title:

<PAGE>

                           EXHIBIT A-1 AND EXHIBIT A-2
                               HOME LOAN SCHEDULE

             Inserted in Home Loan Purchase Agreement (Exhibit 10.1)

<PAGE>

                                    EXHIBIT B
                            LIMITED POWER OF ATTORNEY

KNOW ALL MEN BY THESE PREMISES:

That The Chase Manhattan Bank, as Indenture  Trustee (the "Trustee"),  under the
Indenture (the "Indenture") among  ________________________________________  and
the Indenture  Trustee,  a national banking  association  organized and existing
under the laws of the State of New York, and having its principal office located
at 450 West 33rd Street,  in the City of New York in the State of New York, hath
made, constituted and appointed, and does by these presents make, constitute and
appoint Residential Funding  Corporation,  a corporation  organized and existing
under the laws of the State of Delaware,  its true and lawful  Attorney-in-Fact,
with full power and authority to sign, execute,  acknowledge,  deliver, file for
record, and record any instrument on its behalf and to perform such other act or
acts  as  may  be  customarily  and  reasonably  necessary  and  appropriate  to
effectuate  the  following  enumerated  transactions  in  respect  of any of the
mortgages  or  deeds  of  trust  (the  "Mortgages"  and the  "Deeds  of  Trust",
respectively)  creating  a trust  or  second  lien or an  estate  in fee  simple
interest in real  property  securing a Home Loan and  promissory  notes  secured
thereby (the "Mortgage  Notes") for which the undersigned is acting as Indenture
Trustee for various Securityholders (whether the undersigned is named therein as
mortgagee or beneficiary or has become mortgagee by virtue of Endorsement of the
Mortgage  Note  secured  by any such  Mortgage  or Deed of Trust)  and for which
Residential  Funding  Corporation  is acting as master  servicer  pursuant  to a
Servicing Agreement, dated as of September 28, 2000 (the "Servicing Agreement").

This  appointment  shall  apply  only  to  transactions  which  the  Trustee  is
authorized to enter into under the Indenture, but in no event shall apply to any
transactions other than the following enumerated transactions only:

1.      The  modification or re-recording of a Mortgage or Deed of Trust,  where
        said  modification  or re-recording is for the purpose of correcting the
        Mortgage or Deed of Trust to conform same to the original  intent of the
        parties thereto or to correct title errors  discovered  after such title
        insurance was issued and said  modification or  re-recording,  in either
        instance,  does not adversely affect the lien of the Mortgage or Deed of
        Trust as insured.

2.      The  subordination  of the  lien of a  Mortgage  or Deed of  Trust to an
        easement in favor of a public utility company or a government  agency or
        unit with powers of eminent domain; this section shall include,  without
        limitation,  the  execution of partial  satisfactions/releases,  partial
        reconveyances  or the  execution  of requests to trustees to  accomplish
        same.

3.      With respect to a Mortgage or Deed of Trust, the foreclosure, the taking
        of a deed in lieu of  foreclosure,  or the  completion  of  judicial  or
        non-judicial  foreclosure or termination,  cancellation or rescission of
        any such foreclosure,  including, without limitation, any and all of the
        following acts:

<PAGE>

          a.   The substitution of trustee(s)  serving under a Deed of Trust, in
               accordance with state law and the Deed of Trust;

        b.     Statements of breach or non-performance;

        c.     Notices of default;

          d.   Cancellations/rescissions of notices of default and/or notices of
               sale;

        e.     The taking of a deed in lieu of foreclosure; and

          f.   Such other  documents  and actions as may be necessary  under the
               terms  of  the   Mortgage,   Deed  of  Trust  or  state   law  to
               expeditiously complete said transactions.

4.      The conveyance of the properties to the mortgage insurer, or the closing
        of the title to the  property to be acquired  as real estate  owned,  or
        conveyance of title to real estate owned.

5.      The completion of loan assumption agreements.

6.      The full  satisfaction/release  of a  Mortgage  or Deed of Trust or full
        reconveyance  upon payment and  discharge  of all sums secured  thereby,
        including,  without  limitation,  cancellation  of the related  Mortgage
        Note.

7.      The assignment of any Mortgage or Deed of Trust and the related Mortgage
        Note,  in  connection  with the  repurchase of the Home Loan secured and
        evidenced thereby pursuant to the requirements of a Residential  Funding
        Corporation Seller Contract.

8.      The full  assignment  of a Mortgage  or Deed of Trust upon  payment  and
        discharge  of  all  sums  secured   thereby  in  conjunction   with  the
        refinancing thereof,  including,  without limitation, the endorsement of
        the related Mortgage Note.

9.      The  modification or re-recording of a Mortgage or Deed of Trust,  where
        said modification or re-recording is for the purpose of any modification
        pursuant to Section 3.01 of the Servicing Agreement.

10.     The subordination of the lien of a Mortgage or Deed of Trust, where said
        subordination is in connection with any modification pursuant to Section
        3.01  of  the  Servicing   Agreement,   and  the  execution  of  partial
        satisfactions/releases in connection with such same Section 3.01.

The undersigned gives said  Attorney-in-Fact full power and authority to execute
such instruments and to do and perform all and every act and thing necessary and
proper to carry into effect the power or powers granted by or under this Limited
Power of Attorney as fully as the undersigned might or could do, and hereby does
ratify and confirm to all that said Attorney-in-Fact  shall lawfully do or cause
to be done by authority hereof.

<PAGE>

Third  parties  without  actual  notice may rely upon the  exercise of the power
granted  under this Limited  Power of Attorney;  and may be satisfied  that this
Limited Power of Attorney  shall  continue in full force and effect has not been
revoked  unless an  instrument  of  revocation  has been made in  writing by the
undersigned.

                                                   THE CHASE MANHATTAN BANK, not
                                                   in its  individual  capacity,
                                                   but   solely   as   Indenture
                                                   Trustee under the  Agreements
                                                   and the Indentures

Name:                                              Name:
      --------------------------------------

Title:                                             Title:
       -------------------------------------

<PAGE>

STATE OF                     )
                             SS.
COUNTY OF                    )

        On this __ day of ____________,  2000, before me the undersigned, Notary
Public  of  said  State,  personally  appeared   _______________________________
personally  known to me to be duly  authorized  officers of The Chase  Manhattan
Bank that executed the within  instrument and  personally  known to me to be the
persons who executed the within instrument on behalf of The Chase Manhattan Bank
therein named, and acknowledged to me such The Chase Manhattan Bank executed the
within instrument pursuant to its by-laws.

                                                   WITNESS my hand and  official
seal.

                                                   Notary Public in and for the
                                                   State of

After recording, please mail to:

Attn:

<PAGE>

                                    EXHIBIT C
                           FORM OF REQUEST FOR RELEASE

DATE:

TO:

RE:            REQUEST FOR RELEASE OF DOCUMENTS

In connection with your administration of the Home Loans, we request the release
of the Mortgage File described below.

Servicing Agreement Dated:
Series #:
Account #:
Pool #:
Loan #:
Borrower Name(s):
Reason for Document Request: (circle  Home Loan    Prepaid in Full

                                                          Home Loan Repurchased

"We hereby  certify  that all amounts  received or to be received in  connection
with such  payments  which are required to be deposited  have been or will be so
deposited as provided in the Servicing Agreement."

-------------------------------------
Residential Funding Corporation
Authorized Signature

******************************************************************
TO CUSTODIAN/INDENTURE  TRUSTEE:  Please acknowledge this request, and check off
documents  being  enclosed with a copy of this form. You should retain this form
for your files in accordance with the terms of the Servicing Agreement.

        Enclosed Documents:  [  ]   Promissory Note
                                    [  ]    Mortgage or Deed of Trust
                                    [  ]    Assignment(s) of Mortgage or
                                             Deed of Trust
                                    [  ]    Title Insurance Policy
                                    [  ]    Other:  ___________________________

Name

Title

Date

<PAGE>

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